The first three months of the year are usually a little too cold for me in North Carolina. This year we were lucky enough to go further south for a few of those days. Early in January we came back from New Orleans, a family trip we started around Christmas. Shortly after returning home, we headed back south to attend Camp FI Southeast in Florida. After Camp FI, we returned home and back to work. We continued to enjoy our time with our little one. She is an endless source of entertainment, chaTllenges, and purpose 🙂
Let’s dig into some of the larger and more interesting items.
Daycare: big unusual expenses aside, daycare continues to be our biggest recurring expense. No surprises there. We remain grateful to have found a great place right across the street from our house as it saves us lots of time, and time after all is our most valuable resource. We were lucky to have found a 10% discount through my wife’s employer. Another strategy we use to decrease the cost of daycare is through the use of 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 #4), HOA fees (item #5), and home improvement & maint. (item #6). These add up to $1,939 for the quarter or $646 per month. The only unusual item here is the $240 we spent on home improvement. This includes plant pots, potting mix, and plants we bought to decorate our backyard. This is the end result:
Food: “Supermarkets” (item #2) 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, which I highly recommend you check out if you haven’t already. The other component of food is “food outside” (item #9). 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 third quarter was $1,067 or $356 per month.
Others: the “others” category is where I put random expenses that don’t fit into any of the other categories. The majority of the $185 we spend this quarter comes from expenses for running this blog. These are mainly hosting and renewing the domain “financeclever.com”. The rest of the expenses are smaller miscellaneous items that I don’t track separately.
Savings Rate: 2018 is off to a great start with a savings rate of 78%. Income was a little higher than usual with the wife getting a bonus from work for passing the Professional Engineer exam. We also received a federal tax refund of $363. I’m happy with a small refund as a bigger refund would just mean we are lending too much money to Uncle Sam for free. According to The Shockingly Simple Math Behind Early Retirement, a 78% savings rate means reaching financial independence in under 7 years (assuming you are starting from zero). As mentioned above, income was higher than usual in the first quarter of 2018 and there were no big expenses, so we would expect our long-term savings rate to be lower, but only time will tell 🙂
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 total savings over our total income. “Income” includes mainly our take home pay and 401-K contributions. It also includes the occasional odd item such as tax refunds, reimbursements, sign up bonuses for credit cards, proceeds from selling old stuff, etc.
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 has 2018 been for you so far?