July, August, and September were great months for us. Most of these summer months are relatively slow for me at work. My office closes for the whole week of the 4th of July. This extra time, combined with the great weather, means lots of time spent outdoors 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%).
Also, 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.
Food: this includes “supermarkets” (item #2) and “food outside” (item #6). We spend a total of $1,415 for the quarter, which comes out to be $472 per month. This number is pretty much in line with our historical spending on food.
How do we keep food costs low you might wonder…
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. Lately, we are giving Lidl a try since one just opened up very close to the Aldi we frequent. We also have a friend that swears by Lidl so we are shopping there a bit. Not sure if it will become our primary grocery store over Aldi, we will see.
Housing: housing costs are comprised of mortgage interest (item #3), HOA fees (item #4), and home improvement and maintenance (item #15). These totaled $1,117 for the quarter or $372 per month. You might be wondering where home insurance and property taxes are. About a year ago, 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. Until then, the escrow account was overpaid so that’s why you don’t see them here.
We removed the escrow account for property taxes and home insurance for a few reasons. First, we can invest the money through the year and just make the payments when they come 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.
Transportation: transportation expenses include “car others” (item #5), gas (item #9) and car insurance (item #13). These totaled $691 for the quarter or $230 per month. Transportation expenses were unusually high this quarter as property taxes, NC state inspections, and registration renewal fees came due for both of our cars. This is what makes up most of the “car others” line item.
Generally, our cars are pretty inexpensive and that’s one of the reasons why we have been able to move quickly towards financial independence. For more info on our cars these articles go into more depth. Juan’s car – Elisa’s car.
Entertainment: this category came out to be $179 for the quarter or $60 per month. With the increased free time in the summer we ended up taking our little one to several of her favorite places. These include the Marbles Children’s Museum, and three or so indoor playgrounds in the Raleigh-Cary area. Most of the entertainment expenses are admission fees to these places as well as swimming lessons.
Savings Rate: our savings rate for the second quarter was 85%. Expenses remained pretty steady overall while income was a bit higher than usual since I received my annual bonus in September and Elisa received her annual raise in July. According to the shockingly simple math behind early retirement, with an 85% savings rate you could stop working after about 4 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 reach financial independence based on your own numbers.
Looking back at the last few years, we have made a lot of progress towards financial independence. By some calculations, we could be there in as short as 2 years! Crazy to think about. While, I’d like to be more conservative than that and will probably work longer, every time I look at that 2 year estimate it gets me thinking about the future and all the possibilities. We have also considered slowing down and taking a few months off to travel the world, or even growing the family. While nothing is set in stone, the possibilities are both exciting and overwhelming at the same time. More to come when our plans are better fleshed out 🙂
2019 Expenses and Savings Rate so Far
- Q1 expenses: $6,950. Savings rate: 81%
- Q2 expenses: $5,900. Savings rate: 81%
- Q3 expenses: $6,548. Savings rate: 85%
- 2019 year to date expenses: $19,398
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?