Budgeting for Financial Freedom

Ah yes budgeting. Would this even be considered a financial conversation if we did not discuss budgeting? Budgeting really is a crucial element in your day to day life and your FI/RE plans really depend on it. That said, let’s talk about one really interesting, but also different metric - this is what I call the non-negotiables.

Today’s world is not the same as it was 30 years ago. Back then the items on the budget would have been:

Home (Rent or Mortgage)
Electric
Heating (Gas or Oil)
Car Payment
Insurance
Cable TV
Food

Now however, we have a slightly different model, as things have become quite fractured. We have all of those things our parents had, but we also have:

Student Loans
Internet
Cell Phone
Streaming Services (Netflix, Hulu, HBO go, etc.)
And others

So when we discuss non-negotiable budgeting as related to financial independence, we need to really look at our expenses and rank those that we can, and cannot live without. Here is what non-negotiables may look like (per month).

Home: $1000
Internet: $40
Car Insurance: $50
Electric: $50
Oil: $50
Food: $100

Total: $1290/month

So my bare living expenses are $1290 per month. If I can achieve that level of income with my side hustles or passive income, then I have potentially achieved FI. If I were to lose my job, I would not have to worry about getting evicted, going hungry, or not being able to fill my tank to go on interviews. This obviously does not count things that you probably want to do (resturants, travel, spend far too much on Amazon, etc) but it is a great way to identify what you absolutely need.  

One interesting item you may have seen on my list here is internet. This is a key item in my opinion, the internet really enables a job search, and will likely be the vehicle to you side hustle. If you have the ability to share with a neighbor, or can reach the coffee shop down the street, great, that is one less item to have.

Great, you have now determined you drop dead, non-negotiables. The first step in your fire journey before anything else is determine what kind of emergency fund you need. This is going to be different for everyone, every family, in every location. If you have a car payment or student loan payment for example, you should budget accordingly. Next determine how long you would realistically need to find a new job, then I recommend doubling that. So if you work in a highly specialized field, that pays well, but not many companies offer it and you think it will take 4 months to find a new job, budget for 8 (meaning you need at least $10,320 using my sample) in liquid assets (cash). If however, you work in a field and you know that you can easily find a new great fit in 3 months, you can get by with 6 ($7,740). This emergency fund really is the first bucket you should have, throw it into a high yield savings account, then we can continue discussion other investment strategies.

Any budgeting tips you like? Would love to hear about them.

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