Achieving financial independence early isn’t easy. You don’t need an exceptional income to do it, but you do need exceptional dedication to the process (and PATIENCE; lots and lots of patience).
Many believe that we can only aim for FI because I make a healthy salary, and while that is true, our household income is only slightly above average. There are lots of people with a lesser combined income that have the same lofty FI goals.
I want to emphasize, though, that our real progress is due to something far more powerful; controlling our expenses.
This is the main reason that this blog focuses so much on expense reports.
At the beginning of our journey to FIRE, we cut our spending by about half . This has by far been the most powerful tool to increasing our savings rate to nearly 70%. In fact, we are on track to saving $80,000 this year because of it.
Additionally, we haven’t suffered day-to-day at all. Instead we have thrived.
Hosting Bob and Kelly
In August, we hosted our friends Bob and Kelly for a couple of days. We spent $0 and had an amazing time.
Not surprisingly, much of our fun centered around food.
For the last couple of years, in our quest to reduce restaurant spending, Mr. TJL and I have made it a mini-mission to learn to cook. In fact, we kicked it up a notch and decided that anything that we would normally eat at a restaurant, we would learn to cook better. Since, we have become near experts at pizza, hamburgers, and fish and chips. We eat healthy food too, but sometimes you just crave the fat. Now, we find ourselves unsatisfied when we do eat out, since we can do it so much better (and cheaper!) at home.
Bob and Kelly are pretty down home folks, who would rather sit and talk on the front porch in the evenings so entertainment was free (and fun, because we roll like that too!). Mr. TJL showed off his new cooking skills for every meal, including his famous biscuits and gravy*. It was such a joy and relief to convene at the dinner table instead of a crowded restaurant.
*Note: Famous? Well maybe not, but he is awfully proud of it.
I guess you can say that we spent money on food, but each meal was prepared with food that we already had on hand, so it still felt pretty damn cheap.
On the last day, Mr. TJL took them on a tour of our beautiful town, including an art tour that spanned half the valley. He also may have killed them by making them walk the full mile to pick up our daughter from school. Maybe we should have laid off the 5,000 calorie a day diet.
Other Thrifty Things
I gave all three of us haircuts this month! Little Miss TJL went the shortest, a cute little bob in time for school. Mr. TJL and I took about 3 inches off. Cost = $0!
I hemmed a pair of jeans! Being super short (like under 5 feet short), I can never find pants that fit in the length. Every time I hem, I have to re-learn how to use the sewing machine, but I hope to get better and faster with time.
Sock it up to August Spending
August proved to be slightly more expensive due to a trip to Costco. Quarterly, we stock up on household items like toilet paper, dog food, and flour (25lb bags!). Generally, we spend ~$400 more than our normal household and groceries budget of $700 per month. August was no exception.
I spent my summer hiking the mountains of Colorado**. Every week, I blew through another pair of socks. I wear merino wool socks, like Smartwool, year-round. This month I had to buy four new pairs of socks. Bought new, they cost about $20 per pair. I found a great deal at Sierra Trading Post*** and ended up paying $7 per pair. I also bought Mr. TJL six pairs of socks at Costco for $10. In all, we spent about $40 on socks this month.
**Note: I know, tough job, right? To be honest, it was a little hard and I admit to buying a 8lb bag of Epsom salts.
*** Not an affiliate link. This blog is not monetized, I only link to products I love and use.
The Expense Report!
In the tables, I produce a monthly and year-to-date summary of expenses, the monthly spending average, and the budget. I keep track of progress and spending behavior. It is much easier to detect any problem areas by keeping careful track of where the money is going.
Summary of August 2017 spending
Green highlighted fields indicate income. We have four sources of regular income; salary and related benefits, rental income, interest and dividends and Mr. TJL’s business income.
Orange highlighted fields indicate expense and are denoted as a negative value in parentheses. Our regular expenses are categorized by monthly expenses and yearly expenses. The combination are our total operating expenses. Additional expenses are paycheck deductions of charitable contributions, health insurance and income taxes.
Blue highlighted fields are our investment and savings contribution.
The bottom line is the balance.
Our monthly budget is tabulated in the far right column.
Our overall income was less than normal. In August, the art business had fewer sales than expenses. Never before has the business operated in the red. Fortunately, this seems to be a timing issue and September is already looking quite profitable!
Despite a decrease in income and an increase in expenses, our savings rate was >68%!
The Jolly Ledger’s Income Statement
I prefer to manage our finances like a business so I track all sources of income and expense. Below are the details for the monthly summary.
2017 FIRE Progress
I am on-track to retire in four years at age 45. To visualize my progress, I chart my expenses versus my passive income. Passive income is calculated as 4%, the safe withdrawal rate, of my investment balance including holdings in 401k, traditional IRA, Roth IRA, and brokerage accounts.
Due to the contributions and earnings on our investments, our passive income is $1,550 (as of 8/1/2017) per month. In retirement, we expect to withdraw $2,733* per month.
So far this year, our spending has averaged $3,500 per month. This is due to a large unexpected expense in January, but the chart insinuates that we have indeed been spending more than our desired $3000 per month.
Expenses tabulated in the chart combine the household expenses with the business expenses, so it does not reveal our true cost of living, which has stabilized to near $3000 per month. I am hoping that this level of spending becomes our “norm”.
*Total retirement spending is expected to be $40,000 per year. We will receive $7,200 per year in rental income. Our investments will have to provide us with the remaining $32,800, hence $2,733 per month. If Mr. TJL’s art business provides any income, we will be able to withdraw less, but we are conservatively planning as if we will not make any income in retirement.
Do you think it is an excessive income or decreased spending that accelerates your FI goals?