The third quarter of 2020 had a little bit of everything. From enjoying lots of time outdoors, to a bit of a personal crisis, to general busyness due to the updated tax filing deadlines this year. Last but not least, we eagerly awaited the arrival of our second daughter and enjoyed the great weather. The due date was in late September but she ended up being born in early October. So that will be a story for the 4th quarter 🙂
With that, let’s dive into the numbers:
Daycare used to be our largest expense in early 2020 and prior. In Q3 it wasn’t even a line item at all since we pulled our daughter out in the middle of March. This is good from purely financial standpoint, and it has also been great to spend extra time with my daughter. We’ll see how the COVID-19 situation evolves and when we will be ready for her to return to pre-school. For now, it seems she will be home until around May 2021.
With daycare out the way for now, Food (supermarkets + food outside) became the largest expense. It totaled $1,929 for the quarter or $643 per month. Food expenses have certainly increased since we started working from home. I used to get free snacks and some free lunches at work, and my daughter also used to get lunch and snacks at daycare. Also, we paid more for groceries for a while to have them delivered to us. Aldi is definitely more expensive via Instacart than in person.
Last but not least, my mother in law came early in September to visit and help with the new baby so we needed more food. Whatever marginal increase to our food costs might have been, it was 100% worth it to have her here spending time with us and helping us.
Housing was the second largest category. It totaled $1,517 for the quarter or $506 per month. This category includes mortgage interest, property taxes, HOA fees, home insurance, and maintenance.
Transportation is next on the list for Q3. It totaled $672 for the quarter or $224 per month. This includes gas, car insurance, and car others (which includes maintenance, registration, property taxes, etc.).
Transportation costs were much larger than usual. The main drivers were:
- Annual registration fees, state inspections, and property taxes fall into the 3rd quarter for both of our cars. This totaled $345.
- More driving. As restrictions eased and the weather became nicer we drove to more places. So, gas was $123 for the quarter. This may not seem like much, but it is way more than the $13 we spent on gas for Q2.
- Last but not least, both cars needed oil changes for about $30 each.
The last expense category that catches my eye is the $300 of “household items”. With the working from home situation looking like it will last for a while, I bought a chair and a desk. My employer reimburses 75% of these costs, but instead of reducing the expenses, I accounted for it as “income” when the reimbursements hit my bank account.
Besides those highlighted above, all other expenses were relatively small and just as expected.
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 takes 10 to 15 minutes per month, 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 actually make you happy. Knowing exactly where your money goes is important all the time, but it becomes more so during difficult times. I encourage you to give it a shot if you haven’t already.
P.S. If you are wondering how the pandemic and related economic downturn have affected our financial independence plans, check out the Q1 update. I go more in depth there. Not much has changed so that’s still a good place to see where we stand.