What’s your “number”…and don’t multiply by 3!

Hey everybody!  As I’ve begun this journey of early retirement, it’s made me think about how wasteful I’ve been in the past with my money and how little I really need to survive (and thrive!). I decided to calculate an annual minimalist budget (which is what I’m trying to follow now) to see what my “number” is.  But before we get to that, what is the point of a budget?  To hold yourself accountable? To make realistic goals? To pick a number for savings?

I think that one goal is to see how we have been taught to consume, consume, consume. For example, a person making $50,000 per year probably thinks they are doing pretty well if they are getting a full match on a 401k (generally about 5%) and fully funding a Roth IRA ($5,500 for 2013).  This person was me and that’s exactly how I felt until a couple months ago!  This person would be saving $8,000 each year (not including employer match, if available), which is not a horrible number.  However, if they were able to follow the below minimalist budget, they could over double that to $20,700 (50k income – 15.3k budget expenses – 14k taxes)!  With that as a goal, they can now track their progress towards early retirement (or saving up for a nice vacation, 2nd home, cosmetic surgery…whatever it is you want).  However, you can’t make that goal without knowing your minimum living expenses per year.

So, here are my numbers.  Please note that I didn’t include taxes in what I posted here (see this for how much taxes eat up), so my actual number is higher.

Budget pic

 

Now, a breakdown of each category:

  1. Rent.  I live with my boyfriend in a condo and we split bills in such a manner that $550 is my monthly expense, inclusive of utilities and Internet.
  2. Groceries.  I maintain a healthy diet and we do most of the shopping at Aldi, with a few items they don’t carry being picked up at the local grocery store.
  3. Fuel.  No way around this one.  I’d love to live close enough to work that I could bike, but that isn’t in the cards for right now.  Maybe one day it will work.
  4. Phone.  I have a Republic Wireless cell phone that is crazy cheap!  This include unlimited minutes, data, and texts.  Only catch is that you use Wi-Fi for most of it.
  5. Car Insurance.  I drive a 1997 Honda Civic and only keep state minimum insurance, so it keeps this pretty cheap.
  6. Renter’s Insurance.  For peace of mind, haven’t actually needed it yet.
  7. Health Insurance.  Luckily, my employer covers most of the cost.  This doesn’t include co-pays or prescriptions.  If those expenses come up, they would come out of the Miscellaneous fund.
  8. Miscellaneous.  FIFTY dollars per week for things like happy hour with friends, Starbucks coffee gifts, shampoo, laundry detergent, etc.

In the event anything extra came up, I have funds in a savings account that I would allow myself to use (ex: last month I bought plane tickets to visit family in Portland!!).  Given this budget and assuming a steady income stream, my early retirement could start in as few as 10 years!

Could my number be lower? Absolutely.  I could live in my car.  I could bike my 15-mile commute every day, or take the bus, to get rid of fuel and car insurance expenses.  I could get rid of the cell phone.  However, I think that this budget strikes the balance between the value of money and the value of my time, while keeping a standard of living that is do-able for me.

What is your number?  Why do you keep a budget?  Is there anything you think I am forgetting to account for?

Posted in Money Management

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