January was a very hectic month where I was planning my trip to San Diego to take the PACE Professional Boundaries course and getting my documents ready for my non-lucrative visa to Spain.
I reported my income for January in my month income post and in this post I’ll talk about my spending. I always like to review my spending and see what went well and what I could improve on.
It’s less necessary for me to maintain my frugality since I no longer need to save for retirement but it’s still a good habit to master. Frugality is necessary to reach your financial goals but unless you are inherently frugal it’s perfectly fine to loosen your purse strings.
You’ll see how frivolous I am with my spending after you read this post – $400 for coffee in one month? Absolutely.
Expenses January 2018 – $3,269
I spent $3,268 in total this January and 34% ($1,125) went towards my visa expenses. Applying for a long-term visa isn’t generally this expensive but I have hired an immigration lawyer to handle the majority of the work because my time is more valuable to me.
I’ll go over the breakdown of each category shortly. In the image below you can see where each dollar went January 2018 for my expenses.
Necessary Expenses
I keep really detailed spreadsheets of my expenses every month so that I can recognize any lifestyle creep and nip it in the bud before it nips me in my hairy bud.
I do all of my spending tracking using YNAB – one of the best things I have ever come across for shortcutting the path to financial independence and unfortunately one of the things I have never seen another physician use.
Using YNAB I can identify my basic expenses – the expenses I would have in order to enjoy the lifestyle I currently enjoy. For me these include:
- groceries
- housing expenses
- internet
- healthcare
- exercise
- financial adviser
For January 2018 I have $1,247 of basic expenses. Though my grocery spending has crept up over the past few years, my housing expenses and utilities remain the same.
What Can I Cut Out?
I play this scenario in my head most months – what spending could I cut out without feeling like I’m living in poverty?
For me that’s usually my coffee addiction, having drinks at a bar, and spending money on my various projects such as this Spain visa and my other side projects.
Just 2 years ago I would have never spent money on coffee like I am now or dining out. 2 years ago I was still in saving mode and was trying to achieve my financial independence number.
They say there is no such thing as a financial independence number – that it’s a journey not a destination. I beg to differ. I think it matters how you get there, sure, it would be a shame to stress yourself out and kill yourself trying to achieve some number which abides by some supposed financial rules. But I don’t see how we can get to where we want to go without concrete goals.
I play the what-can-I-cut-out game because whatever is left is what I need to cover with passive income. Rounding up the above number to $1,500/month I would need somewhere around $500,000 of conservative investments.
Yes, a person – a physician – can retire on less than $1 million. Guys, don’t believe what you read in mainstream media. Don’t believe that you’ll need millions to retire. Only work for those millions if your work truly means something to you but don’t do it because you have to.
Groceries – $425
This category has been all over the place with an average of $348/month since December 2015.
Ever since I retired in 2016 I have been cooking more which has been my unnecessary excuse to spend more money on groceries.
This month, March 2018, I have started breaking down my grocery spending to see how I can reel it back in. Not because I have to but because it’s important to me that I do more with my money than digest it and shit it out.
Entertainment – $425
This is my hodgepodge of spending when I go eat out with friends, shoot pool, or have drinks.
If I am under $500/month in this category then I’m happy. Right after retiring I sensed the lifestyle creep and was spending close to $1,000 every month on entertainment.
Coffee – $306
I tip REALLY well. The majority of my coffee expense is the tips I leave. I do a lot of my work out of a few local cafes so it’s important to me that I pay for all the time I spend there.
When you tip well you also get to know people really well. They appreciate you, they open up to you, and you make amazing friends.
I realize that to some people this will seem wasteful but this is what’s interesting and creative about each and every person’s financial plan – it’s unique to you and it should make sense to you.
Forget everyone else! If you are spending on what matters to you then you will enjoy earning your dollars that much more.
Health Insurance – $274
I’ll soon be getting rid of my health insurance. In fact, I already got my health insurance in Spain starting June at the absurd price of $70/month which is for the deluxe package. It includes multiple sex change operations and/or penile enlargements I think.
I wanted to visit my primary care doctor the other day to have her fill out a health form I needed for my Spain visa and the estimated cost of that visit was $150.
Fortunately I am now an independent contractor which means I have a sole proprietor designation for tax and legal purposes. As such I can directly write this money off against any income I earn.
However, to put this in perspective, spending is spending – it’s money that’s gone. So it would be silly to say for example “oh it doesn’t matter how much my health insurance is because I can just write it off directly against my income”.
No. It does matter. If I had cheaper health insurance I would still write it off and sure I might then have a higher taxable income but that doesn’t mean that the IRS is going to see a penny of that in that year. I could take the extra money and tax strategize it into my individual 401k and either avoid or delay taxes.
Is My Spending Sustainable?
Sustainable income is income which we can handle in perpetuity without placing our personal finances at risk.
If you have a CD which earns 2.5% a year and have $500k parked there then you could enjoy a gross passive income of $1,042/month or $12,500/year. If you don’t touch that money and only spend from the wages you earn doing independent contractor work then you are a step past financially independent. You now are earning enough doing work you hopefully enjoy while your money is growing more and more.
Sustainability also has to do with how our spending affects those around us. A simple example might be the ability to pay less for a bar of chocolate but choosing to pay more so that I can make sure that it was sourced sustainably.
I could brew my own coffee at home, bunker on my couch, and earn a ton of money doing telemedicine and stash all of it in a savings account. But that kind of behavior would prevent a local coffee shop from succeeding and invite a shitty cafe like Starbucks to come in its place.