Every year, at the end of the year, I review the year’s spending. I’ve done this for over 20 years, and I learn different things every time (here are my lessons from 2021).
Reviewing our spending by category, or even thinking about what category to include, means that I can really look at where my (our) money is going. Which can prompt further reflections, like: is this where I want my money going? Does that seem like a good amount of money to spend on that category?
It’s also good to know how much money it takes to support our lifestyle. Since finding out about FIRE, I realize this exercise is even more helpful. After all, once I have 25 times (or 30, or 33, depending on how conservative I want to be) my yearly spending saved, financial independence has been reached. So, every year, I can ask myself: how close am I to reaching financial independence?
I review the yearly spending at the end of December or, sometimes, January 1.
My early 2023 was disruptive and busy. I’ve spent a long time chewing over my thoughts, so here’s what I took away from the numbers, 8 months later.
Spending categories are fluid
Although I do break down our spending into…checks list… 43 categories (don’t worry, I won’t make you read them all), there is a lot of variability as to what purchase goes into which category.
For example, our spending on gas nearly tripled this year. Is it from our road trips? In which case it should go under travel. Or is it from using my father-in-law’s car while ours was in the shop (in which case it should just be under Gasoline)? I was not interested enough to check the dates of purchase against our trips to make the division; it’s all just spending on gas.
Similarly, Mr. PiN buys some groceries for his dad, even though his dad has all his meals provided by his facility. Sometimes his dad pays him back, sometimes he doesn’t, I can’t keep track. When I know the food is for him (when we have it delivered), I track the spending under ‘Gifts;’ but if Mr. PiN buys that with our regular groceries, that’s where it is counted.
That’s a long way of saying: these categories aren’t strictly accurate. However, I still find it helpful to some idea of how we are spending our money.
What was different in 2022?
I can see that our utility bills have been rising every year, though in the grand scheme of things, not by all that much.
Our grocery spending fluctuates widely each year, more likely because of issues with spending categories than because we buy more or less groceries. In 2022, we averaged $46 more per month than in 2021.
Mostly, our travel spending rose considerably this year. In fact, the rise in our monthly expenses from 2021 is almost entirely due to our travel expenses.
Is our spending appropriate for us?
This is may be an odd-sounding reflection.
However, it encompasses the questions of: are we spending on what we value? If the price went up with inflation, do we still value this enough to keep spending on it? Do we feel we are getting our money’s worth? Do we want to cut back?
Utilities did go up
Overall, I feel we spend much too much on utilities. This may be a function of remembering the days when I lived in a smaller, more efficient apartment, and my bills were much, much lower.
However, I enjoy having warm water, clean clothes, and lights to read by. I earn enough that we can pay more to keep the house comfortable for us in winter, and I can afford to run the air conditioning during my allergy seasons so that I can breathe.
I might look into shopping rates when life quiets down, as I certainly wouldn’t mind reducing our bills by 5 to 10%. On the other hand, I am not motivated enough to make myself uncomfortable (and inefficient) to possibly save a relatively small percentage of our monthly budget.
Grocery spending varies, but remains high
I continue to be amazed at the amount we spend on groceries. Especially considering that we hardly ever eat meat.
Of course, we don’t eat out much. And apparently we have been subsidizing my father in law’s snacks.
We will see what happens for 2023, now that Mr. PiN has a bank card to pay for his dad’s groceries out of his own account.
Mr. PiN and I have had “discussions” about the groceries in the past, which usually end with less tasty food on my plate. It’s not something I feel like dealing with again this year. Instead, I will work on appreciating the healthy food that is cooked for me, and the paycheck that lets us afford it.
We spent our entire travel budget
Every year I tentatively put aside a good amount of money for travel. This is to cover trips abroad, and also trips to see my parents, or other relatives. We have never actually spent the entire amount, though we came close the year we took 3 big trips.
At the end of 2021, I had hoped to increase our spending on travel, which we did.
After 2 years of severely restricted travel, and significant under-spending in this area, we spent our entire travel budget in 2022. Actually, we overspent by $19 a month.
Unfortunately, we did not enjoy our 2022 travel spending as much as I would have expected (the year with 2 trips to Europe and another to Florida was much nicer).
I can see why blowing the 2022 travel budget wasn’t quite as much fun. The money went for 3 car rentals when our car was in the shop, a trip abroad where we both caught COVID, and 2 weeks in a hotel while my dad was in the hospital. We did have a nice off-season trip to Maine, too, which was cold but not bad. Really, none of our trips quite lived up to our vacation expectations.
Another way to think about this: we spent our money on 4 weeks of lodging, 2 weeks of a car rental, 1 domestic flight and 1 international flight (2 tickets each). That’s a lot to spend now, while I’m working; but I might want to travel more when I retire. I’m wondering if I need to increase my travel budget for retirement.
How close am I to financial independence?
This answer changes every time I update my net worth and calculate my annual expenses.
At the end of 2022, my numbers were worse than the year before, but improved from the year before that.
If I ignore the fact that I don’t include health insurance premiums in my calculations, or taxes, or money for expected costs (like a new roof), I am well past my FI number.
If I want to be more realistic, I probably had 20 times my yearly (projected) spending saved by the end of 2022. The market has improved, and I have saved some more money, so I think I now have 21.5 times my yearly (projected) spending saved.
I am close, but not there.
I can spend less now (and save more), or keep working. If I keep working a bit longer, I can reduce the number of years I have to pay for health care, invest more for retirement, and let my investments compound a bit more.
Of course, I don’t necessarily need to keep working full time to achieve these goals. Something to consider as I enter the contract negotiation season at work…
Do you track your spending every year? If you do, what lessons do you take away from it?
I faithfully track our spending every year. It has made retirement planning so much easier. I see where we spend our money now, and can estimate if we’ll spend more or less on each category when we’re not working. As you say, it’s interesting to see how things fluctuate from year to year. For me, it has been very interesting to see how things have changed now that our daughters are grown up and finished school.
Yes, keeping track of spending does make it a ton easier to plan for retirement. Even though our monthly spending varies year to year, in general, we are at least in the same ball park.
As for changing patterns over the years, spending on the (step) son dropped off the charts a few years ago. 3/4 of the way through 2023, I suspect our travel spending will be down a lot, and my Kindle spending will be up a lot for 2023. We’ll see.