A big event happened today.  So big, that productivity in offices around the country comes to a crawl as employees watch every minute update, to see what the latest must have item is going to be.  Apple (AAPL) held their normal event to unveil their latest and greatest phone, a tablet that looks like Microsoft Surface Pro, Apple TV, and monthly subscription services for cloud storage and purchasing a phone (Say what, a purchase plan for your phone!).  There are probably a few other products, but I don’t really care.  I am not an Apple product user, but I do get interested in observing others on the build up to the event, the real time reaction, and post conference opinions.  Sounded to be largely disappointing as the products were mostly marginal improvements, and integrating features from competitors products.  Feel free to blast me in the comments section, but seriously, “Hey Cortana? Have we seen these features from competitors already?”  The real interesting part of todays event is getting to see disappointment, yet the planning involved to purchase the next upgrade (Don’t forget the other interesting thing from the event #emergencyselfie.  Yes, this is where society is heading).  If people spent half the time they do figuring the cheapest upgrade path or vacation planning and applied it to their planning their finances, the future would be brighter.

I am amazed at the loyalty Apple has built around their products with their customers.  The upgrade cycle seems to work like this, these days: Event hype and excitement, live updates, comments about my (insert electronic device name) already does that, event ends, comments from co-workers about no major changes, followed by plans for upgrading for no reason, followed by looking into the financial side of going through the upgrade.  Every year, the same circle jerk.  Apple has effectively gotten a large portion of society to give the company almost guaranteed streams of revenue annually.

I have nothing against Apple (one of my biggest regrets as an investment).  The problem is more so the consumer behavior, the constant cycle of blowing your hard earned cash over and  over again, when household debts in our country remains high, people live paycheck to paycheck, and continue to live for today at the expense of planning for tomorrow.  This is the trap society has fallen into for modern consumerism, all to keep appearances of being more successful than the reality of their situation.

These days, I have largely shunned consumerism.  Yes, I bought a new phone earlier this year and a tablet (under $200 total) and will probably own and use these for the better part of a decade, but really that’s about it for unnecessary purchases this year.  The purchases have a certain convenience, but not a necessity.  There in lies the difference between “wants” and “needs”.  We need oxygen, water, food, a sense of achievement.  We want, but don’t need, constant upgrading of electronic devices.  In economics, there is a term called diminishing marginal utility.  It basically says as more a of good is consumed, the enjoyment of that good decreases.  Think of it this way, we can buy and buy and buy more stuff, but it doesn’t make us any happier.  So we buy more, expecting happiness to increase, but it never does.  All that has occurred is a waste of resources, more hours needed to work to replace those depleted resources.  Trading time for money.  At this point in my life, I have come to realize the important things for me are spending time on activities and experiences I enjoy, with the people I enjoy.  What’s not important is constantly upgrading “things” that would end up on Craigslist eventually.  When you hit that point of realization about consumption, it’s like the scene from “The Matrix” when Neo has to choose the red pill or the blue pill.  The red pill, you go about your life like normal.  Take the blue pill and your eyes are really opened for the first time to the truths.

A few years ago, I saw myself getting closer to early retirement.  Net Worth was accumulating, dividend reinvestment became available in my brokerage accounts and I started to track it, things were looking good.  I knew that I never really spent a whole lot on living expenses, but for some reason it never occurred to me that I should be tracking my cash outflows, until 2012.  Not really sure why it took me so long to arrive at that realization.

I just got use to the routine: get paid, retirement plan contributions area taken out, pay mortgage and house expenses, pay off credit cards, car related expenses, food, put money away into IRA and brokerage, some left over for discretionary spending.  But I never really bothered tracking my spending for some reason.  Wash, rinse, repeat.  As time went on, the mortgage would go away, but still, never tracked my spending.

In 2012, I got serious about tracking my spending.  I figured if I am going to get serious about hitting early retirement, I better have a good handle on where my money was going.  I turned the tracking into a challenge to myself, eliminate wasteful spending.  It was going to be like a game of golf, next year could I get a lower number for expenses.  I wish I had done this sooner, I may have accumulated a little extra in my investments.  I also wish I wasted less in my early to mid 20s, high bar tabs and dinners…all seems like a waste these days.  No clue how much that would add up to.

These days I have my expenses divided into 3 main categories: Housing, Food, Car, Misc.  These cover the main things I need.  As mentioned above, I do buy occasional things that I don’t really need, go to the occasional dinner or bar with friends, but it is not normal for me to blow my money on these things.  As I have gotten older, I’ve grown tired of the bar scene, so no more rounds of shots.  I have decided that the expense of going to dinner or bars or a normal basis is not worth the trade off of my time sitting in a cubicle.  So what do I do to entertain myself?  Luckily I enjoy activities that don’t really have ongoing cost, aside from the initial outlay.  I love biking, running, working out.  At home, I stream movies for free from Hulu and Crackle (don’t have cable, you get a beautiful HD picture with rabbit ears these days), watch college football, work on one of my cars, and have become fascinated by gardening.  I also like to grill out over eating out and swim in my pool while waiting for my meal.  These activities take a large part of my days off and keep me more than busy.

Here is what I use to track my budget:  EXPENSES Feel free to modify it to your needs.  It is a good idea to track your cash outflows.  You can find things to eliminate or look for ways to reduce your spending.

As you can see my total essential expenses for all of 2014 totaled just under $6800.  When I started tracking my spending in 2012, I had expenses of just over $7500. My expenses were higher before then, as I used to have a mortgage, but I guess we will never know what I spent prior to 2012.  When I started tracking my spending, some things that I started to reduce were: going to bars/dinner (these are easy ones to reduce), stopped doing marathons as the costs got out of hand, shopped around for car insurance in 2012 and saved quite a bit by switching.

So I know what you’re thinking as you look at my expenses.  Not possible.

Housing makes up my biggest monthly expense.  I live in a paid off condo.  I have never lived in the most expensive place I could afford.  If I did, I would still have a mortgage and not even thinking about early retirement of FI.  I mainly wanted a safe place to live, fixer upper for some sweat equity, and conveniently located to work and everything else I need.  Unfortunately, I am at the mercy of the HOA for dues.  There are taxes associated with the property as well, but I fight those every year to have them reduced.  My utilities include electricity and water.  It is a small condo, so that means heating and cooling the place are pretty cheap.  If I am not home, the lights are off, AC is off.  I use fans when I am home and this helps me from having to keep the AC set too low.  Winter is the same, I use a modern space heater in conjunction with the heater to keep the cost down.  You can also just throw on a sweatshirt as well.  Light bulbs are currently all CFL.  I don’t believe the price of LEDs is currently worth it for my situation.  I have basis DSL service, because simply that’s the only option I have.  I would probably pay more for this category if I had other options. I also do any maintenance on my place.

You’re probably shitting yourself looking at my phone category.  How is this dude paying $41.50 a year for phone service?  I have an old grandfathered prepaid plan.  I buy minutes a couple times a year to keep everything active and up to date.  No I don’t have a data plan, I don’t even have texting turned on with my service.  I have wifi set up in my place, and most places these days have wifi if you need to jump on to check something.  I got tired of receiving drunk texts at 3am a long time ago, so I just opted out of that crap completely.  Every January, I pay for an annual Skype service.  Pay for Skype you say, I thought that shit was free?  This is my life hack.  I have a Skype app on my phone.  Basically paying Skype users can set up their account so you can call land lines, cell numbers, and it show as if your using your cell number.  The beauty of this is my cell coverage is actually pretty crappy in my condo, so I can do a call through the internet, it shows my cell number, and the person on the other side of the line has no clue.  When not home, I would just use my cell like normal and use my prepaid minutes.  Again, I have a pretty sweet grandfathered prepaid plan and I am willing to sacrifice not having a data plan.

Do you eat any food?  I average just under $100 on food these days.  My food category is cooking at home.  I eat 3 meals a day, at least.  During the work week, I typically eat oatmeal for breakfast at work, sometimes granola bars.  I f’ing hate oatmeal.  I have come to associate oatmeal with work.  It’s a pavlovian response, negative reinforcement.  When I no longer work, no more oatmeal ever again in my life (positive reinforcement).  For lunch, I eat left overs.  I am notorious for not going out to eat lunch during the work week.  3 reasons for this: it’s expensive, it makes me want to sleep when I get back from lunch because it’s too much food, most of my coworkers I can do without (there are a select few I don’t mind grabbing lunch with or the occasional drink after work).  Dinner usually consist of some meat based meal (beef, chicken, pork, or turkey), with some veggies and carbs.  Weekends consist of a nice proper breakfast, a light post workout lunch, and a proper dinner.  So yes, I do eat food.  I normally stock up on deals at the grocery store, no I am not an extreme coupon person, yes I do use my Kroger card, yes I plan my meals (less waste that way).

My transportation cost are pretty low as well.  This includes gas, insurance, maintenance, and registration fees.  Luckily I am able to do some minor maintenance myself.  This saves some pretty big bucks over what the shops charge.  You just have to be willing to get grease under your fingers and read info online.  I don’t drive a whole lot either.  Most everything I need is within walking/biking distance, so the price of a gallon of gas has no real impact on me.  I am fortunate to live close to work, stores, and parks and such.  I had actually looked at selling my car and going the public transportation route in the past, but owning my car was actually cheaper.  I also bike to work almost everyday and almost everywhere else I need to go (grocery store, gym, hardware store).  This saves on the wear and tear on my car, and a side bonus it’s actually quicker than driving in the city due to all the stop lights.

The miscellaneous category is the one that has changed the most over the years.  This used to be the bar tabs, dining out, marathon registration fees.  I have largely done away with those things.  I still have a gym membership, but I like going to the gym and it helps to keep me in shape.  Yes, I still grab drinks and go to dinner on occasion, but gone are the days of racking up $100+ tabs for one night out, so I don’t really track it anymore.

So there you have it, a look into my expenses.  Something interesting you’ll see on the spreadsheet is my dividend income as well and how this has grown over time (not including retirement plan funds).  Years ago, I didn’t have enough dividend income coming in to cover my living expenses.  Over time, focusing on my expenses, while at the same time continuing to invest, my dividend income started to exceed my monthly living expenses.  2014 was on “Oh, Shit!” moment for me (the good kind).  I had higher dividend income than expenses for the year (despite 2 negative months).  2015 looks to continue that story, with just one negative month (December when I pay the property tax bill).  In retirement the disparity will be more pronounced when I include my retirement plan (There will be a more detailed look at the growth of my dividend income coming soon).

Amazingly, when I retire I am expecting to be able to further decrease my living expenses.  I will be moving to another state and no longer living in a condo.  My property taxes will go up some, but not anywhere near the level of HOA dues I am having to pay currently.  I will also invest in a home gym at that point as well, eliminating the gym dues.

I share my expenses for a couple of reasons.  I am in a position where I get to peek into peoples lifestyles.  It’s always the people who don’t know what they spend, who are heading into a pretty dire retirement (I talking about normal retirement ages here).  The people who don’t struggle to release info on their expenses and know where there money is going are heading into a comfortable retirement.  I don’t think this is a coincidence.

I used to work with a guy, who every month would call Sprint up about his cell phone bill.  I could here the conversation all the time, through the paper thin cubicle walls.  They would go over their minutes and data limits.  To get rid of the overages, they would upgrade to the higher minute plans.  This was every freaking month.  His cost were out of control.  He would also come to work with fast food for breakfast, go out to each lunch, call his wife before leaving and see where they were going for dinner.  This was a daily occurrence.  At the end of the month, he would complain that he didn’t have any money.  Don’t be that guy.

I challenge you, reader, to start tracking your expenses.  Have the talk with your spouse about spending and the importance of controlling it (a leading cause of divorce).  Start judging where you are using your money.  Can you reduce your cable bill (do you really need cable these days), cell phone bill, shop around for your car insurance and homeowners insurance, cut back on eating out.  The more you are able to reduce your cost of living, the less you have to exchange your precious time with your employer.  Also, going back to the basic accounting formula:

ASSETS – LIABILITIES = EQUITY

If each month your liabilities are decreasing, that means more money in your pocket that you can use towards income producing assets and building your net worth.

Leave a comment below on ways you have been able to reduce some of your expenses over time.

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