Q4 2020 Expense Report and Year End Update!

The last 3 months of 2020 were quite special for us. We welcomed our second daughter into this world, and started a new phase of life as a family of four. Fortunately, we had time off from work and my mother in law was here with us to make the transition as smooth as possible.

We also enjoyed lots of time outdoors, taking advantage of the fantastic weather and knowing that winter was coming. Last but not least, we celebrated all of our birthdays and enjoyed time together as a family.

Let’s Dive Into the Q4 Numbers

Health was one of our top expense for the last 3 months of the year. All the $1,589 relate to the delivery and care of our daughter while we were in the hospital. The delivery went well and both wife and daughter handled it like champs. They did so good that we were discharged a day earlier than expected from the hospital.

Food was the the largest expense for the 4th quarter (#2 supermarkets + #7 food outside). Food expenditures totaled $1,655 for the quarter or $519 per month. While we had 6 people in the house (counting the in-laws) for much of the quarter, my in-laws generously paid for some groceries and eating out, so the monthly average was in line to what it usually is for just the 3 (now 4) of us.

Housing expenditures were the 3rd largest. This includes property taxes, mortgage interest, HOA fees, home insurance, and home improvement and maintenance. The total for the quarter was $1,557, which averages to $519 per month. Our property taxes increased 12% in November. On the bright side, mortgage interest continues to decline to where it is now less than the property taxes.

The “others” category was the next largest. This includes mainly charitable donations. Other than the expenses already mentioned, everything else was relatively low and as expected. So let’s move on the 2020 totals.

Total 2020 Expenses

Quarter by quarter breakdown:

Q1 2020 expenses = $8,892

Q2 2020 expenses = $4,574

Q3 2020 expenses = $5,598

Q4 2020 expenses = $6,606

2020 grand total = $25,670

2020 Breakdown and Comparison to 2019

Daycare was the biggest positive difference. As mentioned on previous posts, we took our oldest daughter out in March due to the pandemic, and she never came back.

Supermarkets was one of the biggest negative differences. I used to get free snacks as the office and some free lunches, my daughter also got lunch and snacks at daycare. Also, we started using Instacart and Walmart pick-up for most of our groceries during the pandemic. Those are more expensive than shopping at Aldi in person, which is what we used to do prior to COVID-19. On the other hand, food outside was lower than in 2019. This is mainly due to the fact that we didn’t do any extended travel in 2020. In 2019 we spent a few weeks in Colombia and California. During those travels, we eat out a lot more then when we are home.

As mentioned above, the delivery of our second daughter made health expenses higher in Q4, and for the whole year in general. We replaced the clutch in our 2007 Kia Spectra in January 2020, which made the car others expenditures greater than in 2019.

Utilities such as water, energy, and internet were somewhat higher in 2020, which makes sense since we spent a lot more time at home. Working from home also meant gas expenses were much lower in 2020.

All in, we spent $1,621 less in 2020 than in 2019, and the above are all the changes worth highlighting, so let’s move on the the savings rate and overall financial update

Our savings rate for 2020 was 82%, which makes 2020 our best financial year so far. Needless to say, money is not everything and I’d happily trade many thousands of dollars to make the pandemic and much of the suffering of 2020 go away.

On the income front, Elisa’s company is in a very resilient industry and had a solid year. So, she got her usual bonus and raise. The only speedbump there, is that only half of her 12-week maternity leave was paid. On my end, there was no bonus nor raise this year. Though as things are starting to look better, my company announced we are getting a smaller than usual raise in January 2021, so that’s better than nothing. All in, our overall income was slightly higher in 2020, which we are very grateful for.

Financial Independence Update

The S&P 500 returned 17.5% (including dividends) in 2020. A large percentage of our net worth is invested in S&P 500 funds or total stock market funds (e.g. VTI). So, we saw our net worth increase significantly this past year. When I went to enter my January 2021 numbers to the Mad FIentist Lab, I was surprised to see the following:

Holly smokes! Are we financially independent!?!?

After looking at this, I let the excitement linger for a little, while my more conservative self started thinking of reasons why we shouldn’t quit our jobs just yet. Those reasons include:

• The purple line represents the average expenses for the last 12 months and it is the expense number that is used to calculate your FI expenses. For reasons discussed above (no daycare, no travel, etc.), 2020 was an inexpensive year. I do expect to pay for pre-school / daycare for 1 or both of our daughters in the near future. So the current expense number is likely lower than what we would actually need in the future.
• The green light represents the amount of money you could safely withdraw from your portfolio (I personally use a 3.5% withdrawal rate). One of the problems there, is that this number currently includes all of our net worth, which in our case includes home equity and a cash emergency fund. A more conservative and more realistic number to include here is investable assets. So when adjusting for this, the “monthly portfolio income” goes down.
• We have a new family member. While kids don’t have to cost a lot, they are certainly not free, so we’d like to build in some additional cushion.

For those reasons, a more conservative timeline to financial independence is probably between 2-5 years. On the bright side, it’s good to see how much progress we have made since we started nearly 6 years ago, and how much more freedom and options we have today.

That’s all for 2020. Cheers to a better 2021 and thank you for reading! 🙂