While 2020 seems to be the longest year of my life, it is half over! I thought I would take this opportunity to “audit” my household spending to make sure nothing is going off track.
I use Mint.com to track my spending. I think it works pretty well. I have almost all of the accounts from which I pay the big household expenses linked to Mint, so it should be tolerably accurate. Most transactions are automatically imported but I had to review the transactions and “clean” the data for each month because Mint does tend to duplicate many expenditures. For example, if you buy groceries on a credit card but later make a payment to that card for the grocery spending, both the purchase and the repayment will be reflected as expenses.
It is not that difficult to designate the payments on credit cards as duplicate (but you have to make sure you have those cards linked to mint or you won’t be reflecting the underlying expenditures if you purge the cc payment), but it does take some time to go through everything. I think doing this once every 6 months or so should work well.
First Half 2020 Spending
So, it looks like I have spent about $34,000 YTD. When I do my long-range FI planning, I usually estimate about $3,000 monthly, inflation adjusted, for my FI and potential early retirement numbers. Thus, this $34,000 figure YTD (while we are in lock-down and not eating out as much) is not great.
Mint has some pretty neat tools to drill down on this. Under the “trends” tab I can look at the biggest categories of spending YTD (and I can go into them and review the transactions).
My biggest categories are: 1) Home, 2) Food & Dining, 3) Kids. Some of the other large categories are shopping and “other.” This “other” category includes things I haven’t categorized/budgeted. Scanning through the transactions, it contains entertainment, pets, auto fuel, and other random things. I want to note here that the mint figures do not reflect income or employment taxes, as the income reflected in mint is net of those amounts. Based on 2019, taxes would be my biggest expense category (especially when including state, local, and employment taxes).
Home is Where the Dollars Go
The largest part of the “Home” expenditures are for mortgage payments. In reality, only the interest portion of these payments are “spending.” The principal payments are really a sinking fund/savings.
At say year 30, these principal payments cumulatively add 100% of the equity in a home to my balance sheet. The reality is that this process of transfer is going on gradually over the 360 payments.
I will earn a return on that asset from the implied yield of forgone rent (if I maintain the home my residence owner). I am actually already earning (at least some) implied yield because the rent I would be paying for housing (equivalent or not) has risen during the period of my ownership/mortgage term, yet my mortgage payments have not moved at all with rental inflation.
I have seen a lot of weird/interesting takes about houses you own “not being an asset”, but to me they are undoubtedly an asset providing a yield (and with attendant liabilities, like all assets really). The best take on home ownership that I’ve read lately is on Early Retirement Now.
Despite the implied savings (the relative portion of which rises every month as my loan amortizes), I will leave the entire amount as spending, due to equal parts conservatism and laziness. The remainder of this home category is for home improvement stuff and homeowners insurance. This reminds me, I need to make myself shop my homeowners policy on the next renewal.
Feed Me
The next big category is food and dining. It looks like grocery spending is by far the biggest portion of this. I don’t really help much with this task in my household, so I don’t have a ton to say about it right now. This figure also includes alcohol and probably a bunch of other generic shopping at Costco and/or Target.
We’ve been using some of the delivery services during this covid-19 pandemic. I can’t imagine having an army of personal shoppers armed with cutting edge tech is the most cost-efficient option. Maybe it is something I will try and look at in the future.
Kids
The next big category is “kids.” This is almost as much as our housing and it is materially lower than it would be if not for the covid pandemic. We have been keeping our son home from daycare since uh maybe February (who can even remember at this point…it has been a looooong time). For the first couple of months the daycare billed us at 50% of the rate and we retained the option to send him. We have now withdrawn him through the summer at least so we didn’t get billed tuition last month. This expense is over $1,000 a month. Childcare is a huge expense in America and the system is totally messed up for a society that wants to sustain itself (and create new citizens/social security payers) if you ask me.
As far as evaluating whether my expenses are tracking reasonably close to my ballpark estimates for FI purposes, I think I should eliminate these daycare expenses. They will only continue for another few years and aren’t something I think I should plan for in FI (although, I’m sure there will be other kid-related expenses).
If I eliminate the daycare expenses and annualize the property tax bills, life insurance premiums, and some other small adjustments, I get down to about $26,000 (or ~$4,300). This is not exactly where I want to be, but there is some fluff in my spending figures (for example vacation spending is likely to level down in the second half of the year).
Conclusion
In summary, my spending is kind of in the ballpark of where I want it to be, but could do with some work. I’m not troubled about it being a little higher than I would like. I know $4,300 per month in spending does not sound like a lot (to readers in NYC or S.F. it might sound like just rent), but I do live in North Carolina. I also drive a “beater” and have a very low “house to income” ratio. I will plan to do another one of these posts either next quarter or at the end of the year so I can track and manage this over time. I will aim for some small, incremental improvements over time. Thanks for reading!