April, May, and June were great for us this year. I very much enjoy the rising temperatures and the extra day light that comes with spring. The highlight of this quarter was meeting up with my parents in Las Vegas for a couple of weeks of family fun. We also traveled to Jackson, MS for the baptism of our godson. We were very honored and exited when our friends J & K asked us to be godparents of their little one 🙂
Here is a summary of our expenses for April, May, and June, as well as the monthly average:
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 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), HOA fees (item #6), and home improvement & maint. (item #20). These add up to $1,678 for the quarter or $559 per month. There were no home maintenance expenses this quarter, which means total housing costs may be higher in the future as maintenance expenses come up. They eventually will.
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. These non-food items are usually not big amounts so it’s not worth it to separate them out. 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 #8). We believe cooking at home is cheaper, healthier, and less time consuming than eating out. Therefore, we don’t eat out that much. However, we ate out more than usual this quarter as we were traveling. Total food costs for the third quarter was $1,071 or $357 per month.
Travel: as I mentioned in the intro. We spent a couple of weeks in Las Vegas and surrounding national parks. We started off at Zion National Park:
After spending a few days in Zion, we drove up to Bryce Canyon National Park and spent a couple of days there. We then made our way to the Grand Canyon where we spent 4 days.
Finally we made our way back to Las Vegas and spent a few days there before flying back home. Our final trip for the quarter was to Jackson, MS where we attended the baptism of our godson.
Traveling for Pennies on the Dollar
Thanks to travel credit cards the total cost of 11 hotel nights, 4 round trip flight tickets, and a rental car for 11 days was only $815 (item #4 + item #9 from the table above). Without the miles and points, the total cost of the trips would have been over $3,000. Using travel rewards point is an awesome way to enjoy traveling without braking the bank. I plan to write about travel rewards in more detail, but for now check out some of the best credit card offers.
We could have saved another $500 or so by booking all hotels with points, but we decided to stay inside the Grand Canyon National Park. As far as I know there wasn’t a way to book that hotel with points. Time is one our most valuable resources, so we were happy to spend the extra cash here to avoid having to drive in and out of the park everyday.
Savings Rate: our savings rate for the second quarter was 76%. Income was a little higher than usual as we received an income tax refund from North Carolina of $790. Other than that income was pretty stable. According to The Shockingly Simple Math Behind Early Retirement, a 76% savings rate means reaching financial independence in about 7 years (assuming you are starting from zero). As mentioned above, income was slightly higher than usual in the second quarter of 2018 and there were no big expenses, so we would expect our long-term savings rate to be a little lower.
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 your 2018 been so far?