As I have written many times before, I spend the time around New Year’s going through the spending for the past year. I also calculate my (our) net worth, which has been much more exciting in the past few years.
It’s mid-January, and I have, in fact, gone over the household spending and net worth.
Even though I waited until the very end of 2024 to review our 2023 spending, I thought I’d go through my thoughts on our 2024 spending and finances a little sooner.
How did we do?
We spent a little bit more than last year
Once we skip the gyrations of little consequence, (we spent less on groceries and more at drugstores and for home repairs), I find that the main driver of our increased costs were twofold: paying more in taxes (driven by selling some stocks in our taxable investment account), and spending more on travel.
I don’t really care about the former–selling stocks for a profit means paying taxes. For the latter, we still didn’t max out our travel budget for 2024, so I am fine with it.
We spent a little more on other things that were really worth it: Door Dash to give Mr. PiN a break on days when he’s dealing all afternoon with his father’s business, pickleball (it makes Mr. PiN happy, and it’s not like I don’t spend money on tennis or working out), and travel (hooray! Our big treat to ourselves.).
Maybe it doesn’t matter so much–now
At the beginning of my FIRE journey, when I first found the concept of reaching financial independence before age 65, I ate up all the posts about saving money.
Looking after the small things was important. Reducing your monthly costs by $100 not only meant that you could save more, but also meant you would need less money to retire.
The Great Recession was still quite recent, and we were supporting a college student, which meant that this felt quite relevant to our lives.
We cut back on a lot of things in the PiN household: a second car, buying coffee out, going to the hairdresser. Utility bills were scrutinized. I learned to hide money from myself to limit spending and increase savings.
These days I feel much less motivated to save money by cutting costs.
I can’t say that we have no fat in our budget–we live very comfortably and enjoy many small luxuries.
However, many of our luxuries are now only a minor part of our budget, while providing a major part of our enjoyment.
If we stopped spending any money on sports or fitness, never ate out ever again, and boycotted bookstores and magazine subscriptions, we could probably save about 10% of our monthly spending.
I would be so unhappy, though, that it really wouldn’t be worth it.
Part of the reason cutting costs much further might not be worth it? I am not sure we actually need to in order to become FI.
I think we are FI?
The stock market has been very good to us this year.
Our net worth went up significantly (significantly!), and we now have more than 42 times our yearly spending saved. This corresponds to a 2.3% withdrawal rate, considerably less than the 4%/25x rule of thumb.
That’s not a totally accurate view of our finances, as we would need to purchase health insurance on our own. Taxes, also, need to be considered: income taxes if I take money out of my 403(b), and capital gains taxes if I sell stocks.
Even if I add health insurance premiums for 2, an estimate for lumpy costs (a new roof, a new fridge, etc.), and an estimated effective tax rate of 20%, we still squeak by with a 3.9% withdrawal rate.
It’s true that the stock market could fall in the future. In fact, it most assuredly will at some point.
With a fall in the stock market, our net worth would fall as well, and we might cross back over the threshold of financial independence.
If that happens after I retire, we will certainly need to scrutinize our spending more carefully. Cutting back on non-essential treats might be necessary. (Ugh, that seems sad. But maybe I can reframe it as a challenge.)
However, since I am still working for now, I think it is less urgent that we tighten the budget. No need to throw money away, but if we are enjoying something {pickleball}, we can afford it.
Going forward
When I ran through our 2024 numbers in early January, I was tired of looking at finances. Honestly, I was so tired–partly from work, partly from spending a full day reviewing my father-in-law’s banking–that it just wasn’t of interest.
Even more frustrating was the fact that each credit card company categorizes purchases differently. So it really is hard to compare things like groceries year to year.
I was not sure about doing this again for 2025. Especially if we might be FI.
With a little more time behind me, and a little blogging, I can see that it will still be a useful exercise at the end of the year. I will be able to see how much we’ve spent, and where we can cut back, if needed.
It’s a strange thing, to have been reviewing my spending for over 20 years.
I’ve gone from a single woman, in my first year of full physician salary, to a married stepmom with a kid in college, to debt-free, and now (maybe) to FI. I didn’t think the day would come so soon, but with yearly updates, I can look back at the numbers and see the progress.
I’ll be interested to see what next year’s update looks like.
Do you review your spending every year? If retired, did your process change once you stopped earning money from your job?