The second quarter of 2017 flew by as the days got warmer and longer. I must say, spring is one of my favorite times of the year as I’m not a big fan of cold and short days (see Q1 expenses here). It was generally a quiet quarter though we had family visiting us in April, and we traveled to Colombia late in June.
Let’s dive right into our expenses for the second quarter of the year.
The table above summarizes our expenses for the first three month of the year from highest to lowest. Let’s explore the bigger and more interesting items.
Daycare: as expected this became our largest line item for the quarter. Yes, daycare is freaking expensive as anyone who has ever used the service is well aware. We were fortunate to find a great place that is right across the street from our house so at least we are not spending much in terms of time and transportation. We also found a 10% discount through my wife’s employer. Another way to decrease the cost is through the a Dependent Care Flexible Spending Account (DCFSA), which allows us to contribute $5,000 of pre-tax income to cover childcare expenses. At a marginal tax rate of 25% this results in savings of $1,250 ($5,000 * 25%).
Housing: housing costs are comprised of mortgage interest (item #3), mortgage escrow which includes home insurance and property taxes (item #6), and HOA fees (item #7). These add up to $1,752 for the quarter or $584 per month. Regarding housing costs, I should mention that we didn’t have any repairs or maintenance expenses during the second quarter. Because something (water heater, fridge, etc.) is bound to break at some point, I expect long-term average housing costs to be higher than $584 per month.
Food: “supermarkets” was the 3rd largest expense for the quarter. This includes mainly groceries, but it also includes diapers, baby wipes, paper towels, and other non-food items we regularly get at the supermarket. We do most of our grocery shopping at Aldi. I highly recommend you check it out if you haven’t already. The other component of food is “food outside” (item #15). We believe cooking at home is cheaper, healthier, and less time consuming than eating out. Therefore, we don’t eat out that much. Total food costs for the quarter adds up to $836 or $279 per month.
Travel: item #5 is mostly made up of $600 we paid for Camp FI tickets ($300 per person). This event will take place in Florida over the 2018 Martin Luther King weekend. The ticket price includes 3 nights of lodging and all meals while we are there. The organizers sell the tickets at cost and the opportunity to meet really awesome people is worth every penny. Read my review of Camp Mustache 2016 if you want to get a better idea of what these events are like. Last but not least, we booked flights to Mexico for November, but you will not see an expense here because we paid for the flights with travel rewards 🙂
Others: item #8 generally includes stuff that doesn’t fit in the other categories. It includes $279 we paid for the baptism celebration of our daughter. She has a cousin that is about the same age so both kids got baptized at the same time while we were in Colombia. The event turned out to be quite nice and it was a great opportunity for extended family to meet our baby.
Savings Rate: we were able to keep our savings rate at 75%, consistent with the first quarter of the year. We received a tax refund from an error Elisa’s employer made during 2015. Technically this refund should be 2015 income, but we started tracking our expenses late in 2015 so it would have been a hassle to go back and try to make adjustments. Since the check from IRS came in June, we are counting it as income in Q2 of 2017.
According to The Shockingly Simple Math Behind Early Retirement, a savings rate of 75% will get us to financial independence (FI) in just 7 years! And that’s assuming you are starting from zero. As exciting as that sounds, our savings rate will come down a bit since we are not expecting extraordinary income items for the rest of the year and expenses should remain relatively steady. All in all, we are still on track to beat our 2016 savings rate of 58%.
Methodology and Closing Thoughts
We use Personal Capital, a very useful free online tool, to track all of our finances. From there, it is easy to move the data into a spreadsheet to have it in the format you see above. You can download a free copy of the spreadsheet we use here. Finally, we calculate our savings rate by dividing our savings over our income. Just for clarity, “income” includes mainly our take home pay and 401-K contributions. It also includes the occasional odd item such as the IRS refund I mentioned above, sign up bonuses for credit cards, proceeds from online sales, and other small and unpredictable items.
The entire process takes 10 to 15 minutes, and you get a clear picture of where your money is going. You work hard for your money! Make sure you know exactly where it is going, and ask yourself if the things you buy with it actually make you happy. The practice of tracking expenses, regardless of what method you use, is one of the most commonly recommended by most of my FI role models. I encourage you to give it a shot if you haven’t already.
How was your second quarter? What were your biggest wins and losses?