Spring is finally here! It’s time to say goodbye to the cold and snowy winter and welcome nicer weather. By this time, many people have dropped their New Year’s resolutions but not you! You’ve committed to make changes in your life this year and you’re going to stick with it the same way we’ve committed ourselves to bringing you this blog.
We didn’t want to end the first quarter without diving into what can be a scary topic to many. This is the equivalent of going to a nudist beach with the Mustachian couple. We’re going to get financially naked for you! That’s right, the Enchumbao household will be unveiling their spending formula for happiness. To give you a better view of our financial picture, we’re a working couple with middle class salaries with no children (yet). We’re also very disciplined savers. We can get by in life with a lot less and still be happy, and when we do splurge, it’s usually on experiences instead of materialistic possessions.
You might be wondering why we choose to put our expenses out in public. Although some people are happier with even less than what we spend, we want to show that the majority of Americans can lead happy lives with a lot less, enchumbao style.
Many of our friends, family and colleagues wonder how we can manage to travel “so much” when they can barely afford one vacation a year. It’s all about priorities and the choices you make. If you fall for the peer pressure and need to have certain things to appear being well off, you’re going to struggle no matter how much money you make.
Financially speaking, 2014 was a great year for us. It was also our first full year as a married couple. As we mentioned in a previous post, our expenses must reflect our values and bring us true happiness. We’re conscious of our spending because it’s our life energy. One main goal of spending consciously is to able to reach financial independence as soon as possible without sacrificing the present. Our formula for Enchumbao is to live in the moment with a line of sight for the future. After all, if you don’t have a target to aim, how are you supposed to even shoot in the right direction? One way to do this is by knowing how your money is being spent.
Now, let’s get ready to talk some numbers and reveal our 2014 spending. We divided our expenses into three buckets: Essential, Discretionary and Gift/Donations. If you have any comments or questions, feel free to comment at the end of the post or send us an email at firstname.lastname@example.org.
$12,976 or 28% of our total expending went to essential expenses. These are expenses that we deem necessary to live. Basically, if all hell breaks loose, these are the expenses that we need to meet in order to survive. We’re happy to know that we could have survived on less than $13,000 last year! Wondering how much you spend in this category? We’re going to have a little exercise by the end of this blog post to get your juices flowing. This is the most boring part of your expenses. The products and services that you might not be excited about paying for but must. The good news is that if you decide to pursue financial independence, this will all be background noise once you reach it.
We technically spent more on rent than $3,585. The reason why we use this number is because we take the profits from the rental property to offset the rent. The way we see it, we choose to have a rental property at this time instead of buying a home. We consider it a wash, a very good one indeed because it also keeps us mobile friendly. The tenants take care of the lawn/snow removal in our rental property and our landlord takes care of all the maintenance in our apartment, so there’s no lawn mowing or driveway snow plowing for us to do. Who said renting can’t be more advantageous than home ownership?
We spent 53% of our money or $24,646 on discretionary expenses. Although these expenses were not necessary, most of them brought extra happiness into our lives. These is where most of us can get in trouble. At some point the return on extra purchases diminishes and can bring stress, more than anything. They’re could be lots of wants in this category that people might categorize as needs. The key here is to avoid spending money that you don’t have. A word of caution here is that if you’re spending a lot in discretionary expenses and not saving and investing a substantial amount of your income, you’re living beyond your means, according to an enchumbao standard.
We expect this expense to be lower in 2015, due to the fact that we drastically reduced our commute time and have more time to cook yummy food at home. By default, we’ll see an increase in the grocery bill that will be offset by a reduction in restaurants since we’ll be eating out less. We eat organic when it comes to The Dirty Dozen. We prefer to spend more on healthy eating now than on prescriptions later in life. At least we can spice up the meals. We also eat fish and have an extremely low dairy consumption. We frequent restaurants that offer a variety of international cuisines and provide quality. That by default, tends to be more expensive.
We are Latin music concert goers. Although many of our favorite artist weren’t touring last year, there were some acts that we really enjoyed. Romeo Santos, the King of Bachata, came to Philly and that was phenomenal. We also ended the year with a bang, dancing merengue until 6 AM to the beat of Fernando Villalona in the DR. We could have omitted the names to save you the trouble of wondering who these people are but that’s what makes America a great place. Our differences brings authenticity to our journey. Below is a video of Romeo performing bachata, a rhythm native to the Dominican Republic.
*Fees, Interest and Bank Charges
Oh fees… A sour note on anyone’s budget. I’d rather continue talking about music. We paid $3 in fees last year. This is because an automatic debit charge didn’t go through when my debit card expired. Our credit union charges $2.95 when there’s no monthly activity on the debit card. Fees are the blood sucking vampires that can diminish your life energy without you even realizing it. After you become debt free, you don’t ever want to pay another penny in fees, ever again. The beauty of getting rid of debt once and for all is that you get to be on the other side of the equation. You no longer have to pay interest, therefore, compound interest begins working in your favor, instead of against you. Your money starts making interest for you. It’s the reality of an investor, it’s a shift from being a consumer to a producer.
Traveling is a very important part of our budget because we love to travel. It provides us with life experiences that enrich us as human beings. When we travel, we get to meet new people, places and cultures. I didn’t realize this before. I thought that buying a tangible thing was a better use of my money than going on a trip because, in the end, I still had the object with me. Boy, was I wrong! Once I realized that life experiences brought me more value and happiness, everything changed.
By traveling, we also get to realize that learning about each other’s differences and similarities makes us stronger. Mrs. Enchumbao is doing a great job leading our travel section and we’re excited that we’re able to share our journey with you.
This year we celebrated our destination wedding in the DR with close friends and family. We didn’t have all the bells and whistles but had the essentials. Everyone had an awesome time and partied hard. After all was set and done, we managed to break even! Curious to know how we did it? Ask us about it enough and we might put out an article on how to have the equivalent of a $25,000 wedding for $0, nada.
If you add up the essential and discretionary expenses, we spent $37,622 to be happy last year.
Gifts and Donations
This one is very dear to us. Last year, 19% percent or $8,980 went to this bucket. We’re happy that we are at a point in our lives where we can help others and make a difference. No one gets somewhere by themselves. We got here because there were others helping us along the way. Our parents sacrificed a lot for us to be able to get an education. Also, if we wouldn’t have gotten college scholarships, it would’ve been extremely difficult to go to college. It’s important for us to lend a helping hand and pay it forward.
Last year, we also started a college graduation gift bucket for our nieces and nephews. Their cash gift for college graduation is based on pay for performance. The higher the cumulative GPA upon graduation, the more they receive.
Aside from gifts to friends and family, a big chunk of this money goes to help our parents and donations to charitable causes. I wasn’t always able to help my parents financially. It wasn’t because I wasn’t making enough money but because I was living the typical American lifestyle that can drain your pockets and leave you with very little in the budget to help others. At some point I thought: if I don’t help them now, when will I? When Mrs. Enchumbao and I met, we made it a priority to help our parents so that they can live a more comfortable lifestyle. We started with what we could give and increased it over time. We’re hoping that once we become financially independent (projected to get there by March 2019), we’re also able to do more for charitable causes through this blog.
Including gift and donations, our total money spent in 2014 came to $46,602. The number is below what we budgeted for, so we feel very accomplished. Every January 1st we sit down, discuss our goals over brunch, and challenge ourselves to reduce the budget, if necessary. It’s our minting day in heaven!
Aside from property taxes, we purposely left the rest of the taxes out of this report for simplicity. We realized that we pay much more in taxes than we thought, and our goal is to find legal ways to minimize the bill. Financial Samurai, a personal finance blogger, does a great job explaining how big the American tax burden really is. We highly encourage you to read it here. It’s an eye opener!
Ready for that exercise we talked about at the beginning? If you haven’t done this, we challenge you to track your expenses. You can use a money management software like Mint or any of other of your liking. After you track them, categorize them and see how much you really spend under each category, primarily under the Essential category. How much money do you need to survive for a year, if you were to lose your primary source of income? Do you have enough savings and liquid investments set aside to cover you in that scenario?