Are We Financially Independent?//Breaking Down the Budget

In our last post, we shared that our annual spending was up approximately $10,000 compared to the previous year. We are pretty anti-budget, and we appreciate having the ability to be flexible with our spending.

However, we are even more anti-being ignorant of important stuff. I think knowing where our cash is flowing qualifies.


Our solution is to track where we spend our money and then review it periodically. Today, I am going to break down where our money went in 2016. As we approach implementation of our “Ultra-Safe Early Retirement Plan” several things are of particular interest:

  • How much are we spending on particular categories?
  • Do we need to further investigate/optimize any of these categories?
  • What expenses do we expect to go up or down in the future?
  • Could we support all of our “essential” spending with investment income?

We are fairly loose with our tracking. For example, our “Grocery” category includes all receipts from the grocery store or Sam’s Club. We don’t try to break down food versus household goods. It is all just groceries in our world. Our “Giving” category combines donations to “real” charities as well as what we would consider “gifts”, but are not technically charitable donations by the IRS. Again, we are looking at the big picture.

Breakdown by Category

Our spending breakdown for 2016 is as follows:

  1. Groceries: 23.6%
  2. Housing/Cars: 21.6% (Property taxes, Gas, Insurance, Maintenance, Utilities, etc)
  3. Giving: 11.3%
  4. Medical: 8.4% (Insurance, Deductibles, Copays, etc)
  5. Travel: 7.9%
  6. Taxes: 7.1% (Taxes on investments that we have to cashflow, above and beyond income taxes)
  7. Daycare: 6.8%
  8. Dining/Entertainment/Gear: 4.1%
  9. Random Cash Spending: 4.1%
  10. Everything Else: 5.1% (Cats, Life/Umbrella Insurance, Clothes, Kid Stuff, etc)


The purpose of this post is to share where we spend and how we analyze things. The obvious place to start any optimization is with the biggest expenses. We manually track our spending in a spreadsheet, so we look at our numbers on an ongoing basis.

Mrs. EE started the year experimenting with an auto-immune diet (gluten-free, mostly organic, minimal sugar, minimal processed food, and minimal grains). She also was experimenting with a lot of different supplements, which is not completely captured in the grocery number. As the year went on, particularly in the past four months, we have gotten much better at controlling these costs.

One simple reason is that, aside from her remaining gluten-free, we are no longer following any strict diet. We now simply buy more produce that is in season and thus cheaper and better quality, and plan around that. Another reason is that she discontinued all supplements except for taking a pre-natal vitamin (don’t read into that!) and Vitamin D.

We also have been optimizing our shopping. We started doing more of our weekly shopping at Aldi’s, which has a great selection of organic produce and decent selection of meat for a fraction of the price of our other grocery stores. We stock up on things like organic coffee, coconut oil and nuts from a warehouse store. We’ve been using the online Thrive Market* to stock up on harder to find items. We then fill in the gaps buying at our regular grocery store. Using these strategies has decreased our spending by about $200/month over the past four months of the year compared to the first eight with minimal effort and no compromise on quality.

For most American households, the top three expenses are housing, cars, and food. Even with no mortgage and no car payments, this is still basically true for us. For those of you that think that your primary residence is an investment, our experience is that our home is a consumption item that drives spending while hopefully keeping up with inflation. Likewise, buying a car with cash rather than financing saves a lot of money up front. However, driving is still expensive.

We were happy to see that giving was our third biggest area of spending. We have no desire to decrease spending in this area, and it is nice to know that we have the ability to give. While we always want to be able to help others, it is also nice to know that this is completely discretionary spending. If needed, this spending could be shut off completely for periods of time if need be.

Medical expenses are the scariest part of our budget. I had one sinus infection with a round of antibiotics. Little EE had only two “sick” visits and a round of antibiotics for an ear infection. Mrs EE is doing much better with her auto-immune condition. Still she had a couple of specialist visits and some blood tests for that problem. She also saw a hand specialist and had an MRI of her finger due to a climbing injury. With just that and my company increasing our share of medical insurance costs, medical expenses ate up 8.4% of our spending in a pretty healthy year. This is an area of serious concern as we look to an uncertain future. Our unknown future health and an uncertain future for the healthcare marketplace of our country are major wild cards in all projections.

The next three categories (travel, taxes and daycare) are really encouraging. They total nearly 22% of our budget and will almost definitely be reduced dramatically. We’ll discuss that below. Everything else is pretty minor at this point and not worthy of much consideration.

Projections//Going Down

It is always hard to predict the future, but we will try to do that now. For the immediate future we see several things decreasing in the next year.

As discussed above, our food spending is trending down. Driving costs should decrease dramatically when I stop my work commute. Despite traveling more this year, we project these costs decreasing. We have been experimenting with travel hacking and are on pace to do most of our traveling for very little cost. I will definitely be writing more about this in the coming year.

Over the long-term, travel expenses should decrease dramatically if we move west where we we will be close to all that we love to do (ski, climb, hike, paddle). This will eliminate the need for expensive short trips to have access. We will likely travel more in the future, coming back east to visit family. However, our more relaxed and flexible schedule, ability to stay with family, and travel hacking abilities will greatly decrease travel costs while allowing us to travel for longer periods of time. I anticipate nearly, if not completely, eliminating travel expense over the next few years with these strategies.

We are planning to sell our current home and move within the next 18 months. We definitely want to downsize our home and would like to try out being a one car family. I think we will substantially improve on these numbers while actually increasing happiness by carrying a lighter load.

Taxes represents the costs of selling off investments in taxable accounts over the past few years as well as paying annual taxes on dividends and capital gains. Having completed our divorce from our financial advisor in 2016, we now hold only index funds which generate no capital gains in our taxable accounts. This means no more capital gains taxes from holding actively managed funds or selling off ones we no longer want. Index funds do still generate dividends. With our income dropping, we will hopefully eliminate taxation of our dividends as well after 2017. Therefore, taxes on our investments will be eliminated completely unless we somehow are earning too much money doing things we love. This is a problem I would gladly accept.

Daycare/preschool will be eliminated within about 15-18 months when little EE is ready for school. Assuming we find a satisfactory public school system this expense will also go away completely.

On a sad note, our three cats are all older and have been requiring a good bit of vet care in addition to regular expenses. With our desire to travel for longer periods of time to visit family, we will likely be going pet free for the next period of our life once these three are no longer with us. While our home will be a bit less joyful (but cleaner) without them, the budget will be free of this expense.

Projections//Going Up

In the short term, we know that we will need to spend on updating our electronics soon. This includes needing a lap top, a new phone, and a new IPad in the next year. All of ours are very dated to the point of not even being able to accept updates of many programs.

Also in the short term, we will be switching health insurance coverage from my company to Mrs. EE’s. This means higher monthly premiums and possibly having two deductibles for the year.

We are planning a cross country move in the next year to eighteen months. We are trying to figure out the way to make that as affordable as possible, but inevitably it will be expensive. Once we move, we will be wanting some new gear we have been holding off on including powder skis with an AT set-up and kayaks.

The Big Unknowns

For the longer run, we have two big unknowns. The first is the cost of raising our daughter. While some things are already gone (diapers, special baby foods, etc) or going soon (daycare), there are others that have not even begun. For example, she now skis for free, but in a couple of years will require a pass. Aside from swim class, she currently does no organized activities. To this point, we have spend virtually nothing on her clothes, using hand me downs from her cousin. At some point we’ll probably have to buy her a pair of pants and a shirt or two of her own. 🙂

While we can’t confidently predict what our daughter will cost, at least we will ultimately have control of saying no and limiting things when we need to. This brings us to the big scary unknown: Healthcare costs.

With a new administration now in power, the prospects of Obamacare are not looking good. As both a healthcare practitioner, consumer, and finance nerd, I am aware of all of the good and bad aspects of the law. While it was deeply flawed from the start, it at least gave options to obtain health care and cap risks for early retirees and entrepreneurs. Without the law, I don’t have any idea how to even begin to estimate what medical costs will be.

Are We FI?

This is a difficult question to answer. Based on last years expenses and asset values we are not FI, based on the definition of having assets 25X spending as determined by the 4% rule.

If we eliminated discretionary spending (giving, travel, etc) we would be close, however we would not be living the lifestyle we would like.

If spending decreases as we project, markets don’t crash and the cards fall right with our health, we could be FI this year. However, those are big ifs.

If the Republicans repeal and replace with a better alternative than the ACA, we will be more confident. However, if they repeal and do not replace or have a worse alternative, we are right back to where we were eight years ago with virtually no ability to cap risks associated with developing health problems.

FI is more complicated than a simple use of the 4% rule or its inverse Rule of 25. I still think this is a great place to get started and a great target for FIRE planning. However, as we have really dug deep into doing our own planning, we have realized that there are always many moving parts.

Life is not a static model where we spend the same thing every year, adjusted for inflation. Life changes, interests and needs change, health changes, laws that govern us change. The best plan for us is the plan that gives us the most options.

Do you budget or track your spending? Do you see any blind spots in our analysis? Please share your thoughts below.

*We have established an affiliate link with Thrive Market. If you click to their site through our page and buy a membership, we will receive a small commission. Thrive is a great source for organic, gluten free, and other specialty food products as well as natural hygiene and household products at wholesale prices. They also frequently offer free products with a minimum spend. We typically avoid affiliate links to avoid conflicts of interest to our readers, but we truly love Thrive Markets products, prices, service, free shipping and company mission and are excited to share their message.

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17 comments on Are We Financially Independent?//Breaking Down the Budget

  1. It’s funny because I’m seeing an increase in FIRE bloggers who don’t believe in budgets-whatever works. 🙂

    Mr. Picky Pincher and I desperately need a budget; it’s helped us cut our spending and see what areas we could improve on. We aren’t a fan of many budgeting apps, so we keep track of our budget with Google Docs.

    Sorry to hear you aren’t FI quite yet, though! We’re still getting out of debt so it’ll be a long road-but it’s always worth it.

    1. Agree that there is no one size fits all. What works for you is the right answer.

      Thanks for the kind words, but don’t be sorry for us. We’ve taken a long winding path to where we are, but very happy to be here.

    2. I’ve noticed this too! I’m starting to think it’s because a lot of FIRE and PF bloggers are already running on “frugal autopilot” - they used to budget and track but now they’re so used to the low spending lifestyle that it’s not needed any more!

      I definitely still need a budget, but I also love tracking my spending (so many beautiful end-of-year/month pie charts! and graphs!)

      1. We definitely still track everything, even if in fairly broad categories. I think it is vital to know what and where you are spending. I like the idea of “frugal autopilot” though. We basically have our baseline spending low and in many ways automated so spending more time on a budget offers very little ROI for our time. Rather, as we track, we just look if things seem out of whack or more than we want to be spending in a certain area and then figure out where and how we need to be more efficient.

  2. Oh, a new little EE coming to the household, how exciting, congratulations!! Kidding, just kidding. 🙂

    Yeah I changed our “budget update” to “monthly spend tracking” because that’s essentially what it is. We don’t have set amounts for certain things, but we do like to see when costs rise somewhere signalling we need to be more mindful in that category. Mrs. SSC thinks the grocery costs could be lower, so we’ll work on that, but it’s not like we have $500 for groceries, period! Hahahaha, that would suck…

    Like you guys, the best plan for us is the one that gives us the most options. While we’re currently here, we could be somewhere else very soon and figure out that phase of our life when it happens. Until then, we’ll keep planning towards FI and staying flexible with life.

  3. Thanks for sharing. I enjoy following along. Glad to hear everything is going well with you three! Let’s catch up soon!

  4. Our budget is like yours: high level bucket for groceries and house hold stuff…

    I agree with your idea: FI budget should cover the lifestyle you want, not a minimalist life.
    We are working towards semi FIRE where there is work during most of the year, and then time for travel during 3-4 months per year: ski, world travel and a European holiday…

    1. Sounds like a great balance to me, more in line with the 4 Hour WW concept of mini-retirements. We may end up doing something similar as we are still figuring things out.

  5. Hey EE,
    Glad to get an update on your family. And very glad to hear Mrs. EE has stabilized and found her groove with the diet. Our budget trends over the last few years played out much like yours.

    Health insurance is also the big wildcard, but we’ve pulled out an ace or two of our own - living abroad! As you know, we’re in Ecuador for the next year. And while all expenses aren’t significantly lower, health insurance + fruits/veggies are MUCH lower (love the local food markets with year-round produce).

    After 2 weeks on a travel health insurance, we signed up for local, private health insurance. We pay $165/month, no deductible, and we have a choice of several good private hospitals (in network) and they’ll reimburse (I think at lower %) at other hospitals for emergencies. Our oldest daughter had a throat infection recently, and we even had an MD do a house call for $10! Crazy.

    I’ve been 100% entrepreneur, pay-my-own-health-care for years, and our Obamacare insurance this year would have been $1,100/month with a $13,000 deductible for the family. Talk about a savings here. But even that would be ok compared to the unknown of the future. So, I feel your pain on that one.

    But in the big picture, I think all of our flexibility and creativity will win out. Yes, we can’t cover every contingency. But when has life ever been 100% secure. I mean you and Mrs. EE are semi-extreme sports people, right? You eat challenges for breakfast!

    Keep up the updates, and hope to see an Ecuador trip in your budget some month later this year:) Just carve out health insurance savings and use it for the trip here!

    1. Thanks for the kind words. I admire your and Kari’s sense of adventure and have been enjoying living vicariously through Your girls hit the parent lottery! I’m sure we could fit Ecuador into the $ budget and would love to, but doubt it will work with the time budget depending on when we start the work transition and need to spend some time out west to find our new home. It will be a crazy year that is already flying by!

      Your perspective on healthcare is appreciated as someone in a very similar financial and family situation. It is sad that our system has such out of control expenses that smart people are choosing to leave our country not only for a year as you guys are, but as a permanent decision. I am curious to see what this new regime will come up with for a system. I am not an Obamacare fan as are so many in the FIRE community seem to be, but am not optimistic it is going to be improving either.

      We definitely share your sentiments on being flexible as the best solution.

  6. I just found your site, and really appreciate your perspective. My family is in a pretty similar situation (aside from being a few years behind you in terms of nest egg size). I started out a few months to a year ago as kind of a FIRE fundamentalist, but as we get closer, realize it’s not as simple as I thought. My wife loves her job and works 25hrs/wk and makes $53k! She doesn’t want to quit and wouldn’t know what to do with her time if she did. I’m self employed with a darn good job, and work 10-30 hours per week depending on work load, and when I was farther away from FI I saw myself quitting someday, but now that I’m getting closer, I’m not sure that’s what I want to do. I already have pretty much all the flexibility I could ever want. Two school age kids mean I’d have WAY too much time to myself, mostly alone time, cuz all my 30-45 year old friends are working 8-5 all week. The way your philosophies are shifting as you approach FI kind of parallel mine, so it’s really interesting to read your perspectives.

    The closer I get, at age 34, the less I can see myself not working. Work is fulfilling, and finding a good job that doesn’t encroach on the other things I love (outdoor time, family time) just might be the best combination of factors, time will tell.

    So thanks for the perspective, I’m really digging your posts!

    1. Ken,
      Thanks for the kind words. Glad you can relate and benefit from the blog. I hope to hear more from you as you read along. I started this with the idea of teaching others through sharing our story, but we are constantly learning ourselves and reader feedback is invaluable in the process. Thanks again for taking the time to comment and best of luck on your journey.

  7. If you spend any time reading financial blogs, one of the things you ll come across is the pursuit of Financial Independence, that stage in life where work becomes optional.

    1. Good point and I think this is where we are at. We probably are not at the point where we can safely assume that we are FI indefinitely, but we also are at a point where we can step back, breathe, and take a very long break to determine what we really want out of life and if and how work fits into that.

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