Okay, the time has come to summarize our financial year in review. There’s some good, some bad, and lots to look forward to this year.
So for us, budgeting and spending has always been the big issue. There is no graph that will show that better than this one right here:
Looks pretty bad, huh? Any time the Expenses line remains consistently above the Salary line that implies one is massively overspending. Well on a month to month basis that’s true. But let me give some insight into how we look at and analyze our spending, as there’s more to the story.
Both my wife and I work in jobs that pay us every two weeks instead of twice a month. This means that we get paid 26 times a year and two months out of the year we each receive 3 paychecks in one month. My wife and I get paid on the same day so that means each month we get paid two extra times per month twice per year. When we look at our spending and create that graph, it is based only on two pay peroids per month and does not include either of our three pay months. It also does not include any bonus payments. In my job I get an annual bonus and had the final part of a retention bonus paid out. All of that was excluded as well.
We also exclude some expenses from our monthly spending – those we categorize as “Life Events”. So far that has involved spending associated with our wedding and the down payment on our home. Now we got married in 2015 so none of those expenses flowed through in 2016, but we did purchase our home in 2016, so our down payment was excluded. You may be asking what the logic of this is. I try to look at it like this – if we purchase a house again at some point in the future it won’t be coming out of month to month paychecks, it will be coming out of the proceeds of selling our current house or our personal savings. The same goes with our wedding. These are important expenses to consider when managing your personal finances, but they can dilute the picture when trying to assess how you are doing when trying to stay on a budget. We do account for these “Live Events”, we just do so when we start looking at our long term planning for FIRE.
So, when factoring in three pay months, bonus payouts, and “Life Event” expenses we actually broke about even, which to me is kind of where you want to be. We have all our savings automated so that’s taken care of before our paychecks are direct deposited into our bank accounts. If you take out the cost of purchasing a home, then we actually came out about $13,000 ahead on our spending. A couple of high/low lights:
- Our food budget is astronomical and out of control. We averaged around $930 per month on food. We include groceries, fast food, Dream Dinners (a service that we purchase meals from monthly similar to Blue Apron), and pizza as our food budget. That’s a lot for two people. We even split out restaurant costs into our entertainment budget because we when we go out to eat it’s usually because its Saturday night and we want the experience of eating out at a restaurant.
- We paid off around $31,000 in debt last year, not including any principle on our mortgage. We paid off our credit card (which started with about $17,000 in debt), and the rest was put towards our cars and my student loan. Getting the credit card paid off was a huge relief for us. One of primary personal finance goals was to get out of credit card and stay out.
- Side note: Between 2015 (when we started to do any tracking of finances) and last year we have paid off over $64,000 in debt (excluding mortgage). We still have about $96,000 left between my student loan and what remains on my wife’s car, but we’ve made good progress
- Other costs, which can seem like a lot during a given month, tend to even out over the year. There are days where my wife will come home with a shopping bag from Target and it hurts because we spent a couple hundred dollars on what are usually things we need (cat litter, cleaning supplies, etc). Those shopping trips hurt when they are cluttered around each other, but over the course of the year we only averaged $140 per month on these trips. Gifts is another example. With birthdays and weddings it can seem like gifts are a huge drain on our budget some months, but really we average about $60 per month on spending. With a large group of friends and a moderately sized family this really isn’t so bad.
- Side note: We do tend to spend too much on amazon compared to other stores. It’s only $50 per month but it adds up and I often wonder what we purchase. I am probably most guilty of this. It’s just easy with the one click purchasing they have!
- Our average cost for our home was around $653, but this isn’t as bad as it seems. As I’ve alluded to, we bought a home in late April last year and moved in May. We paid for movers (I don’t care what anyone says, paying for movers is money well spent), bought a new TV, picked up some new furniture for the house and some supplies we didn’t have in our condo. So we expect this to go down even with some of the additional maintenance of owning a home.
- We allocate $500 per month for personal spending. Each of us gets $250 and we can use that on whatever we want. With daycare moving in, we are going to need to re-evalute this.
So from a spending standpoint it’s pretty clear what caused us to (kind of) go over budget. Debt payments, food, moving, and some lifestyle choices that are going to change out of necessity because we had a baby (less going out to eat, more meals at home, etc).
From the investing side? Our investments are almost all automatic through our 401k’s. I do some investing in an HSA a couple times a year, but that’s about it. But here’s the year over year view:
- On December 31, 2015 the total value of our retirement accounts (401k’s, Roth IRA’s, and HSA’s) totaled $126,218.45
- On December 31, 2016 the total value of those same retirement accounts was $172,517.61
- That’s a total gain of $46,299.16 year over year
- Total contributions for the year was $31,305.84
- That means that investment gains totaled $14,994.16
- Breaking out contributions vs. market returns shows that my market return was approxiately 11.9% last year
- Vanguard’s 500 index returned 9.54% last year which means you could argue I beat the market
- I want to emphasize beating the market is not my goal, and I hold some asset classes (small cap value, emerging markets, and international small cap) that I know are a bit riskier than just the Total Stock Market Index or the S&P. I am guessing that those are the reasons for the higher return. Either way, I am more than content with that return.
So overall I consider this to be a fairly successful year. We still have a ways to go on spending, specifically food, but we paid off a ton of debt. We had a good return on our portfolio and were able to grow our retirement accounts substantially. We have some new challenges going into 2017. But overall, life is good. One step closer to FIRE.