Monday, October 12, 2015

Expense Report - Last Four Months

For the past eight years, I have managed to save money regularly, and put that money to work. I have focused most of my efforts on the process of selecting dividend growth stocks, discussing why I practice the dividend growth strategy, and sharing my progress towards my goal of attaining financial independence through dividend investing sometime around 2018.

One aspect of my journey that I have always taken for granted has been my focus on keeping living costs low. After reading about the stories of others on their way to financial independence, and following personal finance blogs written by people who were in huge debt, I believe that I was wrong to never really stress the importance of frugality in my wealth building process.

I believe that frugality is one of the most important factors behind my success. I define my success as the ability to cover monthly expenses through investment income. Based on my projections, I can cover somewhere between 60% - 80% of my expenses with the dividend income that my portfolio generates. The best part is that when I really started my journey in 2007, I only had $2,000 sitting in my checking account.

I try to keep costs low, and try to be smart about finances. This means that the more I manage to save by keeping my expenses low, the more I will be able to invest for my future. I believe that being smart with my finances in my 20s is important. This is because the money I invested in my 20s will be able to compound for me for the longest period of time. By front-loading my savings and investment early in life, I will be able to enjoy compounding my money for the longest period of time.


I believe that frugality is something that everyone can choose to embrace. Saving and investing money is something that everyone can achieve. The discipline to get there however, and persistently follow your plan for over eight years is the tough thing to do. This is where many deviate from the plan, because deferring gratification could be painful in the short run. I myself have been truly inspired by those who have followed a plan for much longer than myself, and who have been living their dreams for decades.

I realized early on that I can control only a few things in life. I can control my savings rate to a certain degree, and I also control what I invest my hard-earned money in. I believe that by saving money, I create more options for myself in case something bad happens ( like a layoff for example). By investing my money in a portfolio consisting of over 60 dividend paying stocks, I create a stream of income which is diversified. If one company fails outright, the other 59 will pick up the slack by raising their dividends.

If my employer decides that I am no longer needed on the other hand, I will be in a real pickle if I didn’t save much. In reality, I can breathe easier during layoffs, because I save a large portion of my income every month. By being frugal, and keeping my costs low, I have more flexibility and more options.

In this post I will share my expenses from the past four months. I track my expenses using a simple spreadsheet. My personal finances are not very complicated. I spend my money either from my checking account or from a single credit card, which I pay off in full every month. I earn rewards points from that credit card, which is an instant rebate for doing something I would already be doing anyways. I track expenses based on major categories.

Expense Type
June
July
August
September
Grand Total
Rent
 $                   470.00
 $     470.00
 $     470.00
 $      470.00
 $   1,880.00
Grocery
 $                   264.78
 $     318.69
 $     510.39
 $      307.81
 $   1,401.67
Eating Out
 $                   233.05
 $        65.50
 $        48.73
 $        96.00
 $       443.28
Utilities
 $                     82.53
 $     103.21
 $     111.20
 $        98.28
 $       395.21
Travel
 $                   113.31
 $        52.92
 $     180.86

 $       347.09
Blog Related
 $                     69.00
 $        87.34
 $        69.00
 $        83.41
 $       308.75
Car Insurance

 $     196.63


 $       196.63
Other
 $                     31.22
 $        24.86
 $        21.06
 $        93.74
 $       170.88
Health Insurance
 $                     38.20
 $        38.20
 $        38.20
 $        38.20
 $       152.80
Medical
 $                   133.29



 $       133.29
Gas
 $                       8.40
 $        50.57
 $        30.28
 $        27.75
 $       117.00
Drinks
 $                       9.71
 $        46.93

 $        53.11
 $       109.75
Internet
 $                     20.00
 $        20.00
 $        20.00
 $        20.00
 $         80.00
Car Related



 $        66.12
 $         66.12
Grand Total
 $               1,473.49
 $  1,474.85
 $  1,499.72
 $  1,354.42
 $   5,802.47

As you can see, my expenses hover around $1,500/month. Since I want to have a margin of safety in financial independence, my range of safety is monthly dividend income of $1,500 to $2,000/month. My expenses of course fluctuate from month to month, and the amount spent on categories fluctuates as well. This is why I believe that looking at expenses over several months is more helpful that looking at the expenses for a single isolated month.

My major expenses include Rent and Groceries. I characterize any expenses that I make at big store retailers such as Wal-Mart (WMT), Target (TGT), CostCo (COST) as groceries. The truth is that I can pick anything from clothes, presents, supplies, electronics, pharmaceuticals from those places. Because of the infrequent nature of those expenses, and the lower weight in expense item category, I do not find it worth the time to categorize them further. After all, I doubt I will glean any additional information if I added a separate line item for helium balloons for a special event, for underwear, for a child's present, or a for a coffee mug I bought at the store.

We enjoy exploring new restaurants, and treating our selves from time to time. Plus, when you travel, you eat out. This explains a high portion of that expense.

Some of the items I have included are deceptively low. My health and dental insurance is only $38/month. However, this insurance is provided through my employer. The boss pays an additional $200 for health insurance every month. If I were laid off, I would likely have to pay more than $200/month for a roughly similar healthcare coverage. I am very lucky to have such a great insurance. I have always had insurance since I started living on my own at age 18, though it has not always been subsidized.

My rent expense is low, because I share an apartment with a significant other. Before moving in, my rent was over $700/month. Plus, I didn’t get to share utilities. This is the type of synergy that I discussed during my goals post for 2015. I do not think I can lower rent expenses much further. If I were to purchase a home where the total monthly mortgage, taxes, and maintenance were around $1,000 - $1,200/month, a large portion of this “expense” would be capitalized for me.( meaning that it would grow my net worth)

You can also see that I have blog related expenses as well. If/When I decide to call it quits on the DGI front, this expense will likely disappear. That being said, I am the only blogger that has managed to keep posting on their original site about dividend investing for almost eight years in a row. This stubbornness persistence and perseverance is perhaps the reason why I have been able successful in accumulating a decent sized nest egg to begin with. I only quit only when I accomplish my goals.

I was lucky that I didn’t have much in car related expenses over the past five months. If something doesn’t work, I can easily have to pay several hundred dollars on the spot. I drive a 15 year old car that might die in a few years. My next car would likely be a used Toyota that I will buy in cash. I am lucky that my work commute less than 10 minutes. I could possibly walk to work, but the weather is not always cooperating. Plus, I do not want to cross major intersections where drivers might run me over – I may save some money by walking to work, but the risk of getting run over by a car far outweigh any monetary and health benefits. I would not bike to work either.

I have not included taxes in my expenses. Taxes are a very real expense that I pay with each paycheck. I also have to pay taxes on dividend income and any side income I generate. My tax expenses for 2014 could possibly cover most if not all of my living expenses for the year. This is why I have attempted to max out any tax-deferred account I am eligible for – 401 (k), SEP IRA, Roth IRA and Health Savings Accounts (H S A).

While being frugal is important, it is also important to avoid being miserly. I do not count every penny, nor do I want to spend my precious time clipping coupons, making my own laundry detergent or wait in line for hours in order to save a few dollars. While my budget looks low, it still has flexibility built into it. For example, I have managed to travel abroad four times over the past five years. Each of those trips lasted at least a couple of weeks.

Other than that, I have hobbies that are very low key and low expense. While I do like to go meet my friends over for a drink, I also like to read, research investments, attend wine/beer tastings, cook with/for loved ones, visit a local museum or just go for a walk in the park. Spending time with people I care about is important, and is actually very precious to me. Somehow, this doesn’t cost an arm and a leg. Another hobby I have is writing on this site. I enjoy writing on my site, otherwise I wouldn't have done it for almost eight years in a row without a break. I would not want to be a full-time blogger however, since that would increase my stress from this activity. If blogging starts feeling like a job, and I would depend on it for paying my bills, I would likely burn out, sell out, and never come back again.

The information in this post is something that is frequently covered at the basic personal finance level. I wanted to type something up, since I have not really covered this topic before.

Thank you for reading.

How much do you spend per month?

Relevant Articles:

7 Years Dividend Growth Investor
My Dividend Goals for 2015 and after
Margin of Safety in Financial Independence
My Goals
My dividend crossover point

56 comments:

  1. Thanks for sharing a bit about yourself DGI. You're always so interesting and I enjoy always stopping by here everyday. 8 years is definitely a long time for blogging and I hope you keep blogging even after you made it to your investment goals.
    I wish you continued success and especially health. Keep it up and wish us the best. Cheers my friend.

    ReplyDelete
    Replies
    1. Thanks for stopping by DH. If I make it for two more years, posting 3 – 4 articles per week, I would be proud of myself.

      Thanks for your wishes. Without health, you cannot enjoy your wealth.

      Good luck on your FI journey!

      Delete
  2. Interesting post, DGI. Always interesting to see spending habits of others. You are certainly taking advantage of some great cost savings (shared rent, company insurance, etc). I miss the days of company paid insurance as I'm a contractor and have to buy my own (expensive and less than stellar) insurance.

    My rent alone roughly equal to your total average monthly expenses. However, I live alone in the heart of a somewhat expensive tourist driven town; Portland, ME. I can walk to everything I need except for my job. But even that is only a few miles away, though unfortunately not walkable. I could find a cheaper place to live for perhaps 2/3 of what I pay now, but I would be giving up a lot of space and convenience. If I were laden with credit card debt, a car payment, student loans and/or any other type of significant regular monthly bill I would re-evaluate my living situation. Were I to be sharing this place with a significant other, the monthly rent would then become a very reasonable expense given the location I've chosen.

    ReplyDelete
    Replies
    1. I am lucky that I live in the Midwest, where standard of living is pretty good ( though commutes are longer on average). My rents have been affordable. But sharing rent, utilities with another person is definitely a plus.

      I am also lucky that I do not have any credit card, student loan or mortgage debt.
      If I lived in NYC or SF however, chances are that my expenses would easily be much higher, and my income would be only slightly more.

      Thanks for stopping by and good luck on your FI journey!

      Delete
    2. Hey DGI,

      Just curious which state you live in in the Midwest? I'm starting my investing journey up here in Minnesota and am curious if you're nearby!

      Love the blog - cheers!

      Delete
  3. Lucky you!
    Your total monthly expenses would not cover a studio in Manhattan!
    Best,
    carin

    ReplyDelete
    Replies
    1. This is precisely why I have chosen not to live in NYC.

      Delete
    2. Why would I want to be cramped in a small studio, when I can live in a spacious home, with an extra room, large living room, kitchen etc?

      Plus this is an apples to oranges comparison - for the price of your studio in NYC, one can not even rent a closet on the Buckingham Palace.

      Delete
  4. Thank you for the persistently insightful posts, DGI. I find your blog most useful out of all of them in the DGI community.

    ReplyDelete
    Replies
    1. Thank you for reading. Good luck on your dividend investing journey!

      Delete
  5. How do you get $20/month internet?
    Thanks!

    ReplyDelete
    Replies
    1. I share rent, utilities, internet expenses with a significant other

      Delete
  6. Thank you for all the work you do on this site and by example - for all of us! Karl N

    ReplyDelete
  7. DGI,
    Your utilities are a lot lower than ours. Maybe some of them are included in your rent? Round numbers, our utilities are as follows:

    Cell phones (3): $70
    Internet/cable TV/land line: $140
    Water: $100
    Electricity: $75
    Natural gas: $100

    Close to $500 per month and (without the blog) looks like you spend about $120. Granted, I'm paying for a house that is 1800 square feet, but that's still 4 times the expense.
    Best wishes,
    Keith

    ReplyDelete
    Replies
    1. Hi Keith,

      You are seeing half of what I spend on utilities (electric). Water is “free” though it is baked into the rent. No gas. The space is possibly at 60% of your house size. I think utilities are too high actually, because a lot of appliances are not very energy efficient and LL has no incentive to change them as long as they are working. This is one reason for buying a home at some point.

      I am lucky that my firm pays for the phone. Otherwise, I would pay $20 - $30/month for a basic plan.

      I don’t have cable. I have found streaming to be really awesome - Hulu ( free), Netflix, Amazon Prime ( cheaper with a student subscription), or a TV Antenna.


      Delete
  8. Love your content and have turned many of my friends onto your site. I'm an avid investor and inspire to be as knowledgable as you someday. As far as expenses, my wife and I with our 2 children spend about $3,500 a month. This includes $1,250 for daycare, $850 for mortgage, $600 for food (similar stores and tracking you use), and $500 to our church and we have no debt other than the mortgage. All that eats up our money pretty fast. We still manage to invest about 2k a month, not including retirement accounts. When our life with daycare is over....well, that will be great as you can see. Thanks for all your writing.

    ReplyDelete
    Replies
    1. Thanks for stopping by Tyler. Having kids is definitely more expensive.

      It is great that you are able to still soak up such a high percentage of income – 2K plus retirement accounts. You are possibly close to saving 50% of income. Once you are no longer paying daycare, you will be able to save even more and to be even closer to your dividend crossover point

      Delete
  9. If this helps another to reach a closer stance to being careful spending you have done the reading public a great service. Such an important aspect of investing. Nice post.

    ReplyDelete
    Replies
    1. Thanks for your comment Rich. I agree that frugality is an important first step in the wealth building process. We are all coming from different backgrounds, and have different experiences and expenses, but our goals are very similar – invest money wisely for retirement!

      Good luck in your investing journey!

      Delete
  10. Very interesting. Thanks for sharing.
    The only thing I would add is that some people I meet have grossly underestimated their costs in early retirement.
    Specifically on three fronts
    1. When kids come along and they are not always planned. I love mine and they are the best thing that has happened to me but they account for roughly 50% of our outgoings. Bigger dwelling, more driving, food etc.
    2. Health care expenses. Like it or not as you age, despite a high level of fitness stuff breaks down. In the last year I wrote about knee surgery, a dental trip to Mexico and then a trip to emerged for a bit of chest pain that I didn't blog about.
    3. Leisure time cost money. For us, more cycling, kiteboarding and travel. We do it as cheap as possible but it still costs.
    Ibam a huge fan of the android "expense manager" app as I can sync it with my wife.
    Either way, I really enjoy your blog.

    ReplyDelete
    Replies
    1. Your comment is a valid concern. However, I am unsure about some of your points.

      However, if you have total flexibility in your time due to being retired, you can manage your costs much better than anyone else.

      If you have total control over your time and location due to being retired, you can choose to relocate to a cheaper place.

      I didn’t understand point about unplanned kids. I do not understand how a responsible adult will just have unplanned kids out of the blue. I have been taught that if I take proper prevention steps, the chance of having unplanned kids is less than 1%. Since this is a site on investing, I will not add anything else to this point.

      1) Kids by themselves don’t cost money. Rather, it is the parents who have a choice of how to allocate their money.

      I do agree that you will spend more on food and shelter if you have more individuals in your household. But this is to be expected.

      2) Healthcare expenses could be managed to a certain extent by getting health insurance. Plus, if you are able to travel abroad, you can obtain quality healthcare for much less than in the US. So you can manage that expense.

      3) Again, the costs of leisure can be managed wisely if you have total control over time. I like the idea of slow travel. I like the idea of traveling during off season. I like the idea of staying in a new place and living like a local to soak up the culture.

      Delete
  11. Now in my 80th year, I think back to my wife and my first week's grocery bill -- $20.00. That took care of our food for a whole week! For at least a year! Morning, noon, and night!

    Our nest egg was made by investing in mutual funds and annuities. We didn't have IRAs or 401Ks until much later in life, and we didn't know about dividend growth investing. We both worked for companies that offered no pensions. So, we agree with the frugality urge. We were able to save at least 60% of our salaries even though we were not handsomely salaried. But we were able to travel and see most all of the USA and enjoy abundant family life. We have been blessed!

    Best wishes in your endeavors. We enjoy the blog.

    ReplyDelete
    Replies
    1. Thanks for reading. Saving a large portion of income is one of the most important lessons young people today do not understand.

      Being able to enjoy your wealth is very important, so I am glad you have accomplished that.

      Best of luck to you!

      DGI

      Delete
  12. DGI, keep posting I have enjoyed and learned from this blog. It has inspired me to focus on a dividend strategy for retirement income. Your efforts are much appreciated!!

    ReplyDelete
  13. Bravo, bravo! Excellent, DGI...Grateful for your continued output.
    -J

    ReplyDelete
    Replies
    1. J,

      This is nothing revolutionary really. Just a breakdown of expenses. But thanks for reading and commenting!

      Delete
  14. I'm a little bit spendy-pants. I go through about 2,100/mo in FIRE as a single guy living alone, even though my house is paid for. In my accumulation phase, I discovered that making more money truly did make me happier. That is up until I hit about 50k/year. That led me to some introspection on what I truly valued. I cut back some as a result but kept a little fluff because I knew empirically it was improving my sense of well-being. For me 2,100/mo is roughly "enough" and as good as a feast. YMMV.

    ReplyDelete
    Replies
    1. Perhaps you could share how your expenses break down?

      I go back and forth on whether I want to own where I live or to keep renting.

      Delete
  15. Wow, this is probably the most personal post you've written!! Congrats on opening up a little bit. Now we can see that you're perhaps as frugal as DM. I don't say this in demeaning manner, BTW. I respect frugal people, I try to be so myself. Anyway, look at the response. As soon as a blogger opens up a little by sharing some personal detail, traffic increases.
    Great job.

    ReplyDelete
    Replies
    1. Hi,

      I don't mind being compared to other frugal people. Actually, compared to Jacob at ERE, I spend way too much.

      And compared to the Mr Money Mustache family, I spend a lot too.

      The most interesting thing is that I have maintained a high level of readership, despite the fact that I haven't shared much about myself. Go figure.

      Delete
  16. Too many links to other articles, one could get lost easy.

    ReplyDelete
    Replies
    1. No post exists in isolation. Plenty of concepts and other articles are interconnected

      Delete
  17. Ciao DGI,
    I have tried to post earlier but the computer doesn't seem to let me send the messages... Let's try again! Extremely impressed about the precision and the dedication to the monthly savings accounts, it's something that I want to start doing in 2016 too. So far I have been concentrating on other aspects of the investments (ie: build up the portfolio) but in the near future.... Still impressive numbers, way to go! :)

    Ciao ciao

    Stal

    ReplyDelete
    Replies
    1. Hi Stal,

      A lot of sites on dividend investing discuss expense/savings/investments. I am jsut late to the party.

      I am looking forward to reading more about your journey from the Italian perspective!

      Keep up the good work!

      DGI

      Delete
  18. Just turned 65. Medicare + Supplement cost $250/month. Unfortunately I will suffer the 52% increase in Medicare next year (a very stupid law IMHO) so it will be at least $350/month. Double that for a spouse and you will need $700/month at a minimum for your healthcare. Getting old is not for the weak or shortsighted who refuse to sacrifice momentary pleasure in order to secure an enjoyable future. Best of luck DGI because your life expectancy is likely to be over 100 the way modern medicine is curing disease.

    ReplyDelete
    Replies
    1. Thanks for your perspective. Perhaps I need to research this further, but why did you get a 52% increase in Medicare Supplement?

      I am also curious, besides Social Security and individual investments, have you been one of the lucky few to have corporate pensions as well?

      My thinking is that if I have dividend income that covers my basic expenses already. I can then utilize my social security check to pay for healthcare.

      I hope to live to a healthy and happy 100... I also wish you a long and happy and healthy retirement.

      Delete
    2. DGI - My Medicare Part B premiums will jump 52% (from $105 to $159) because I am part of the 30% of retirees who do not have their Medicare premiums deducted from their Social Security check. Without a COLA raise in Social Security, the remaining 70% who use their SS check to automatically pay their Medicare bill cannot have their premiums raised. This is the stupid law I was referring to. Just another example of why the government should not be in charge of ANYTHING and you must take responsibility for your own future.

      So everybody on Medicare should pay about 16% more next year but that cost will only be forced upon we 30%. Medicare Supplement premiums will increase for everyone (around 12%). What I cannot understand is why Medicare costs are up 16% and yet there is no inflation - curious no?

      No pension here. I agree that dividend income needs to cover ALL basic expenses because you cannot count on SS. A 25% clip is already anticipated by 2033 when SS goes broke. Politicians will also reduce/eliminate SS benefits from those they deem "to rich" so the poor can keep their full payments. You will have a target on your back if you are responsible and retire with a nice nest egg and no debt. You are a great example for the Millennials and hopefully my children are reading your daily emails. May God bless you richly.

      Delete
  19. Cheers from Bulgaria. That was a good read, will read again.

    ReplyDelete
    Replies
    1. Thanks for reading. I wish you good luck on your investing journey!

      Delete
  20. Hey DividendGrowthInvestor - That's great you have a plan for when you get laid off and so forth. I don't understand the philosophy of earn, spending everything, and repeat.

    My question is: what are most people's plans when they get laid off, their company closes, or they have a major healthcare issue? Is it that they don't think it could happen to them? It seems most people appear to avoid this advice to their own detriment.

    ReplyDelete
    Replies
    1. By failing to prepare, a lot of people are planning to fail...



      Delete
  21. I appreciate you posting this, I see a lot of back and forth on bloggers posting their expenses claiming it doesn't mean anything or there is no way to compare X vs Y expenses but it really inspires me to find new ways to cut my own because of your example.

    I appreciate your blog also, I realize it is a lot of work but it is well respected in the DGI arena. In reading your 7 year bday post, I came to the realization that yours and dividends4life are different blogs I had actually thought were the same 😁

    Keep up the good work, I really think this blog would even be more interesting (if that is possible) after you're FIRE'd detailing the changes in your life, unexpected hitches, converting funds from tax advantaged to non, and changes in dividends, etc, etc.

    Take care.

    ReplyDelete
    Replies
    1. Hi Me myself and I,
      Thanks for reading and commenting. Dividends4Life changed to DividendsValue and now Dividend Growth Stocks website. He has a disciplined approach to investing, so I take your “confusing me for him” as a big compliment.
      Honestly, it is a challenging to say something that everyone can benefit from, and not repeat myself. I am still undecided whether I will keep posting or not. At this point I can see equal chances of me writing for 2 more years and stopping or just posting with a lower level of frequency than before.
      I have always debated with myself about level of transparency on this site. It looks like readers want to read about stuff like that (based on pageviews and number of comments here, which is a record)

      Delete
  22. DGI,

    Awesome job keeping it so frugal!

    Our core expenses are pretty similar, but I'm still paying off some student loans. Really wish the me of 2000 would have seen the massive waste of money college was going to be for me. Oh, well.

    Keep it up. At that spend level, you just don't need a massive portfolio to get you to where you want to be. :)

    Best regards!

    ReplyDelete
    Replies
    1. Hi Jason,

      Thanks for stopping by and commenting. Our expenses are pretty similar, which is awesome. I could possibly cut expenses down to $1000/month if I had to, but that would be extreme. I think a $1,500 - $2,000 provides for a lot of flexibility to live on my own terms.

      I agree that frugality is an important tool in building wealth. The less money you need to spend in retirement, the lower the need for a large portfolio. Plus, the less money you spend, the more you can save and invest. I see each dollar I spend today as $100 dollars in 50 years.

      Good luck in your dividend investing journey!

      DGI

      Delete
  23. I really enjoy reading your posts and have now become one of the staples in my go to Personal Finance Blogs. This perspective of opening up to your expenses really allows us to see the big picture. As a financial planning by trade I often tell clients it's not about what you earn but what you save and invest. We are similar in age and my goals are early financial independence as well. I think you discussed maxing out tax deferred plans in the past and utilizing a ROTH conversion ladder to avoid IRA early withdraw penalty. My thoughts are with 403b assets to take a SEPP using the RMD method which should gradually increase and keep pace with inflation and be very sustainable. Taxable take 4% withdraw. ROTH take SEPP or below 4% which should be close to the yield of dividend portfolio.

    What % of after tax income would you say your saving each month on average? My goals have been to shoot for above 60%. Once car is paid it should get near 70% next year.

    Biggest setback to my goals aside from layoff would be child expense, unexpected homeownership costs. If you plan on having children I think those costs could change a budget goal of 2000 easily to 2500 a month.

    Please share your thoughts on distribution phase in particular from ROTH.

    ReplyDelete
    Replies
    1. Hi Matt,

      Thanks for stopping by and commenting. I try to save as much as possible of gross income. 50% - 60% is the norm, though at times I have managed to save in taxable or tax deferred accounts 70% as well if I receive one-time income ( bonuses etc).

      I have been maxing out tax-deferred accounts since 2013 – before that I mostly used them up to the employer match. I seem to pay a lot in taxes – Fed, State, Fica etc.. I view each dollar I can invest today as a seed that will grow into $100 in 50 years.

      Approximately 3/4 of dividend income comes from taxable accounts, with the rest in tax-deferred ( though a large part of it has to be invested in lower yielding index funds due to restrictions). I realized that due to the power of compounding, I will end up with too much dividend income that comes from taxable accounts. Therefore, it makes sense to put any excess dividend income in tax-deferred accounts.

      My idea is to stuff those accounts when I can, get tax breaks today, and let the money compound tax-free for several decades. At some point in the future, I will start performing Roth Conversion Ladders. The goal is to perform those when my tax rate is lower than today. If I get a 25% - 30% tax break today, compound the money tax free for a few decades, but I pay no more than 10% - 15% in tax on conversion, I would consider this a success. Check this article for more information:

      http://www.dividendgrowthinvestor.com/2015/04/taxable-versus-tax-deferred-accounts.html

      I think a large portion of people assume that I will stop working the minute I reach the dividend crossover point. Actually, I would likely keep earning money in some productive capacity doing something that interests me. The whole point of getting to be FI is to be in a position to have flexibility, and not be dependent on a single entity. It doesn’t mean do nothing or lay on a beach all day ( boring).

      I am also putting most of my money in tax-deferred these days, because I assume I will earn some W2/1099 income in whatever capacity after my dividend crossover point. So it is very likely that I may not even need access to the dividend income. If I don’t really need it, then it makes sense to put most new capital towards tax-deferred accounts. Contrary to popular beliefs, those are easily accessible by those who have spent the time learning about the tax code.

      A child could cost more, or not... This extra child expense could be offset by going out to eat less, less liquor, and possibly even no blogging expenses ( I will not be allocating capital and writing about it when I have only gotten 2 hours of sleep for two years in a row). If you have the flexibility of time, you can also manage this expense.

      If one of the parents has the flexibility to stay at home for a couple of years, then that could lower expenses ( though it could reduce income). It could also mean utilizing the help of grandparents, who would treasure spending precious time with their grandbabies – that could save on day care at least for the first two-three years. The thing to remember of course is that a child needs attention from the parents – so some flexibility in their work scheduling ( like taking 2 - 3 years off to raise a child) could be the best solution.

      PS You may enjoy all posts with label “taxes” -

      http://www.dividendgrowthinvestor.com/search/label/taxes

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  24. Your expenses amaze me DGI! Mine are way to high and one month of my budget is close to 4 months of yours. Just having a kid (in my case) was very expensive. I will detail that out in my September budget report. Good thing I saved for it. Regarding home ownership I would recommend to all to rent vs. buy (unless you are one of the lucky ones whose house value continues to go up). My utilities alone surpass your rent and I am one of those guys running around turning off lights my kids leave on. Anyways I am glad to get a glimpse into your personal life and learn more about you.
    DFG

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    1. DFG - Love the way you said "My utilities alone surpass your rent". If it is of any consolation to you, our HOA charges are in the range of what DGI pays as rent !

      But like I always say - it is all relative. Things should be looked at in percentage terms. $470 means a month's rent to DGI. It might mean the cost of one dinner for someone OR the 6 month grocery bill for someone else. It's all about percentages.

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    2. It is important to understand the value of compounding and the value of frugality. Each dollar that is wasted today is equivalent to a dollar that was never invested for you. A dollar invested today at a 10% annual return will be worth:

      $17 in 30 years
      $45 in 40 years
      $117 in 50 years

      Of course, the purchasing power of $1 varies in different places. I choose to not to waste my dollars on expensive cars, expensive dinners, and McMansions. Plus, expensive lifestyles mean that I may have to spend time at a job I may not like, merely to keep up the lavish lifestyle. I would much rather work on my own terms and maintain my current lifestyle than work 80 hours per week in order to support a lavish lifestyle so that others think I am "successful".

      If you engage in a lifestyle of consumption and wasteful living, you will always project "success" to others, when in fact you live paycheck to paycheck and never really accumulate much wealth due to your expensive lifestyle.

      Something to think about.

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  25. DGI - I happened to stumble upon your blog today and immediately bookmarked it for future reference :)

    Very impressive post and I concur with all your views about frugality, misery, and financial independence.

    One question though: Don't you think that the list of expense should be viewed as a proportion of income. You pay $470 as rent, assuming you split evenly with your significant other, we are talking about a total rent of $940.

    In contrast, if some couple spends $2,000 in rent, does it mean you are really much frugal than they are? Not necessarily, what if they earn 3 times you do?

    Similarly - let us talk about the car situation. You drive a 15 year old car. I bought a new car in 2012 for $22,000. Does that make me any less frugal than you? Well, we do not have sufficient information to make that determination :)

    Once again, great job sharing your knowledge with others. I hope to exchange more views with you in near future.

    Bobby

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    1. To answer your second question, I guide my life using simple concepts such as:

      1) Power of Compound Interest

      2) Opportunity Cost

      That $22,000 car is now worth much less in 2015. A $22K investments in S&P 500 in 2012 would be worth much more today. That $22K could have mushroomed to $383,000 in 30 years at 10% annual returns, and easily generated $11,500 - $15,400 in annual dividend income at a 3% - 4% yield. ( though its purchasing power would be less than half of what it would purchase today)

      In my case I have structured my life in a way where an old car bought at a “low price” works out best for me. I have everything I need close to me, so I don’t even drive that much. The car was bought 6 - 7 years ago - I expect to drive it to the ground.

      As for your first question, unfortunately people do not like being told percentages. They prefer being told in dollars. The purpose of this post was to share my expenses, because readers have been asking me about that for years. The purpose is not to compare myself to others - I have no interest in comparing myself to others ( plus it is impossible to do an accurate comparison too). The fact that some here are making comparisons to my situation is pretty bad, because keeping up with the Joneses is never something you will gain anything from.

      I think your example on the rent is somewhat flawed - that couple might be spending too much on rent if the average rent in their area is only $1000/month. A more accurate description could be based on purchasing power of the dollar in different places - $1 in San Francisco buys less than $1 in Omaha Nebraska. I do agree that going for offense ( trying to earn more) and having a good defense at the same time ( keeping expenses low) is a very good way to accumulate savings for wealth.

      A valid comparison is also difficult because you may actually value buying new cars more than buying say shares that pay you dividends. I personally value the ability to “purchase freedom” by investing in dividend paying stocks, over buying a new car. So in this case, personal preferences make comparisons difficult ( which is why you probably said things are relative).

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  26. Nice post, DGI! Your frugality allowed you to be in a position where you are close to 70% FI, which is awesome and that's how I built up my capital as well. Your expenses of around $1500 are on lower side and folks that have families have much higher expenses in the range of $3000 +/-. That's reason, I started with a goal of earning $3000 per month in passive income. Inspiring post. Keep racing towards 100% FI.

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