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I’ve mentioned that June was a tough month for us. June was difficult because we had to face the music from earlier financial “sins.” Using credit or available savings or banked funds that are earmarked for annualized expenses (e.g. insurance, property taxes, etc.) inevitably leads to a moment of reckoning when the bills come due.
Fortunately, we pay ourselves first which means there is money available to cover us and we can avoid paying high credit card interest. But Mr. Vine and I learned an important lesson about using resources like credit more carefully. We are constantly growing our financial intelligence as we work towards financial independence.
Since September 2016, we have been tracking our spending and investments in considerable detail. We are much better at tracking than budgeting. The simple act of tracking and using that data to become more mindful has helped us reduce our spending. I thought the improvement was incremental. I blamed our runaway spending in 2017 on a bathroom renovation funded primarily through cashed out equity from the sale of our first home.
I was wrong. June’s moment of reckoning led me to scrutinize our annual take-home pay and our monthly target “budget” more closely. The numbers didn’t add up. Based on my calculations, we should have had a sufficient surplus every month of 2018 to cover each month’s spending. So I looked back further. In five months during 2017 our spending exceeded our take home pay (even subtracting the bathroom renovation expenses). Our take home pay excludes sizable contributions to retirement and taxable investment accounts.
That changed in 2018. We were able to cut back (comparatively) starting in January. I’m happy to report that we are spending a little less than our take home each month. The problem was the delayed effect of all that overspending in 2017. It was unpleasant to pull a big chunk out of our investment account to zero out the credit card balance. The good news is that we still have saved more this year than we otherwise would have. In other words, we didn’t erase all of the money we contributed over the last year. And even though the market has been fairly flat this year, investing more meant increased potential for gains. We leveraged a 0% interest credit card to invest. But we don’t like how that feels.
What does it mean to earn financial independence?
Obviously, we need to earn enough to save a sufficient nest egg. But just as importantly, we have to put in the hard work to earn our financial intelligence and readiness. The process of working to reduce our spending, to become ever more familiar with the numbers and to align our spending with our values is necessary. Without these lessons, we’d never be able to live off of our investments. Nor would we be happy in early retirement.
Sure, spend less than you make is elementary financial knowledge. We knew that. But when you’re earning high incomes and the paycheck comes in predictably every two weeks, it can be easy to swim out beyond your depth. The next paycheck is a reliable life preserver.
We are in the “slog phase” (as another blogger calls it) of our financial independence journey. This is the part where the excitement of discovery has ended. We’ve come up with a timeline, we’ve started tracking spending and making regular investments. All of the big things are under control, or on track to be. Aside from tweaks here and there, we’re on autopilot. But we are still years away from financial independence.
It helps to remember that we’re earning it. In the scheme of things, we’ll look back on this as a small hiccup, an event that probably won’t affect our financial independence date. The lesson, on the other hand, is more significant. We’re already getting better at saying no to wants because of it. The journey itself prepares us for the destination. We will get there when we’re ready and that goes so much deeper than numbers on a spreadsheet or a bank account balance.
Here’s to a more frugal second half of 2018! We expect to achieve this based on front loaded grocery expenses and already-paid for travel. Our CSA share is paid up, we have a freezer full of pork, and we have plane tickets for the rest of the year’s trips.