In this post I will review three months of my spending, January to March 2021. I didn’t have any major expenses during these months such as medical bills, car insurance or home repairs, so I know that I should not be extrapolating the three month average to the whole year.
I will not share my earnings in this post, but I have to admit that I am very well paid and I share my expenses with my partner, we have no kids. And even though I could spend much more I live well below my means. Depending on your budget and earnings my spending can look to you like a lot or like a little. 10 years ago, as a student, I used to live for about 300 euro a month which barely covered my housing (in a shared room in a subsidized dorm in a cheaper country) and food. Compared to that, my spending now feels extravagant. On the other hand I think I’m much cheaper than lots of people in my earning bracket, and my partner occasionally calls me a scrooge.
I live in Dublin in Ireland which is an expensive city and I don’t always make the cheapest choices. My partner and I currently have a mortgage and we are working from home during the pandemic.
What have mainly changed with the pandemic compared to our typical expenses:
- We don’t eat out much
- We don’t spend on traveling
- We spend less on hobbies, e.g. no climbing gym expenses
On the other hand our work used to provide amazing perks such as free gym or free food. The free food was saving us both time and money. Now we have sizable grocery bills and cook almost every day.
How I set up my money and track my spending
I have never liked explicit budgeting of my expenses and day to day I don’t really focus on it. I like to set it and forget it. Most of my transactions are automated and almost all my spending is not in cash (debit cards and money transfers), so it’s overall easy to track and review.
I organize my finances as follows: before I even see my paycheck, a part of it is deducted for the pension contribution. I contribute 15% of my pre tax pay and my employer is matching additional 7%. This obviously reduces my paycheck, however I think it’s totally worth it because of the free money from the match and reducing my tax bill. The downside is that I won’t be able to see this money until retirement age, which is fine.
I have recurring transfers that send:
- 1500 to the joint account with my partner
- 500 to a savings account
Our joint account covers any costs related to living together such as mortgage, bills, petrol, food. When we have too much in it, we make additional mortgage payments to pay off our mortgage faster. Until recently we were renting out a spare bedroom and we were also receiving rent for that into that account.
Later, after those automatic transfers are done I send a sizable transfer to an online stock broker (degiro or Interactive Brokers). I pick the amount to send in a way that I roughly leave 500 euro for other spending plus additional buffer., I have an additional buffer of about 3000 to make sure I avoid unnecessary bank charges if I dip below my intended spending. So my current account balance should always be between above 3000/3500.
This 500 euro above the buffer is effectively my budget and covers a mix of needs and wants.
Where does my money go?
For those 3 months of expenses I was using a budgeting app ‘Lunch money’. I never used any budgeting software before and I was curious about it. It had a integration with my Irish bank AIB, so that worked out pretty nicely. But you don’t need a special app, AIB website and a spreadsheet would be fine as well. I reviewed most of my transactions from my personal and joint current account and categorized them.
Here are my categories with the monthly average:
- Donation (9)
- Software & Infrastructure (33)
- Subscriptions (58)
- Supplements/Pharmacy (46)
- Hobbies (114)
- Clothes (33)
- Misc (50)
- Eating out (41)
- Mortgage (835)
- Groceries (280)
- Bills (90)
This roughly sums up to 1580 a month of actual living costs. If I account for additional expenses that will happen sooner or later, e.g. car insurance, repairs, medical, travel I could round up my living costs to 2000 a month.
Minimum living costs
My minimum leaving costs are mortgage (835) + groceries (280) + bills (90). I need my place to live, electricity and food. Together it yields ~1205. My housing cost is already pretty good for central Dublin with me being responsible for a half of our mortgage. When I first moved to Dublin I paid more in rent (1800 for 2 bed), now similar properties are even more expensive. Rents near my place are pretty ridiculous to be honest, but it’s a nice neighbourhood.
If I needed I could lower my housing costs further. We had a flatmate for more than 2 years that would cover a decent part of the housing cost (moved out last month). We could rent the room to another person again and we could extend our mortgage to lower the payment. If we changed it to 30 years, it would slash our payment in half. If on top of that we got a flatmate, it would offset the mortgage cost completely.
Bills include electricity, internet and petrol (my employer pays for my phone). I don’t really see how this cost could be lowered much. Typically we use more heating in the winter so I expect the bills to be lower in the summer.
I find the grocery budget of on average 280 per month for a single person to be rather high, but surely is much cheaper than a budget of eating out/deliveries every day. I know, it’s a low bar. But you would be surprised how many of my peers eat out a lot, even during the pandemic.
I do a lot of sports and I eat a lot. We buy at tesco and specialty shops. If we went to aldi or lidl instead, we would easily save 30%. We could also focus on buying more economical food, e.g rice and beans, frozen instead of fresh and avoid organic. We just focus on buying good quality food we would feel like eating and not wasting it.
We typically take turns for cooking dinners with my partner. We’ve been chatting about it recently and having one takeaway a week is a great life improvement for him, because he gets tired of our cooking (let’s say we are no master chefs here) and he values variety. Personally, I could probably eat the same things I like every day and never get tired of them, but making my partner happy is more important to me than saving a small amount of money.
In my donation category I include patreon and ad hoc donations to various charities and open software. I believe that you should put your money where your mouth is and donating money can be a great way to support organizations and things you believe in. In Ireland high earners are taxed heavily already and hopefully my hard earned tax money goes to good causes, but I have very little visibility or control over where it is actually applied. Donating directly gives me the control to decide what this money will be used for.
I am a pretty cheap person, but a while back I had established that I would be happy giving 50 euro plus every month. It’s not a lot, but I guess it is much better than nothing and I want to be a type of person who shares their wealth.
I have underdelivered on that target and have donated about 10 euro each month in those 3 months. I used this money review to restructure my donations. I cancelled patreon membership for the cause that I didn’t particularly care about and thought deeply about what to donate to. I decided to split it between the most effective donation in terms of lives saved and a change in the world I want to see. You can use givewell to learn about effective altruism.
The company I work for has a program where they double the employee donation if it is given to an internally verified charity. They do that to about 8k euro a year. Both organizations were verified, so I set up a monthly paycheck deduction for donations of 50 euro having 100 euro going to those charities, divided equally. This way, I don’t have to worry about picking a cause to donate every month and my donation impact is doubled.
Software & Infrastructure
This category includes my costs associated with running my software side projects. This includes paid APIs, servers, domains, business services (google workspace), etc. Those costs are powering tinystruggles.com and redeal.app. I also have some more things in the works. I don’t earn money from those projects and well, the costs are more likely to increase than decrease. They could easily spiral out of control. But I enjoy working on these, I learn new skills and maybe I will make a business out of one of them at some point. Having a software startup is my long term dream and doing such projects gets me closer to it.
I guess the subscription cost was higher than I expected, most of it comes from the things I actually have a lot of value from, but are not essential, but there were also some surprises. For example I have a youtube premium that gives me youtube without ads and music streaming - I replaced my spotify subscription with it. I also have google one - which is a decent backup solution for my important files.
And there are some other apps that are paid on a yearly basis. Those are especially tricky because the renewals come out of nowhere! Often I would totally forget I signed up to this app and then boom! 80 euro payment five months after I used the app for the last time. Yearly plans are very beneficial for businesses because they give them your money upfront and if you are confident that you will be using the app long term, they are also good for you, because they often offer a good discount. However more often than not you end up forgetting about it and pay 2 years of charges for it, once when you sign up and once on the yearly renewal.
Subscriptions can be super valuable or be a total waste of money, the biggest difference is in if you are actively using the provided services or not. If you don’t, or use them very occasionally, err on the side of canceling. You can always resubscribe.
On top of the stuff above, here are some other categories of expenses:
- Hobbies (114)
- Supplements/Pharmacy (46)
- Clothes (33)
I buy supplements such as protein powder and multivitamins, occasionally I try out something else. Training and health are important to me, so I’m happy to spend in this category. I am pretty stingy with my clothes budget, because I think most people buy stuff they don’t need and later don’t wear, I did that when I was younger. Later I stumbled upon minimalism, started decluttering, moved across countries and started valuing a minimalist wardrobe. But even if you don’t buy unnecessary things, clothes break and need to be replaced. In recent months a bunch of my jeans, socks and shoes developed holes and I just needed to do some shopping.
My hobbies category includes mostly training related costs, in person language tutoring, online sports classes, courses and books. As long as I use it and it’s good value for money I am happy to spend there.
Why controlling your spending matters
It’s easy to fall a victim to a lifestyle creep and just keep increasing your spending as you earn more. You could ask, as long as you don’t get into debt why should you care? Why not enjoy the life to the fullest?
Having leaner spending has huge advantages. You can save and invest more and this way buy yourself freedom and security. This freedom can have different forms, it could be financial runway to quit your job and start a new business, take a gap year or switch careers. Or you could eventually earn enough to have 25+ times your yearly spending and reach financial freedom, making work completely optional for the rest of your life.
My rounded up monthly spending that includes non-monthly expenses plus some additional travel budget will give me about 24k Euro in yearly spending. This is fairly reasonable and with 100k saved up could give me 4 years plus of runway. If I was spending 50k a year, then I could only have 2 years of runway.
For financial independence (calculator), one needs 25 times (or more) of their early spending. With 24k of expenses that gives 600k invested. If my spending was 50k a year, then the number would balloon up 1.25 million which feels much less achievable. Especially if I was earning the same amount, because then my saving rate would be significantly lower.
Having control over your spending is super important, your money is your life (well, mostly time). But this doesn’t mean we should go to the extreme and sacrifice all the happiness for just a bit more money. Obviously, your situation might be different, but overall, for the most people the right thing long term is to reach a happy medium and focus on spending on things that give you the most value for their cost.
The key is to look critically at things and avoid spending that is not aligned with what you care about. It’s not always about spending the least money, but about spending your money in the right way.