The third quarter of the year was a good one for us. We came back from Colombia where most of our family got to meet our daughter. She even got to meet her great great grandmother who is over 100 years old! Isn’t that crazy? (see 5-generation photo below). Another event to highlight is that we replaced one of our old cars, which as you will see put a dent in our savings rate this quarter. Other than that we enjoyed the hot summer weather of North Carolina, and had a blast seeing our little one grow up 🙂
Without further introduction, here are all of our expenses for the third quarter of 2017!
The table above summarizes our expenses for the first three months of the year from highest to lowest. Let’s dive into the bigger and more interesting items.
Others: almost all of this comes from replacing my very old, two-door car for a nicer, more efficient, and roomier Nissan Sentra 2014. You can see all the details about that transaction here. The net cash outflow from replacing my car was $7,150 since I sold the old one for $1,150 and purchased the new one for $8,300. Even after taking into account the sale proceeds, our savings rate for September was -19%, OUCH!
Even though this is not a recurring expense and we have a healthy emergency fund, it was kind of frightening to see a negative savings rate (first month of negative savings since I started tracking our expenses in June of 2014). Having the -19% staring at me made me grateful for the space we have been able to create between our income and our expenses and the inevitable nest egg that comes along with having that space month after month.
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 #5), and HOA fees (item #7). These add up to $1,725 for the quarter or $575 per month. I should mention that we didn’t have any repairs or maintenance expenses during the third quarter. Since something (water heater, dishwasher, etc.) is bound to break at some point, I expect long-term average housing costs to be higher than $575 per month.
Food: “supermarkets” was the 4th 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, which I highly recommend you check out if you haven’t already. The other component of food is “food outside” (item #13). 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 $924 or $308 per month.
Education: the $421 here are related to the Professional Engineer exam and licensing requirements for the wife. These include registration fees, textbooks, ordering school transcripts, etc. I’m very proud to say that she passed the exam on the first try and is now licensed as a Professional Engineer! Which came with a bonus and a promotion, so this was money well-spent as far as I’m concerned 🙂
More importantly I respect her and admire her more than words can describe. She woke up at 5am to study EVERY DAY for over 3 months. I passed most of the CPA exams before becoming a dad, and a few of them before I even started working full-time, easy. She did it all while being an awesome mom, wife, and full-time worker, amazing!
Savings Rate: due to the car purchase our savings rate for the third quarter of 2017 dropped to 45%, which is well below the first two quarters.
- Q1: savings rate = 75%. Total expenses = $6,775.
- Q2: savings rate = 75%. Total expenses = $7,999.
- Q3: savings rate = 45%. Total expenses = $15,176.
Income was fairly consistent this quarter. The only unusual inflow we received was $1,150 from selling my old car. I think it’s worth noting that with a savings rate of 45% it would take about 19 years to reach financial independence (FI)! (assuming you start with a net worth of zero). While 19 years is way better than the average working career of 40+ years, I rather reach FI quicker so I’m planning to get back above 65%. Unexpected large purchases, please stay away from my life 🙂
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 was your third quarter?