I shouldn’t lecture you about personal finance without practicing what I preach. In the interest of honesty and transparency, here’s a little bit of information about my own financial situation.
Financial Independence? What’s that?
For those of you unfamiliar with the financial independence movement, it is a radical new way of thinking about early retirement that involves living below your means, saving the extra, and exiting the rat race at a young age. The basic, driving principle is: if you can save 25x your annual expenditures, you can live off the investment returns from that money indefinitely and never have to work another day in your life. When I started my job, I began reading blogs about financial independence and became fascinated with the concept. Looking over my accounts, I realized that financial independence could easily be a reality for me! As a natural saver, I have always put away anything I don’t spend into my savings account, and get a warm fuzzy feeling when I see the numbers in it rising. Having a more concrete goal in mind for all those savings would only motivate me further!
While some followers of this movement tend toward extreme frugality in order to retire at the age of 30, I found that I didn’t really buy in to that lifestyle completely. While I definitely believe in living below your means, I’m fortunate enough that my means are a lot higher than rice and beans for every meal, and I want to be able to enjoy some creature comforts in life. I also feel really passionate about my career, like many others who work in technology. My goals are more moderate–I’d like to commit to a solid couple of decades of rewarding work, and retire around age 40.
Part of having healthy finances is keeping an eye on your expenditures. This is especially important for someone interested in early retirement, like me, because increased spending extends the time I will have to keep working! I consider myself a pretty reasonable spender, though I do have my vices. The chart below illustrates some data I’ve collected on my spending and saving habits:
This shows where every dollar I take in as monthly income goes. You can see from the chart that I invest heavily in my 401k, and also put money into a Roth IRA. The “Other Savings” category includes my savings for my shorter term goals, which go into a regular savings account. I haven’t quite figured out what those are yet, but this is something like a “House Downpayment Fund.”
Taxes are what they are. Uncle Sam must have his share! My major expenses that I control more directly are food and rent. Which makes sense! I gotta eat, and gotta have a roof over my head. I have tried to keep my housing expenses low by picking a reasonably-priced apartment and sharing my living space. Lucky for me, Texas rental prices are nowhere near as sky-high as the Bay Area! I’ll be honest, I’m not nearly as frugal with my food spending as some other finance bloggers, but I’m not totally crazy with it either. I get a lot of value out of sitting down with a good friend over a hot meal, and though I often try to host parties at my apartment, sometimes it’s fun to go out!
The remaining categories are things like “Shopping,” which includes clothes, electronics, and other semi-necessary purchases, and “Miscellaneous” which could honestly be retitled as “Travel”. Utilities aren’t huge, I keep my bills as low as I can without freezing my butt off or boiling in the Texas sun. Car expenses can get annoying, but I keep them pretty low.