How Much I Spent January 2017
The reason I post my expenses is to analyze my spending, whether it’s in line with my goals in life, whether I am spending on the things that matter most to me or whether I am spending on what advertisers and peer pressures want me to spend my dollars on.
I doubt that the dollar amount I spend of my expenses will be of any help to a reader, everyone’s situation is unique. I think the commentary on my spending is perhaps more worthwhile for both author and reader.
Expensive Ass January
It’s been a long time since I’ve spent $7,000 in one month. In the picture above I highlighted the reason why my expenses for last month were so high. I spend approximately $3,600 in order to pay for a new business venture of mine, which I’m quite excited about.
Also in January, I had to spend approximately $1,600 for a special assessment which my HOA management company assessed. Because this is not a regular HOA due, I suspect that I will be able to deduct a portion of it against my taxes.
In January I was also entertaining friends from out of town and I’ve got a bit too trigger happy with my card. In total, I spent a little over $600 dollars just on entertainment.
Spending on entertainment
I have been thinking a lot about this particular budget item. In the past I have always tried to minimize this because it’s perhaps the most wild category for most of us.
It depends on every person’s specific situation, however for those who still have a big burden of debt and don’t have a whole lot saved or invested, it’s important to curb the entertainment category is much as possible.
If we spend the majority of our income on paying down debt and purchasing investments, then we are able to take advantage of the power of compounding in order to make the debt shrink and the investment portfolio grow.
Once you have $100,000 invested, you can see how quickly it starts growing as dividends get reinvested and fund values appreciate. It’s that much more powerful when $100,000 becomes $200,000 and so on. I have discussed this in previous posts, without much effort on my part, when the market is doing well, I witnessed my portfolio growth day after day.
I don’t think there’s anything wrong with spending on the things that bring you joy, whether it’s a vacation or it’s spending money on dining out with friends or a hobby.
As long as you recognize that the money that you spend now won’t have any purchasing power in the future versus the same money that you could invest either in yourself or into a mutual fund or into a business or into real estate. The latter expenses will generate more dollars for you in the future, the former simply sucks them up.
Your eventual goal might be to do less clinical work and do more teaching, in order to achieve this it’s perhaps better for you to have more of your income set aside now so that it can grow into a healthy sum later when you’re ready to retire.
Or maybe you’re tired of being in attending and would like to cut back on your hours drastically, in which case once again, the money that you spend towards entertainment is less likely to help you achieve your goals.
So ask yourself, is the money you are spending on whatever category aligned with your ultimate goals? If not then start making incremental changes. Measure your progress month-by-month until you are satisfied.
I talk about working backwards from your goals quite a bit. For example, back in 2012 I decided that I did not want to work after age 41 unless I wanted to. So I set out to redirect my dollars from spending on entertainment and other elective categories to investing in myself and investing in wealth producing assets.
There have been plenty of months when I decided that I would rather spend money on a vacation or on expensive dinners or some gadgetry. I try to never be hard on myself or create an undercurrent of guilt. However I always remained realistic and was able to mathematically show myself how many months or years that certain expense would delay my goal towards early retirement.
Spend on yourself, invest in yourself
If I only focus on the dollar amounts then I might perhaps make the big mistake of not investing in myself; this is what a cheap person does. Spending on myself has to do with buying nicer clothes and nicer cars, getting massages and treating myself to whatever my heart desires.
Investing in myself has to do with spending money on experiences for educational courses or books, podcasts, lunches with experts in my field of interest or on conferences. This is what a frugal person does.
Last month I spent $3,600 in order to start my online medical practice which will allow me to easier achieve my goals of financial freedom. Because I am in the fortunate position of not needing to set more money aside for my future, I am now able to take the money that I am earning and invest more of it back into myself.
Putting $7,000/month into perspective
In order for me to earn $7,000 from working at Kaiser Permanente as a family medicine physician I would have to earn a gross income of at least $10,000 for that month. Which means that I would have to work 25 hours a week.
In order to make this income passively, I would have to invest nearly $2.8 million into a low-cost mutual fund. To earn this $2.8 million I would have to earn a gross income of over $4 million. That means I would have to work full-time for 19 years to generate that income, invest it wisely and assume that I will have no catastrophes during this time.