July, August, and September were good for us this year. Summer is probably my favorite time of the year with the hot temperatures and longer days. One of the highlights of this quarter was attending FinCon 2018 in Orlando. I have thought about going to FinCon for a couple of years now, and this year I was fortunate to win a scholarship, so there was no excuse. Other than that we enjoyed a lot of outdoor time with our little one, including a couple of trips to the beach and some nearby lakes.
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%).
Education: we bought a real estate course from Paula Pant from Affordanything.com. The course is called Your First Rental Property (YFRP), the name is pretty self-explanatory 🙂 We have been thinking about buying rental properties for a while now. Strong cash flows and potentially good returns on investment (ROI) are appealing. Difficult tenants, too much work, and other risks have kept us from jumping in. We have made a couple of low ball offers on a few properties, all have been rejected so far. We are not in a rush to jump in, but we believe investing in yourself is important. So we bought the YFRP course and have been making slow progress through it. If we do buy a property, I will be definitely writing about it here so stay tuned.
Housing: housing costs are comprised of mortgage interest (item #4), mortgage escrow which includes home insurance and property taxes (item #5), HOA fees (item #6), and home improvement & maint. (item #19). These add up to $1,688 for the quarter or $563 per month.
Cars: this quarter was unusually expensive with out cars. Besides the recurring car insurance (item #12), property taxes and registration renewal came due for both of our vehicles this quarter (item #7). Other car expenses this quarter include oil changes and North Carolina mandatory inspections.
Last but not least we made a couple of trips to the beach, which increased our gas consumption (item #10). Total car related costs for the quarter total $777 or $259 per month. More on how we keep our car costs low:
Travel: The only lodging and airfare expenses for this quarter would have come from attending FinCon 2018 in Orlando, and booking some flights and Airbnbs for a trip to Texas. However, thanks to the generous world of travel rewards, I ended up having a negative travel expense.
How can that even happen?
I will admit that getting paid to travel is not common. Generally, you can travel for free or close to free with travel rewards. What made this possible was the fact that I booked an Airbnb, re-reimbursed myself with a fixed value credit card (like the Barclays Arrival Plus), and then got partially reimbursed by my housemates. Check out some of the best credit card offers if you want to travel for pennies on the dollar.
Savings Rate: our savings rate for the second quarter was 77%. Income was a little higher than usual as Elisa received her annual employer contribution to her 401(k) in September and a raise in July. I also redeemed $125 of cash back from a credit card. Other than that income was pretty stable. According to The Shockingly Simple Math Behind Early Retirement, a 77% 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 third quarter of 2018 and there were no big expenses, so we would expect our long-term savings rate to be a little lower. 2018 has been a great year for us so far.
- 2018 Q1 – $6,511 spent – savings rate: 78%
- 2018 Q2 – $6,974 spent – savings rate: 76%
- 2017 Q3 – $7,751 spent – savings rate: 77%
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. 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 2018 been so far?