You Have Your Spending Under Control. What Now?

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The math to reach financial independence is very simple: spend much less than what you make, save the rest and at some point your investment returns will be able to cover your annual expenses. If you’ve been building a well-oiled FI machine for a while, there are times when you might feel that you need something new to aim towards. Things get to slow down once you stop living from paycheck to paycheck, and investing gets a little boring, as it should. But the things that slow down are the ones that were stopping you from looking at the big picture.

At first you where excited to find out that you don’t need to hold a job until you’re 65. You started to make better choices when you got on the FI path. You cut your spending because you understood that these were sacrifices needed to get ahead. After you have your essential expenses covered: shelter, food and clothing, everything else is a luxury. Gone are the days of:

  • Cable TV
  • Smartphones for all family members when the bills are behind and you have debt.
  • Eating out and having multiple glasses of wine at trendy restaurants, while barely making enough to pay the bills.
  • Spending lavishly on holiday gifts with money that you haven’t earned.

You were a fool, but you made sure to cut these, and many other expenses to get out of debt and shine like a superstar.

You’re now at a point in your life where you have taken the necessary steps to get your spending under control. You now know what it’s going to take to become FI. The internet articles on “Tips to get out of debt” no longer suit you. You’re debt free! You live below your means.

You’re wondering at this point if you could even reduce your expenses some more, without cutting into your way of life. I can tell you one thing: there’s always something to be done in the “Expense Accounting Department”. That’s the little department in your household budget where you get work your magic to get ahead.

At the Enchumbao household, we always take the long-term view on life and that applies to many financial aspects as well. If we can eliminate a monthly bill and pay it once, annually, we do it. Why? Because to us, time is the most important currency we own. I don’t want to have to see a bill 12 times a year, when I can take action on it once, and be done with it. That frees up time to think about other important things. It gets rid of the mental clutter and prepares us for exercises like the following.

If you’re in this situation, without a sense of direction on where you can cut further, here’s a tip: take a look at your expenses for the last 12 months. See what might jump out at you. Do you see room for improvement in any areas? If yes, than make it a goal to tackle these in the upcoming 12 months. Once you make improvements in those areas, rinse and repeat.

There’s always room for improvement in the business-like run operation of the Enchumbao finances. Every 4th quarter, we start to estimate the budget for the upcoming year. We look at the overall expense categories and pick one or two categories that we can examine for next year.

For example, one of our financial goals this year was to examine the insurance coverages we were holding and from that, the Self Insurance Experiment was born. After researching, we were able to determine that we could self insure a few items and found savings of over $500 on auto and rental property insurance coverages. How long has it been since you examined your insurance coverages?

As we prepare to discuss our budget for next year, travel hacking is becoming a popular topic at the dinner table, and will probably be our number one priority in the “Expense Accounting Department”. We’re excited to see what kind of savings we can expect on that front.

Now that we no longer have to worry about the little expenses because we live happily and way below our means, we have the luxury to step back and look at the big picture. Getting to this point was not as hard as I thought it would be, and understanding the value of time and its relationship to money was vital in our journey.

We don’t get on shopping bans because we don’t shop just to shop. Do we want to be in an office working extra hours and delaying our FI date by spending on certain items? If it doesn’t add value to our lives, the answer is simply NO. Knowing that having material possession doesn’t bring you true happiness is your best weapon against consumerism.

You can also do the same with your investments and set investment goals for the upcoming year. This year, we started reviewing our asset allocation to make sure that we have the proper allocation needed to retire in less than 3 years. The rules to becoming FI haven’t changed, you’re just at another level. Relax and enjoy a cappuccino. The picture is looking brighter than ever and you’re in a great place with great company.

Thank you for reading and please follow us on social media to stay in touch! We’re very active on Instagram, Twitter and Facebook.

What stage of the FI journey are you at?

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Mr. Enchumbao

Mr. Enchumbao retired at 44. He worked for 13 years at Vanguard, primarily as a Communications Project Leader in the Institutional Division, helping people save for retirement.

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2 Responses

  1. LM says:

    Constant inprovement is the key to staying a head. The day you stop challenging and revisiting all these things you are dead in the water! I appreciate your annual effort to laser focus on one category.

    In a future article, I’d love to hear your thoughts on specific investments or accounts you are allocating with as a follow up to the asset allocation discussion.

    • Great comment. Yes indeed! It’s a continuous process.

      Sure, we’d love to share our asset allocation in more details when the time is right. One key aspect has been understanding and having good reasonings behind your allocation decisions. If I can’t articulate to my significant other why I think one approach is better than the other or why we should allocate funds to an investment, then I’m just speculating and setting ourselves for failure.

      Thanks for dropping by my friend.

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