The first three months of the year were great for us financially, and relatively quiet otherwise. We came back from spending new year’s eve in Florida, settled back into our routines, and tried to play outside with our little one as much as the weather allowed. Without further introduction let’s get into the numbers.
Let’s dig into some of the larger and more interesting items.
Daycare: not surprisingly daycare continues to be our biggest recurring expense. 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 also 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 27% (Federal + North Carolina) this results in savings of $1,350 ($5,000 * 27%).
Since my daughter turned 2 at the end of last year. The weekly rate is slightly cheaper so that helps as well. Last but not least, we pay for daycare with credit cards. This helps us earn several signup bonuses per year, which results in free or nearly free travel. Click here for the best and most up to date credit card offers.
Housing: housing costs are comprised of home maintenance (item #3), mortgage interest (item #4), and HOA fees (item #6). These costs add up to $1,758 for the quarter or $586 per month. One large unusual item this quarter was $670 we paid to replace part of our living room flooring that got damaged due to moisture getting it in through the back door.
Another thing to note on housing is that we removed the escrow account from our mortgage. So we will have one big annual payment for home insurance and one for property taxes later this year. We did this for a few reasons. First, we can invest the money through the year and just make the payment when it comes due, rather that letting the mortgage company hold it without paying us interest. Second, this gives us the ability to pay the home insurance with credit cards, which can help us score some free travel.
Food: this includes both “supermarkets” and “food outside”, and totaled $1,484 for the quarter. Or $495 per month. Cooking at home is healthier, cheaper, and less time consuming than eating out. Therefore, we don’t eat out that much. We do most of our grocery shopping at Aldi with the occasional trip to Trader Joe’s or Walmart for things that we don’t find at Aldi. Check Aldi out if you haven’t already! Just make sure to bring a quarter and your own bags 🙂
Travel: the $129 we spent on travel this quarter is made up of $34 we paid for our flights to Colombia, and $95 for the annual fee on the Chase Business Preferred credit card. We earned a sign up bonus of 80,000 points on this card (worth at least $1,000 towards travel). It is also the only Chase card I have at the moment where points are transferable to travel partners (AKA hotels and airlines), so the $95 annual fee is totally worth it.
Savings Rate: our savings rate for the second quarter was 81%. Income was higher than usual this quarter since we received a $5,000 reimbursement from our Dependent Care Flexible Spending Account (DCFSA) in January. We put money away (tax free) from each paycheck into this account throughout the year, while at the same time paying for daycare out of pocket. Then, at the end of the year we reimburse ourselves. This reimbursement usually hits our bank account in January as it did this year. 2019 is off to a solid start!
Methodology and Closing Thoughts
We use Personal Capital, a 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. Finally, we calculate our savings rate as follows (income – expenses)/income.
Expenses is exactly what you see in this post. We don’t include mortgage principal as we don’t see it as an expense. It’s simply one asset converting to another (cash to home equity). For income, we only count net income. It only counts if it increases our net worth. Things we count towards income: cash that hits our bank account from our paychecks, 401(k) contributions, HSA contributions, other small non-recurring items (cash back from credit cards, tax refunds, etc.). Things that are part of gross income but we don’t include in our calculation: taxes withheld from every paycheck (Federal, NC, FICA), and the employee cost of health insurance that gets automatically deducted.
The entire process of tracking our expenses monthly takes 10 to 15 minutes, and we get a clear picture of where our 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 your 2019 been so far?