My Spending

Saving Hard has thus far been one of the biggest contributors to my reasonably rapid FIRE (financially independent retired early) Number progress.  For me this has never been about simply spending the least amount possible but instead always about maximising the answer to the formula Earnings – Taxes – Spending.  This results in a twofold approach:

• Living Well Below Your Means (LWBYM) where that spending has no impact on Earnings; and
• Being prepared to spend where it means Earnings – Taxes – Spending are greater than £0.

With this in mind I suspect my spending profile will look quite strange when compared to many, but hey we’re all different and that’s what makes the world an interesting place.

In July 2015 I spent £1,926 (an annualised £23,112) and 2015 Year to Date I've averaged £2,068 per month (£24,816 annualised).  This covers all family spending, whether for fun or just too live, plus any personal spending that I desire.  The only thing excluded is my better half’s small personal spending.  Given this is hopefully my final full year before FIRE I want to track my full 2015 average spending as well as monthly for a couple reasons:

• It gives me a floor of spending at which the family are happy with the lifestyle that we are living.  This will help tell me when I’m FI (financial independent), which will be before FIRE’d.  It will also help me understand how much overhead my 2.5% wealth withdrawal rate, at the start of FIRE, combined with my £1,000,000, actually provides me with.
• We are still torn between early retirement in The Mediterranean vs Old Blighty and this will also help us understand our average spending profile when in different countries.

Click to enlarge, Retirement Investing Today July 2015 and Average 2015 Spending

Now the detail:

Housing (or Rent in our instance)

My biggest spend is rent at 57% of total spending or £1,105 (an annualised £13,260).  That’s what living in one of the most expensive cities in the world does to you.  We spend it as it enables us to earn a lot more and hence save a lot more than we could otherwise.  The minimum standard the family have settled on is a small new build flat in an ‘up and coming area’.

This is one cost that will reduce greatly in early retirement.  For example if we stay in the UK our current thinking is to move from the South East, get ourselves a parcel of land (a third of an acre or so) and build ourselves a modest energy efficient home.  Work so far suggests this could cost about £300,000.  Not owning a home I’m no expert on how much one will cost to maintain over the long term and so for now I’m using the 1% rule of thumb which is that 1% of the purchase price should be set aside annually for ongoing maintenance.  I’d be interested if readers think this is to bullish or bearish...  That would reduce my annual £13,260 to £3,000.

Work Costs

My second highest spend is Work Costs at £287 (an annualised £3,444).  I’m now fortunate to be provided a vehicle for my work but I do have to fuel it myself for my long commute.  My commute means my better half has insignificant work costs helping that savings number.  It also includes work clothing and the odd bought lunch (an area where I freely admit I could save more by taking a packed lunch).

In early retirement I’ll have to buy my own car but I’ll lose the long commute, work clothes and bought lunches.  Again I’m not an expert but I think by the time I buy a small modest second hand reliable car that will suitable for keeping for 10 years or so, fuel it including some continental trips, insure it, depreciate it as we’ll likely be going through a few over our 40 or so years of retirement and add some breakdown cover I’ll be spending around £2,500 per year.  Still a reduction of £944 or so.

Food

Food is my third highest spend at £256 (an annualised £3,072).  My better half has some allergies and intolerances meaning we now on the whole eat very healthily which includes a lot of organic and ‘Free from’ products although I do lapse occasionally.

In early retirement I don’t see this changing a lot.

Following the Pareto Principle I’ll stop the analysis there although I personally do watch every penny as I'm a believer that the Latte Factor matters.

UK Early Retirement Spending Floor

So I'm currently spending an annualised £24,816.  If I subtract the rent and add the home 1% rule I’m at £14,556.  If I subtract the work costs and add in a modest car I’m at £13,612.  I then need to add £733 worth of annual Class 3 National Insurance contributions as that’s my long term FIRE Insurance Policy which takes my annualised spending to £14,345 or £1,195 per month.  I believe between Tax-free Personal Allowances (earnings and the new dividend), my NS&I Index Linked Savings Certificates and my NISA my tax rate should be very close to £0 if I stay in the UK so I won’t add any on for that.

To fund that modest but enjoyable life I’ll therefore need £14,345 / 2.5% = £570k or so.  Add on a £300,000 home, £5,000 stamp duty (just in case we buy and don’t build or buy at some point later) and £10,000 for the initial car results in a wealth requirement of £888k.  That leaves me with £112k from my £1 million just in case we choose to ramp our lifestyle spending at some point in the future.

Care to share your spending?  If you are please do detail if you are pre-retirement or retired?

As always DYOR