April, May, and June were great months for us. The first half of April was really hectic for me because of the April 15 tax deadline. After that, I took some days off to relax and catch up on life. In May, we spent nearly three weeks in Colombia. It was great to see family and recharge. Back in North Carolina, we tried to spend as much time outside as possible with our little one. 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 are 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. Last but not least, daycare was slightly cheaper this quarter as we didn’t have to pay for one of the weeks we were in Colombia.
Food: This includes both “supermarkets” (item #2) and “food outside” (item #5). We spent a total of $1,152 this quarter, which works out to be $384 per month. This was a little lower than usual ($495 per month in Q1). This was probably because of the three weeks we spent in Colombia. Food is cheaper there and the exchange rate was very favorable to us while we were there. We also tried to pay for groceries and meals many times but our parents didn’t always let us.
Housing: housing costs are comprised of mortgage interest (item #3), HOA fees (item #4), and home maintenance (item #17). These totaled $1,102 for the quarter or $367 per month. One thing to note regarding 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.
Others: this includes anything that doesn’t fit into any categories and it totaled $357 for the quarter, or $119 per month. I don’t separately keep track of everything here, but some of the big expenses include $150 “various” expenses that we incurred while we were in Colombia. These are things we had to pay with cash so it’s harder to keep track than when we pay with credit cards. The other big item here is some wedding gifts for two weddings we attended.
Clothing and Accessories: totaled $192 for the quarter, which comes out to be $64 per month. This category rarely makes it into the top 10, but a good friend of mine got married in May and I was asked to be one of the groomsmen. According to some Google searches is really hard to rent a decent tuxedo for under $200. Luckily, I was in Colombia at the time and was able to buy one there for “only” $122. The rest is for various smaller purchases.
Savings Rate: our savings rate for the second quarter was 81%. Income was fairly steady, and expenses were relatively low. We had paid for our trip to Colombia back in February and we didn’t have any unexpected expenses. The only unusual item of income was the $500 early spend bonus from our Capital One Savor. The current early spend bonus is $300 after you spend $3,000 in the first three months.
According to the shockingly simple math behind early retirement, with an 81% savings rate you could stop working after 5.5 years. This assumes you are starting from zero, so add some time if you are starting from a negative net worth, and subtract some if you have already made some progress. The Mad FIentist Lab is a great tool for seeing how long it would take you to retire based on your own situation.
2019 Expenses and Savings Rate so Far
- Q1 expenses: $6,950. Savings rate: 81%
- Q2 expenses: $5,900. Savings rate: 81%
- 2019 year to date expenses: $12,850
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?