All,
Periodically, my wife and I sit down and review our budget and spending. We’ve kept very comprehensive records in Quicken since July of 2012. During that time, we’ve gone through several major life changes (moved, rented an apartment, bought a house, and had 2 kids). I thought it would be fun (I know, I’m a nerd) to export every recorded transaction (almost 3,300) since that time and analyze them. This post contains a summary of that analysis. I hope you find it useful and informative!
Introduction and Assumptions
This is a scary post to write – I’m listing out the good, the bad, and the stupid choices we’ve made over the past few years. Ultimately, I decided to write it because it was informative to me and I hope some will find value in it as well – how often do you truly get to see someone else’s detailed spending analyzed? Please keep in mind that I’m not trying to say anyone should mirror our decisions.
One thing this exercise showed me is that it is very difficult to understand and classify spending. Even with very good records, there is still lots of room for interpretation (is a down payment on a house spending? [I decided no]) While I haven’t hidden anything, some numbers have been rounded in the interest of some degree of anonymity. The changes are very small and don’t impact the analysis in any meaningful way.
Please keep in mind that this is simply a reflection of our lives and values as seen through the lens of our spending habits – it is what works for us. It may not work for you; however, I do believe that if you read this post carefully, you will come away with some things to think about concerning your own finances.
Some specific assumptions that may be of interest:
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This post only covers expenses. While income is an important part of personal finance, our situation is fairly unique and likely not worth analyzing. My wife stays at home with our children and I am pursuing a graduate degree. Thus, our income is relatively low and extremely variable. This was an intentional choice on our part – we lived as very frugal DINKs for several years after college so that we could pursue this path without going into debt. Realistically, we have operated at a fairly substantial net loss every year for the past several years. Thankfully, I’m approaching graduation and have already secured a great job that will more than provide for us and allow us to rebuild our savings quickly.
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This post doesn’t count investments as expenses. In general, we fund Roth IRA’s to the maximum extent permitted by our earned income for the year and fund our children’s 529 plans based on Vanguard’s cost of college estimator and saving enough to cover 100% of 4 years at a public university. Parents on both sides of the family cover approximately half of this cost and we contribute the other half from money that we set aside before starting down this path.
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We don’t have car payments. We both drive the same pre-2000 model cars that we were given in high school/early college. As a result of the low value of these cars, we only carry liability and uninsured/underinsured motorist coverage but not comprehensive or collision coverage. We’ve built our emergency fund assuming that we may need to quickly replace at least one vehicle (i.e. enough for at least 1 new car or 2 nice used cars).
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I mentioned that I am pursuing a graduate degree. Most of the direct expenses associated with this are covered in full through a scholarship program. In general, I exclude the uncovered expenses from analysis but I include them in some of the detailed analyses/tables.
The TL;DR – A Condensed Look
Here is a graphical depiction of our average monthly spending over the past 5 years.
We spend about $3,800 a month. About $1,125 (30%) of this is housing (mortgage + repairs/other expenses), $650 (17%) is gifts/charity (see more on this below), $625 (15%) is medical expenses, $400 (11%) is utilities (TV, internet, electricity, gas, and water), $300 (8%) is food, $250 (6%) is car related, and $450 (14%) is everything else.
My gut tells me most people likely spend more on housing than we do, especially if they buy (we’re in a new 1,800 sqft house in a fairly low cost of living area), much less on gifts/charity, less on medical expenses, less on utilities, more on food, and more on cars.
Biggest Expenses by Category
One thing I found interesting was to look at the biggest non-recurring expenses by category. I arbitrarily pulled the two largest non-recurring expenses by major category and researched them further. Here they are (rounded):
| Category | Amount | Comments |
|---|---|---|
| Housing | $3,600 | New furniture |
| Housing | $1,200 | Washer/Dryer |
| Gifts | $3,000 | Church – Capital Campaign |
| Gifts | $2,000 | Church – Capital Campaign |
| Medical | $1,200 | Kid #1 Birth (30% Discount) |
| Medical | $500 | Kid #2 Birth (35% Discount) |
| Utilities | $250 | Summer – Bad AC |
| Utilities | $225 | Summer – Bad AC |
| Food | $125 | Date Night – Steak |
| Food | $100 | Sam’s |
| Auto | $625 | Tires |
| Auto | $550 | Repair – Fans |
| Luxuries | $1,950 | Treadmill |
| Luxuries | $850 | Digital Camera |
| Vacation | $450 | Flight – Wedding |
| Vacation | $425 | Flight – Thanksgiving |
| Other | $425 | Uhaul |
| Other | $250 | House decorations (probably should be reclassified) |
| Baby | $225 | Crib |
| Baby | $150 | Car Seat |
Detailed Spending Categories
While the initial graph is nice, I also found a more detailed view of our average monthly spending, including on education (non-reimbursed graduate school expenses), to be interesting. There are too many categories to make a neat pie graph, but here it is in table form:
| Category | Monthly Amount | Percentage | Comments |
|---|---|---|---|
| Mortgage | $845 | 21% | Add rent to get true monthly housing cost average |
| Charity | $551 | 14% | Personal choice |
| Medical (Insurance) | $515 | 13% | Market place plan |
| Auto | $240 | 6% | Mostly gas and repairs |
| Groceries | $236 | 6% | Mostly purchased from Wal-Mart/Sam’s |
| Education | $213 | 5% | Expenses not reimbursed by school |
| Luxuries | $185 | 5% | Mostly large, “one-time” purchases |
| Utilities (Phone) | $138 | 3% | AT&T; 2 iPhones with 10-15 GB data |
| Vacation | $120 | 3% | Usually drive; no international travel. |
| Utilities (Gas/Electric) | $120 | 3% | Live in south; variable bill |
| Medical (Doctor) | $110 | 3% | All doctor’s appointments |
| Gifts | $100 | 2% | Christmas, birthdays, etc… |
| House (Assets) | $97 | 2% | Fixed assets for house |
| Rent | $93 | 2% | See Mortgage |
| Utilities (Internet/TV) | $76 | 2% | Aggressively negotiate this |
| Dining | $73 | 2% | Eat out 2x/month average |
| Baby | $68 | 2% | Lower than expected |
| House (Other) | $64 | 2% | Misc. house stuff |
| Utilities (Water) | $57 | 1% | Includes sprinkler use |
| Entertainment | $40 | 1% | Mostly books/Steam/etc… |
| Clothing | $33 | 1% | 50-50 mix of new/second hand |
| Parking | $30 | 1% | Surface lot, not garage |
| Moving | $20 | <1% | Cost of moving |
| House (Legal) | $12 | <1% | Inspection, notary, etc.. |
| Utilities (Trash) | $10 | <1% | 1x/week, no recycle |
| Personal Care | $4 | <1% | Wife cuts my hair |
On Specific Categories
In this section, I briefly discuss some of the things that I think are most interesting about our budget.
Housing - a wise man once said, “Rent represents the most you will spend on your house; a mortgage represents the least.” Our house is fairly new (built in 2010) and so we have avoided most major repairs. Our only problem has been with our AC – we’ve spent $800 in diagnostics and repairs since we purchased our house in 2013. Our mortgage payment goes up by about 2% a year based on escrowed taxes and insurance.
Charity - we personally believe in donating 10-20% of our pre-tax income to charity every year. What counts as income for this calculation is difficult to determine and beyond the scope of this post. In general, about half of our giving goes to our church and the other half to worthy organizations around the world. One of our favorite traditions is to “sponsor a child” born on the same day as each of our children.
Medical - We purchase health insurance through the marketplace. Plans have increased in cost substantially over the past several years. Between a chronic illness for my wife requiring expensive medication and the birth of two children, our medical expenses are high. One thing we do to cut costs in this area is to aggressively negotiate every medical bill we receive. We can usually obtain a discount of 25-30% (above and beyond the amount insurance pays for and adjusts). If you aren’t negotiating hospital bills, etc…you are probably leaving money on the table!
Auto - As I mentioned previously, both our cars are old, paid off, pieces of sh*t. One thing I see all the time is people justifying buying a new car based on the price of repairs. While we have certainly been lucky, we’ve only spent about $2,300 for two cars over about 5 years (this is only repairs, not normal maintenance like oil changes and tires). Basically, this means that each of our cars needs something fixed about every other year (although when it rains, it pours – mine has racked up 2 repairs totaling about $750 so far this year!).
One nice benefit to having old cars is that our insurance is about $60 a month for both cars (liability + uninsured motorist only; policy limits ~250k).
Groceries - If you are still reading, you must find this at least somewhat interesting so I hope you will indulge a brief soapbox from me. People spend too much on food!. Our $250/month spending buys tons of raw ingredients from Wal-Mart (the horror!) and we eat delicious home-cooked meals every week. Seriously, I see so many people with ridiculous grocery bills – learn to cook and it can really pay off (hat tip to my wife on this one).
Luxuries - This is a lazy category for big purchases. Treadmill, digital camera, iPad…we like some toys. If we needed to cut, this would be target number 1. One word of caution – we can be penny-wise and pound-foolish. Pay full price for a $50 medical bill? No Way! Drop $2,000 on a treadmill – come on, really? No way did we need anything near as nice as what we got. $3,500 in furniture – sure, we got great stuff (La-z-Boy), but we went overboard. Our biggest financial “mistakes” over the past several years are in this category. I don’t want to be too hard on us though – at some point, you just decide something is worth it and buy it and I personally believe we can afford to have a little more fun than we do.
Phone - I get an employer discount and regular promotional rates. LPT – make a list of your recurring expenses (especially phone, tv, internet, etc… - anything where you might get a promotional offer). Once a week or so, on your drive to work (safely) call a different provider and negotiate a break. Try for a recurring discount, but settle for a one-time credit as well.
Vacation - We usually drive, but occasionally fly. With small kids, international travel is out of the picture for now.
Utilities - Bonus LPT here – monitor your useage month to month and month versus year ago. If you see a spike, find out why. We threw away a couple hundred bucks in electricity on a bad AC system before we figured this out – the early warning signs were in the data.
Dining - Everyone knows a classic budget killer is going out to eat. We do a date night once or twice a month and I occasionally have lunch with friends. Just decide what is right for you and know that it adds up quickly.
Baby - This was lower than I expected. Our big one-time expenses have been a crib ($250), baby monitor and cameras ($200), car seats ($150 and $125), and breastfeeding expenses [pump, bottles, bags, etc…] ($250). We’ve spent about $800 on lifetime diapers (2.5 year old and 6 month old, so $22 per baby-month). Target periodically does a great deal on Parent’s Choice diapers (gift card back with a bulk purchase) so we just stock up when it is available. Our average cost per diaper is about $0.14.
Payment Method
Our spending is split with about 60% of all expenses coming from our checking account and 40% coming from our credit card. I thought we used a credit card for everything but most major bills (mortgage, etc…) come from our checking account. Similarly, this split is influenced by the fact that we generally don’t use credit cards for charitable giving because we don’t want the receiving organization to have to pay the 2-3% processing fee just so we can get 1% cash back.
Lifestyle Inflation
One thing that interested me was whether or not we inflated our lifestyle. Keeping only full years of data (2013-2016), I calculated our total spending by month. Can you tell when Christmas is? This past December was especially high – health care premiums went up more than 30%, hospital bills for kid number 2 were settled, and general Christmas giving was in full force. We also pay 6 months of auto insurance at a time (yeah discounts!) which adds volatility to the graph.
Anyway, this trend is a little muddled so I calculated the percentage increase by year and included inflation based on the CPI for comparison:
2014 versus 2013: 1.5% increase (1.62% CPI) 2015 versus 2014: 2.3% increase (0.12% CPI) 2016 versus 2015: 10.9% increase (2.62% CPI)
I don’t yet fully know what happened in 2016. Some if it is discussed above. We did also consciously (as in, sat down and discussed in advance) decide to live a little more loosely last year. Health insurance kicked us in the teeth a little bit. Charitable giving was up even for us.
Conclusion
I would be remiss if I didn’t point out that we are only where we are today because we have been extremely lucky and blessed. I fully believe that success requires luck, hard work, and skill. Both our parents saved the full cost of an undergraduate degree for us so we’ve never had a dollar of student loans. I was able to save all of their gift, though, since I earned (largely via National Merit) a full ride plus generous living expenses for undergraduate work and actually ended up with a master’s in four years (thank you AP) on the college’s dime. We got great jobs at a time when the economy was crashing and stuffed significant savings into retirement and other investments when markets were tanking. There is no question that we’ve been dealt some unfair advantageous in life. That said, we’ve ground a lot out of those advantageous to get us where we are today.
Anyway, I hope you found this interesting and informative. More than anything, I hope it inspires you to look at your spending habits (and develop a budget if you don’t have one). If there is one data point in here that motivates someone to go “huh, I bet we can cut down on X” then I will consider this post a success.
Finally, if you would like additional information/details on something, just ask! I’m happy to provide answers as best I can based on the data I have and without providing something overly specific/personal. Good luck, and happy budgeting!
Submitted March 21, 2017 at 10:27AM by Mrme487 http://ift.tt/2n9Cd3r
