I have been carrying on an annual tradition of sharing how much I spend in the year, and today I will do the same and share my spending in 2022.
When we receive our income, we allocate it in the following ways:
- Spending for today – These are our current expenses.
- Spending in the past – These are the repayments on the debts we owe.
- Spending in the future – These will be our savings and investments. They are meant to fulfil a life goal in the future, which will require some money.
I need to consider whether I spend today or in the future and minimize how much I spend today to pay for my past. Some save too much of their spending for the future and sell themselves short today, while some end up paying for sizable spending in the past.
Are we wise spenders?
We can certainly try to get better.
I told my friend Zhirong that tracking your expenses is not just about data entry but eventually being in tune with how you spend. If you are spending close to your life philosophy, and your life philosophy is objectively sound, then it is all good.
But if it is not, you have to review it.
Spending is essential if you are less in tune with how you allocate money but less critical if you have that awareness. At work, we have enough prospects who come in and express their shock at particular large expenses they spend. The number came as a shock because there are some things that, if you don’t put the number on a piece of paper, you might not realize they add up to such an amount.
Tracking spending is not OCD behaviour. It gives you a certain level of financial clarity. You can always stop if you gain insight into your general spending amount.
How much did Kyith’s family spend in the past few years?
I wrote about how much I spent yearly for the past seven years.
If you are interested in how spending evolves, you can read them here:
- 2014: $23,798/yr – A review of my past year’s expenses
- 2015: $22,150/yr – How our family’s $22,150 annual expenses mean for our financial security and financial independence
- 2016: $26,238/yr – My Annual Expense Report – $26,238/yr and its link to Financial Security and Independence
- 2017: $21,723/yr – Annual Expense Report 2017 – $21,723
- 2018: $19,655/yr – Annual Expenses and Financial Security Musings
- 2019: $23,186/yr – Spending Report for the Year
- 2020: $22,464/yr – How I spent $22,464 in 2020
- 2021: $27,680/yr – Annual Expenses Report 2021
In the first 3.5 years, the expenses comprised three adults’ spending. The expenses were spent on two adults for the next 4.5 years (including this year).
Let us move on to my 2022 annual expenses.
Review of My Family’s 2022 Expenses
The following table shows a breakdown of my spending in 2022:
The annual expenses come up to $39,187.
If last year was the highest amount I spent since the number of household members fell to two, this year was the year where the spending is just the highest that it has ever been since tracking in 2014.
The chart below will show the difference from 2021:
Given the degree of inflation, there was not a lot of organic increase in spending because of that, mainly because the usage is also lesser.
The most significant increase in my expenses was rich life living & entertainment, transportation, medical and taxes.
I gave people fewer gifts this year, but spending to meet up with people picked up dramatically (under rich entertainment). Net-net, there was a fall in rich entertainment and gifts.
After work from home ended, transportation costs picked up dramatically. This is not a big surprise.
If no credit card hacks can be implemented, I decided to fxxk it and pay off all my taxes in one shot. The taxes were higher for blog income in 2021. The taxes look rather dramatic compared to last year because last year, the income was much lower than two years ago.
I stopped some medical therapy myself in the middle of the year when a family member needed more medical help. I decided to foot a considerable one-time cost to bring on a caregiver full-time. You will only see one month of recurring caregiver costs in my expense table. More of the cost will be seen in next year’s report (if needed).
On top of that, the medical cost has come online here and there for the past six months.
I got to thank my CPF Medisave and my family member’s Medisave for tank more of the medical cost damage.
Here is a different view, which shows the average monthly expenses in a pie chart:
If your expenses are lean, a dramatic change in a few lines will cause a big jump.
The Relationship Between Our Spending and Our Financial Independence Goals
If you are planning towards financial independence because you crave work optionality, more agency in life, autonomy, and financial security, being very in touch with how you spend your money is essential.
I have always referenced how I spend for the year to see if there is a need to modify two sets of expenses that are critical to two different stages of financial independence: Financial Security and Financial Independence (You can check out my article about the 11-Stages of Wealth to see the two stages I am talking about):
- Financial Security: Provide an income stream to secure my most inflexible and essential expenses.
- Financial Independence: Provide an income stream to make work optional, and increase time agency.
The more you be in touch with your expenses, the more you will know if you need to adjust your income requirements higher or lower.
After reviewing this year’s spending, here is my finalized income requirement for both financial security and independence:
If you look to the right, you can see the aggregate annual expenses for 2022, financial security and independence, and the wealth required to provide a long-term income stream.
Initially, I used a 3.5% initial safe withdrawal in my previous years’ estimation of how much is needed to generate a stream of income for each goal respectively. I decided to revise the initial safe withdrawal rate downwards to 3.0% with the information that I know now. 3.0% is reasonably more conservative to last for a 40-60 year period and may buffer for periods with persistently higher inflation.
With a revision to 3% and a higher annual expense, this means that the wealth required balloons up to $1.3 mil, which is nearly double the wealth needed in 2021 ($790,864).
You can pose a question to yourself:
How possible is your expense in retirement to balloon nearly 80% like mine?
The higher the expense, the more wealth you need, all else remaining constant.
I decided to update some of the expenses needed for financial security according to my previous financial security article notes here. The annual expenses are lower (from $15,480 to $13,728 a year), but the wealth mainly needed remains the same (from $442k to $457k) because of the lower initial withdrawal rate. Less income but a more conservative income stream.
I did not change any of the financial independence expense line items. Due to the more conservative initial withdrawal rate, the wealth needed goes up from $589k to $692k or nearly $100k more.
Conclusion – What is in Store with my Spending Next Year
I don’t want to jinx things by saying things will be primarily the same as this year. That was what I said a year ago and as you can see, the change is rather dramatic.
I am pretty sure the mortgage will be gone. I have one more month to pay.
Income should be lower because I can already see what was earned, so that income tax will be lower.
There will be some uncertainty in my medical expenses forecast. I estimate it will essentially be the same; the timing will be rather jumbled up. Much will depend on how the treatment goes or whether the family member can hold up well. If not, it will go away.
Then there might be a need for some spending on final expenses.
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Friday 6th of January 2023
Well done! It is great that you maintain such detail about your expenses. I dont know why, but I dont like to maintain such granular detail of expenses. I am exactly like you, very frugal. So I already know I am already optimized and there is no further scope for optimization and even if I do, it will make me only miserable. So I just total up my expenses by the looking at my bank statement and enter into my spreadsheet and I know the big expense is my rent, my daughter school fees and taxes. Everything else is like miscellaneous. So I dont like to dig it down further.
Instead I like to focus on how I am growing my networth, via income and via investments. This is more fun.
All the best for 2023! Happy new year!
Tuesday 3rd of January 2023
I am just amazed at your annual expenses especially in the very expensive Singapore ! You are truly gifted in maintaining a low expense lifestyle ? Maybe write a bit more on that area as well ?
Wednesday 4th of January 2023
Erm actually that is just normal living.