Finance Friday: 2023 Spending

This is my final 2023 in review post and I'm discussing my favorite topic - finances! This shouldn't be a surprise since I work in finance (the fixed income area of asset management, to be specific). My finance posts seem to be especially popular so it seems like it is interesting to many of you! In general, people tend to be very private about finances but I feel like I've threaded the needle of being transparent without oversharing. At least that is my intent. After all, I am married to one of the most private people I know! 

First off, some disclaimers:

1. The chart doesn't include contributions to investment accounts like our 401ks, the boys' 529s, our brokerage account, etc. I also exclude any equity we purchased in Phil's firm. That is part of his compensation package - he buys equity and then receives dividends. It feels similar to investing so I leave it out each year.

2. It doesn't include most medical expenses because I generally use my HSA for mine and the boys' medical expenses. Phil is on his own insurance because it's more economical that way. He typically has next to no medical expenses, although 2023 was the outlier as you'll see below. I also don't include the premiums for our medical insurance because those are pre-tax and out of our control. 

3. Our housing category is extremely small because we paid our mortgage off in 2020. There are a variety of reasons for this, but we didn't sacrifice investing in order to pay off our mortgage. We loved the feeling of having no debt when we paid off our last house so decided to do it again. We especially like having no debt since Phil and I work in the same industry (asset management) which is very volatile. It's a personal decision and I completely recognize our privilege in being able to do this, although we have definitely lived frugally/below our means so that we can do things like pay off a mortgage. I also know that most financial advisors would not recommend that we pay off our mortgage because it was a low cost source of financing when we obtained our mortgage in 2019. But Phil and I are both CFA charterholders and are smart and logical and this was the decision that worked best for us and our circumstances/preferences.

So here goes! This is going to be a lengthy post, so buckle up!!

Overall - our spending increased again last year and that was entirely related to buying a new car in October. We also sold our Camry and did very well on that sale (bought it new for $18k 8 years ago, sold it for $15k), so the net increase in spending wasn't as bad as it could have been.

Call-outs on categories that warrant mentioning:

Auto & Transport (28%) - This went from 6% in 2022 to 28% in 2023 since we bought a Rav4 Hybrid. We got a loan at the time of purchase and then paid it off within a couple of weeks. As I've mentioned before, we do not like to have debt. Interest rates are so high so I am glad this is possible for us. We don't drive very much so we should not need to buy another car for a very long time, barring anything happening to one of our cars! My 8 year old Camry had about 40k miles on it when we sold it and the car Phil has had since 2013 has even fewer miles on it!

Daycare (25%) - After being our biggest expense for several years, this dropped to our second highest expense. This year I broke out kid activities from daycare because I know that expense bucket will grow going forward. Even if I included activities, this category is still less than the car category. But back to daycare - the expense decreased by 15% since Paul started kindergarten, but it is still pretty high since we pay for before and after care for Paul, care on non-school days, and Taco transitioned to a slightly more expensive daycare in August. It's worth every penny paid and we are extremely happy with both of the boys' programs. 

Donations (7%) - Donations as a % of spending decreased, but since our spending increased, our donations still increased. I feel good about this number although it could be higher.

Travel (6%) - Travel increased which I am thrilled about. It's still pretty low since we are not big fans of traveling with little kids (you do you but it's not worth the money spent generally). The 2023 travel expenses were for my trip to Tucson, AZ with Paul, my girls trip to Banff, and flights and VRBO for our April Destin, FL trip later this spring.

Doctor (5%) - New and hopefully one-time category for us! I use my HSA for medical expenses but Phil pays out of pocket since he usually has very few expenses. He found out he had skin cancer on his nose in early 2023 so this expense is entirely related to having it removed which was an extremely painful and kind of expensive procedure. 

Dining (4%) - Our dining expenses stayed the same, percentage-wise. I definitely generate more dining-related expenses than Phil. He buys lunch when he goes into the office but generally spends $10 or less. I have monthly book club meals where we order with abandon plus other occasional gathering. This also includes my weeklyish latte from Starbucks.

Groceries (4%) - Oddly this category decreased in 2023 as both a percentage of spending and on an absolute basis. I don't know how. I think we spend less than the average family on groceries. Phil buys as much at Aldi as he can which really keeps your grocery bill down. And we don't eat a ton of meat? Also Phil is not a big guy. We eat about the same amount so meals stretch further than if he was like a 200 pound man. I'm not sure how else to explain how low our grocery spending is. I feel like we eat high quality meals so it’s not like we are forsaking quality to keep our spending down, nor are we trying to target a certain budget. We spend what we spend and it ends up being fairly low. 

Target (4%) - I work a block from Target and have young kids so this is always going to be a healthy line item in our spending! I do not go to the trouble of splitting out my Target shopping into specific categories because that seems like a lot of trouble just to know that X% went to groceries or diapers or what have you. I feel good about the fact that my Target spending exceeds my Amazon spending because I'd rather support a local company (Target headquarters are in Minneapolis). Some of this spending is on groceries, but I don't buy a lot of groceries - just odds and ends that we run out of mid-week, like bananas (we eat so many bananas in this house!).

Kid Activities (3%) - Another new category! I'll track this going forward as I know kid activities will only increase. This line item includes the cost of gymnastics (which we stopped doing in December as I got burnt out on the parent/tot class and Paul was complaining about going in the fall), Karate (which Paul started in November), and swimming lessons for Paul. 

Home (2%) - Well this category sure got small in 2023! It was bigger the prior to 2 years as we installed a gas fireplace in Jan 2023 so had a down payment in 2022 and then final payment in 2023. Now this is a very measly line item since we don't have a mortgage. I think our property taxes probably went to the taxes category (which I also exclude from this spending analysis) so I should probably fix that going forward so this category is more representative of our true housing costs. [Edit: home would have increased to 9% of our spending if I included our property taxes. I will fix this next year!]

The rest - The remaining categories are too small to warrant much of a deep dive. Amazon is a smaller piece of our pie since I try to choose Target over Amazon whenever possible. Clothing expenses increased in 2023 because I bought some new work clothes - most of which were work dresses from Boden. Personal care is haircut/color - which only happened twice last year since I had to cancel my final appointment of the year due to work travel. Other is any category that represented less than 1% of our spending.

***

Overall, I feel good about our 2023 spending since it's a fairly low percentage of our incomes. We are frugal by nature and value growing our nest egg so we can hopefully retire early or at least opt off the hamster wheel of asset management. I look forward to a time when travel is a bigger piece of the pie but as long as I have a child that naps daily, I'm not looking to increase our family travel budget. Plus we are fortunate that my parents have a beautiful lake home and are always thrilled to host us. We go there quite often in the summer so that is a cheap family "vacation". 

Do you review your spending on a regular basis? Are there any finance posts you'd want me to write this year? 

Finance Friday: Paying Off Our Mortgage

Happy Friday! Back in January when I posted about our 2022 spending, I mentioned that we made what many consider the "controversial" decision to pay off our mortgage. Several commented and said they were surprised this was controversial so I figured I'd share a) the reasons it's controversial and b) why we still felt it was the right decision for us. 

First off, I have to acknowledge that we are very lucky to be in the position to be able to pay off our mortgage. It's not something I will ever take for granted! We are fortunate to work in a well-compensated industry that has made it possible. Living below our means has also made this possible, but I know it's not something many people are able to do in their 30s like we did. 

Why is it controversial?

I think most financial advisors would tell you that you should not pay off your mortgage - here are a couple of reasons:

1. The primary reason it's controversial and not typically recommended is that instead of paying off that debt, you could invest the money and your return could/should exceed the interest rate on your mortgage. If you took out a mortgage prior to 2022, your mortgage rate was likely at a historically low level. The lower the rate, the less your investment will need to yield in order for you to be better off investing. 

2. You lose financial flexibility when you pay off your mortgage. You could take out a home equity line of credit if you had a cash need, but there is a cost associated with setting that up. 

3. When you pay off your mortgage in the US, you lose a tax deduction. I can't speak to what happens in other countries, but in the US, you are able to deduct the mortgage interest on your primary home.

Why we did it anyway

1. While we could have been better off by investing that money instead of paying off our mortgage, the feeling of not having any debt is priceless for us. We were able to pay it off but still max out our 401ks, contribute to brokerage accounts, etc. We met with a financial advisor back in 2020 and the financial models confirmed we are on track to be able to retire early - if we want to - so we aren't pushing out our retirement date for the sake of not having a mortgage. Our financial goals are to have the option to retire at an earlyish age and to pay for our kids' college education. We do not aspire to, say, leave an inheritance for our children. If we happen to? Great, but it's not part of our financial plan. So if we can achieve the goals of our financial plan AND pay off our mortgage, it felt like an easy decision for us. 

2. Not having a mortgage means that our monthly expenses are significantly lower than they would be if we had a mortgage so it does give us financial flexibility in that we need to generate less income to cover our monthly expenses. 

3. The interest tax deduction never felt very valuable to us. It certainly wasn't valuable enough to push us to not pay off our mortgage. 

Bottom line

I don't think anyone could convince us to make a different decision. My husband and I both have our MBAs and are CFA charter holders so we certainly understand the arguments against paying off a mortgage - but it was still the right decision for us. 

I'll end by saying that this decision is a personal decision that takes a lot of factors into consideration. I didn't write this post to convince anyone to make a similar decision - I just wanted to explain our thought process about this decision. But I know that my friend Kyria, who also works in the financial services industry and is a CFA charter holder, feels completely different about this!

Finance Friday: 2022 Spending

Were you all waiting with baited breath for my annual finance/spending post? Admittedly, this is a topic I really enjoy digging into but I recognize is is likely boring for some! I love reading others spending posts and by sharing our spending, I'm trying to destigmatize the tendency to NOT talk about money. It does put you in a vulnerable position to share how you spend money, but I still like talking about it! 

First off, some disclaimers:

1. The chart doesn't include contributions to investment accounts like our 401ks, the boys' 529s, our brokerage account, etc. This year I also excluded any equity we purchased in Phil's firm. That is part of his compensation package - he buys equity and then receives dividends. But it feels similar to investing in a retirement account so I left it out this year.

2. Our housing category is smaller than the typical household but this is because we made the (controversial) decision to pay off our mortgage in 2020. There are a variety of reasons for this, but we didn't sacrifice investing in order to pay off our mortgage. We loved the feeling of having no debt when we paid off our last house so decided to do it again. We especially like having no debt since Phil and I work in the same industry (asset management) which is very volatile. The likelihood of one or both of us losing our jobs at some point is pretty significant. I mean, it's already happened to both of us. I took a forced relocation in Charlotte in 2013 because I did not have the savings to roll the dice on finding another job in Minneapolis, and Phil was let go when he worked for a hedge fund that blew up during the financial crisis. So we feel a great sense of comfort in having no mortgage payment. It's a personal decision and I completely recognize our privilege in being able to do this, although we have definitely lived frugally/below our means so that we can do things like pay off a mortgage. 

3. This does not include any spending on healthcare costs (neither our deductibles nor out-of-pocket expenses). I pay for everything with my HSA card and luckily have a large enough balance to cover those out-of-pocket expenses (which are not insignificant. We nearly always meet our out-of-pocket maximum). 

So here goes! This is going to be a lengthy post, so buckle up!!

Overall - our spending increased last year, nearly all due to the daycare line item as we only paid for about 8.5 months of daycare for Will last year since I was on maternity leave until mid-April. Overall, I'm ok with the total amount we spend, especially when I compare it to our take-home pay. 

Kids (43%) - Unsurprisingly, kids is the biggest expense category. 99% of this is daycare. Daycare is EXPENSIVE! But - they earn every penny and I do feel like our daycare treats their employees well in terms of time off, benefits, etc. This expense will go down next year when Paul starts kindergarten although he'll still need before and after care since the school day is something like 8-2:30. Plus as Will moves into the preschool rooms, tuition will go down as the teacher/student ratio increases. I don't even focus on this expensive item because it is completely essential with us both working demanding, full-time jobs. Phil forecasts the future expense within our quarterly financial review spreadsheet but I just breeze past it because it's not optional!

Donations (8%) - I am happy that this category increased in 2022. As part of our quarterly review process, we've talked more about how to give back. Our donations mostly go to our local United Way, our county library (which we are HUGE users of!) and another organization that benefited Phil's late brother. 

Home (7%) - Since we don't have a mortgage payment, this category includes taxes and insurance as well as home projects. In 2022, we paid the 2nd half of the expense of converting our wood-burning fireplace into gas (best money spent - I use it so much!) and we also replaced our front door. 

Groceries (6%) - This stayed about the same as last year, percentage-wise, but our total spending increased since our daycare spending increased (we only paid for 8 months of daycare in 2021 since I was on maternity leave until mid-April). So overall, the dollars spent increased but not by a ridiculously amount. Buying so much at Aldi has definitely kept our grocery spending from increasing too much!

Auto & Transport (6%)  - This includes insurance on our 2 cars, gas, and our monthly parking contract (a steal at $99 since we pay a special carpool rate - we both work downtown and work the same schedules so can drive together).

Bills & Utilities (6%) - Nothing interesting here - it's all the typical bills and utilities and includes things like my cell phone plan (Phil's is paid for by his employer), heating, electricity, internet, etc. We do save money by not having cable. We've never had cable; instead we get by with Hulu and Amazon Prime, and we share a Netflix account with Phil's mom. We have an antennae that sits on our tv stand (it's this odd, flat squared-shaped thing so not the antennae you may be picturing in your head!) so we can watch local channels. 

Travel (5%) - I'm thrilled that this increased from 2% last year to 5% this year! Woot woot! We went to Tucson in February to visit my little sister, although the flights were purchase in 2020, and Phil and I went to Mexico in December. 

Target (5%) - Our Target spending increased last year and that is definitely related to the fact that I'm back in the office. There is a Target 1 block from work so I go there about weekly. We spent way less at Amazon, though, which I am happy about. I'd rather support Target, which is a local company, than Amazon!

Gifts (4%) - This was a heftier line items in 2022, but that's because I wrote my Godson/nephew a nice check for his high school graduation gift. I never gave him a single toy for birthdays and Christmas; instead, I would put money in his savings account and gave him books when he was younger. I was not the "fun" aunt, but I think he really appreciated my approach to gifts when he got a check from us for graduation!

Dining (4%) - Our dining out stayed the same, percentage-wise, but I definitely ate out way more in 2022 thanks to book club returning to in-person meals in the spring! We didn't physically eat in a restaurant until February of 2022 as we were very, very careful during the pandemic. Since we went from not eating out besides Phil's lunches, to me eating out once/month, I would have expected this category to increase as a % of our spending. But it turns out we spent less on alcohol and at coffee shops in 2022. Our total spending on alcohol isn't much in general, but in 2022 I bought wine through a membership program called first leaf several times and then stopped the membership after the first month (the first month is an extremely good deal - I would pay $6.25/bottle!!). And in general we bought less wine in 2022 as I decided to only drink wine when we had people over, when we were going to someone’s house or when I went out to eat. Previously I would have some wine every weekend. 

I'm kind of shocked my coffee shop spending decreased! I typically get one coffee/week and drink coffee made at home all other days. But there are weeks I talk myself into getting an extra coffee out but I also received a lot of gift cards last Christmas so that likely had an impact on my out-of-pocket spending on coffee! 

I suspect that the money we spent on dining out is still pretty low overall in comparison to the average family. But even before having kids we did not eat out all that often. Phil buys lunch when he's in the office 4-5 days/week, we get take-and-bake pizza 1-2 times/month, and I have my monthly book clubs where I order/eat with abandon! Ha! But that's typically it for dining out. I would like to return to quarterly dinners out with Phil so this category should increase a bit in 2023, but not substantially. 

The rest - The remaining categories are too small to warrant much of a deep dive. As I said above in my Target section, I'm glad our Amazon spending declined. I'm trying to buy less from Amazon although there is a huge convenience factor that I enjoy during these little kid years. Having a huge thing of diapers or pull-ups show up at the door is pretty priceless. Subscriptions include the various Patreon communities I am a member of - I support Best of Both Worlds, Current Reading, From the Front Porch, and Sarah's Bookshelves Live. I love that there is a way for me to support these hard-working podcasters and the extra benefits I receive are well worth the money spent! Personal care is haircut/color - which only happened twice last year, despite the fact that I'm really graying along my hairline!

***

Overall, I feel good about our 2022 spending. I hope the travel category increases as our kids get older but we have opted to not travel much in the little kids years of life. I think we are very thoughtful and intentional about how we are spending our money but I try not to obsess over it too much. I want us to be prepared for a time when we experience an employment interruption, but I also want to enjoy the fruits of our labor. We are frugal by nature, but I do think we are striking that balance! 

Do you review your spending on a regular basis? Are there any finance posts you'd want me to write this year? 

Finance Friday: Save and Splurge

Happy Friday! I'm back with another finance post! On a recent Girl Next Door podcast episode, they talked about where they were cheap and where they splurge so I thought it'd be fun to share where are cheap and where we splurge! 

Family of origin:

They started off by talking about their families of origin so I thought I'd start there, too. My parents had 5 kids and ran a business together. There was a huge emphasis on financial responsibility when I was growing up. I remember my mom teaching me how to reconcile my bank statements when I got my first checking account, and I also remember lots of comments/lessons on not using credit cards, or only charging an amount that you could pay off when the credit card bill came. 

Erica and Kelsey talked about what their parents were cheap about and where they splurged, and overall, it's kind of hard to think of what my parents splurged on - it's just not in their nature to splurge and they had a lot of kids which is expensive! But then I remembered that they provided a car for each of us when we were in high school/heading off to college. We all got used cars but mine - a cute cherry-red 1997 Toyota Celica - served me well all through college so they made sure to set up us with something reliable. But providing cars for 5 kids is quite a splurge! They were also very generous when it came to birthdays and Christmas. They weren't over-the-top but we had lots of gifts to open and there was a feeling of abundance at Christmas time. 

But overall, I would say my parents were extremely financially responsible. They worked incredibly hard, too. I have surely taken more vacation days in my 19 years of professional work than they did over their 50+ years of working. But that is the nature of being self-employed in a business that can be 24/7/365 (they ran an electrical/heating/AC business). There was a business line that rang in our house at all hours of the day and night. The business line had a different ring tone and when I was a tired teenager, I trained myself to sleep through it and only wake if our house line rang. Wild, huh? 

I can see that my parents financial responsibility rubbed off on me and hopefully that will be the case for our boys - fingers crossed!

Current state:

Anyone who has read this blog for awhile has likely gotten the sense that we are are frugal couple. Phil is more frugal than I am, but both of us have a tendency to save instead of spend. We are very fortunate to work in well-compensated industries which has allowed us to do things like buy in the neighborhood where we live and pay off our mortgage, but we've been really thoughtful about paying off debt and living well below our means!

Cheap/frugal:

- I don't buy any books for myself unless I can't get a book club book from the library. We pick the books we will read for each year in January and then I set the cadence of the books based on library availability to make sure we can source books from the library. I do buy books for my kids, but I typically only at Christmas or for birthdays, and those books get read sooo many times so the cost/read is very low! 

- We don't eat out very much. I usually get one lunch/week when I am in the office. We get take-out about 1-2 times/month and it's usually take-and-bake pizza which is very inexpensive and provides about 3 meals for us. I am starting to eat out with friends more often and my book club now meets at a restaurant so my spending in this category is increasing, but I think it's still relatively low. 

- We also seem to spend less than the average family on groceries. I am sure this will change as the kids get older and eat more, but I'd say we spend about $100-125/week on groceries. We save a ton by getting as much as we can at Aldi. I am floored by how cheap their food is, especially their produce! 

- We do not spend much on clothes for the boys. I'd estimate that about 75% of their clothes are hand-me-downs. If they need something, I usually go to "Once Upon a Child" first which is a consignment store for kids clothes. If I need something that can't be found at Once Upon a Child, I usually buy it at Target or through a Carter's online sale or something like that. I want my kids to be comfortable but I don't need them to look super stylish! This will of course change when they are older and have input on what they are wearing but I'm happy to get by as cheaply as possible in this stage of life. And we have paid it forward in terms of hand-me-downs and have given hand-me-downs to other families.

Splurge:

- We have both purchased new but affordable cars. I bought a Camry in 2016 and Phil bought a Corolla in 2013. Our cars both have about 30-35k miles on them which is so low for how old they are. If I sold my Camry now, I could get about what I paid for it in 2016 since the used car market is nuts. So I don't think buying a new car has been a bad decision for us. We like the comfort of knowing the car is reliable and will last for a very long time. We are looking to buy a Rav4 Prime which is a hybrid/electric vehicle that can run off the battery for trips under 50 miles which is about 90% of our driving. But with the tax credit, it will cost the same as a traditional hybrid. We just need a car to be available so I kind of doubt we'll buy one this year (we've been trying to buy one since last summer!). But I've been driving since I was 15 (you could get your license at 14 in North Dakota when I was growing up - my parents made me wait until 15), and I'm on my 3rd car (Celica, then new Accord in 2003, then new Camry in 2016) so my cars have lasted for quite a long time!

- We splurge on travel. We do not travel very often, but when we do we travel, we end up spending more than we could if we were cheap about travel. We book direct flights and are picky about departure times. We will not buy a flight that leaves before 8 am because getting to the airport at 6 is awful and we won't take flights that get us back late either, like after 8pm. We were picky about departure times pre-kids and are even more picky since having kids. We also do not stay in hotel rooms unless we are spending one night in a city, which is rare for us. Even before kids we preferred to stay in Airbnb or VRBOs so we would have access to a kitchen. Since having kids, we rent places with at least 2 bedrooms so that we are not all sleeping in the same room. Besides having access to a kitchen, we like having a common area to hang out in when the kids are sleeping. And when we've gone to Florida, we've splurged and rented a condo on the beach. Since we travel as a family so infrequently - typically 1 trip/year in the spring - we want to make that one trip as enjoyable as possible. I recognize our privilege in being able to travel like this, though! 

- I don't buy clothes much but when I do, I tend to shop at places like Banana Republic or Ann Taylor. I find that my clothes from there last a really long time - like 5-10+ years. I never buy clothes at places like Target, H and M, etc with the exception of workout clothes. I splurged on a swimsuit from Athleta last summer because I wanted a 2-piece suit with board short type of bottoms since I'm always crouching down to help the boys with something so needed/preferred full coverage. It was worth spending a bit more on it versus getting something less expensive at Target. I really consider cost/use when buying clothes, though. I did go the less expensive route for maternity and nursing clothing and purchased most of those items at a consignment shop for expectant/nursing mothers. But outside of that stage of life, I'm willing to spend a bit more but almost never pay full price as Banana Republic often has great 40% off everything sales!

- I treat myself to a latte about once a week. Oof the price of a latte has really increased in the last 6 months but I still find the treat worth it! 

Ok your turn - what do you splurge on and what are you cheap about?

Finance Friday: Meeting with a Financial Advisor

Happy Friday! I leave today for a work trip - I'll be presenting at a university foundation board meeting tomorrow morning. I haven't travel for work in so long so feel a bit rusty but I am sure it will go fine. I'm looking forward to having it behind me! I get back on Saturday evening. Work travel over a week is the pits!

I'm ending the week with a "Finance Friday" kind of post. I've never been able to make this a regular series as these posts require a lot of work and I'm not sure if they are of interest to anyone! But I've been meaning to talk about our experience of meeting with a financial advisor and finally got around to writing up our experience.

Why did you meet with a financial advisor (FA)?

We've mentioned meeting with a FA to a handful of people and nearly everyone says something to the tune of: 'you both have your CFA. Why would you meet with a FA? What could he help you with?'

There are different reasons to meet with a FA. In our case, it was NOT for investment advice. I work in fixed income and Phil works in equities. We really don't need asset allocation or investment recommendations. But given the fact that our industry continues to shrink and will continue to shrink, we wanted to see if we are saving enough to be ok if one or both of us loses our job in the next 10 years. We forecast that it's nearly 100% likely that one or both of us will lose our jobs. I know that sounds crazy, but our industry is majorly struggling. I've gone through several rounds of layoffs (not personally, but the positions of people I work with have been eliminated). Plus I had to move - to a city I NEVER wanted to live in - in order to keep my job back in 2013. I don't have that kind of flexibility anymore now that I have a family so I would want to be able to make another decision if something similar happened to one of us (i.e. there is no way we are leaving Minneapolis - this is home until we retire).

So the crux of our question to the FA was - at the pace we are saving, do we have enough money to be ok if one of us loses our job by age 50? If one/both of us lose our job by 50, we would get another job because we like to work and need good health insurance thanks to my RA, but we wouldn't want to HAVE to replace our income - i.e. if we had to take a pay cut, would that be ok?

We also wanted to talk about whether it made sense for Phil to get life insurance and we talked about our will/estate planning. In order to answer that 'do we have enough money' question, you need sophisticated software to run countless scenarios (called Monte Carlo analysis) to give us a % chance of us having enough money.

What all did the FA do to form a financial plan? 

The first step was filling out a profile that included questions about our risk tolerance, goals, spending expectations (how much do you want to spend on vacations? Do you want to pay for your children's college? Do you want to pay for their weddings? Etc etc) and a summary of our assets and debts. It took maybe 20 minutes. Then we met with the FA (via a video call) to talk more about our goals/concerns. About 2 weeks later, we had another video call to discuss the analysis and his recommendations. So in total we spent about 2 hours with him over the course of 2 calls.

What were his recommendations?

In general, he said we have done a good job saving and are low spenders. I looked at Phil when he said that and said, 'SEE!! I TOLD YOU WE DON'T SPEND MUCH MONEY!' Phil's response was - challenge! But he is super frugal and always thinks we can spend less. But in reality, he's fine with how much we spend. He just wishes we got fewer Amazon packages.

His most useful advice was around estate planning/how to structure our will, whether to get life insurance for Phil, and how to allocate between tax-exempt and taxable accounts. We have decided Phil will get a 10-year life insurance policy. He's been dragging his feet on this, though. He did try to get life insurance through State Farm but they put him into a higher cost bracket BECAUSE HE WEIGHED TOO LITTLE/HIS BMI WAS TOO LOW! Isn't that insane? He was so pissy about this so we will look at another provider. It would be very expensive for me to get life insurance because of my RA. For the investments, he said we are putting enough in 401ks/IRAs/work retirement accounts but we need to put more in our taxable brokerage account.

Did we feel it was worth our time?

100% it was worth going through this exercise. It was helpful to see the % chance that we have enough assets to last if we both live to 95 (statistically very unlikely) under different scenarios such as retire at 50/get lower paying jobs at 50, retire at 60, spending increases substantially from current trend (unlikely), etc. It gave me a sense of comfort to see that we are saving enough.

What did it cost?

This is the head scratcher for us - it cost us $0. We worked with a FA that works for my company's parent company. So maybe that meeting is considered an employee benefit? We were fully expecting the FA to pitch us on moving our assets over to him or to buy certain funds. At the end Phil even said - so are you going to make investment recommendations and all he did was talk about how our asset allocation compared to what it should be based on our risk tolerances. I do wonder if he took a different approach with us because he knows we are both CFA charterholders and work in asset management. I think in most cases, you'd pay a fixed rate for a financial plan or there'd be an expectation that you'd move your assets over to the FA.

Final thoughts

I want to emphasize here that we are incredibly lucky to be in this position and I feel a bit of a sense of shame in mentioning that we are in a good position financially because I know that is not the case for so many people. But it's important to remember that our income level is higher because of the volatility of our income. If we worked in a more stable industry, it probably wouldn't even be necessary to meet with an FA because there would be a high level of certainty that we could keep our jobs until we decided we wanted to retire. Also, we definitely live well below our means. We are just not big spenders, aren't big on possessions, don't derive joy from shopping or buying things, don't drive fancy cars (we have a Toyota Corolla and Camry), and take pretty modest vacations. So we are making spending decisions that ensure we are financially stable.

Have you ever met with a financial advisor or is it something you've considered doing? Any suggestions for future finance posts? Or do these bore you to tears? ;) 

Finance Friday: A Deeper Dive Into Food Spending

When I posted my 2021 spending summary, I got a couple of questions related to our spending on food/meals/etc. So I thought I'd do a bit of a deeper dive this week to talk about our spending! Like nearly every category of spending, the amount of spending on food can really vary from person to person but I suspect we are on the lower end of the spending range.

Level setting: I doubt I have many newer readers but in case I do, our little family consists of me, my husband Phil, and 2 little kids, ages almost-4 and 1. I would say that Phil eats less than the average male, probably because he is very lean. We weigh about the same, so eat about the same amount of food which I think is probably not typical for a husband/wife pair. Will is a pretty open-minded eater, Paul is very selective, and their appetites vary from day to day and week to week. 

Dining out:

We likely spend less on eating out than the average couple. I was thinking this was more so related to Covid. We haven't eaten inside a restaurant since the start of the pandemic - we have only eaten outdoors since the pandemic started since I am immune compromised. And in Minnesota, the outdoor eating season is super short - probably about 3-4 months. 

I also thought our lower level of spending was related to having young kids with early bedtimes. But after having an exchange with Kae about dining habits, it made me realize that even pre-kids and pre-covid, we didn't eat out all that often. When we were dating, we probably ate out 1-2 times/month? We definitely chose dining out over take-out back in those days since most food tastes better straight out of the kitchen. We mostly frequented local, non-chain places that were reasonably priced - like the Eastern European deli where we'd split a $16 combination plate that included a sausage, cabbage roll, pierogi, and sauerkraut (I could not eat the pierogies since they have gluten but we'd split everything else) or a Taqueria where a 3-taco combo plate was about $9. Pre-covid, book club was hosted in a restaurant once/month and, for the most part, I did not consider the cost of what I ordered and would often get a glass of wine and split dessert. We ate at nicer restaurants so this would probably run me about $50-60ish/meal but since we ate out so infrequently, especially after having kids, it was a worthwhile expense. Post-kids, I made a goal in 2019 to go on a date once/quarter and those tended to be nicer meals. I think quarterly "nicer" meals out are about the right cadence for us so hopefully in the 2nd half of 2022 we can get back to doing that. 

One area of spending that has increased since having kids is take-out, but I still think it's likely lower than the average family. We probably get take-and-bake pizzas about 1-2 times/month but that costs us $27- the boys split a large pizza and I get my own 12" GF pizza, which lasts me 3 meals. Then about every other month, we get Indian take-out which the boys don't eat. I think Will would like it, but we just make something for the kids to eat. If Paul could get on board with Indian food, I'd be more apt to order more things and make it a family meal, but he's not open-minded enough to eat Indian food... yet. Indian take-out usually costs us about $40 with the tip. Additionally, I get a latte about once/week. 

In January, our total spending on take-out, Phil's lunches on week days, and coffees was $155. 

Grocery shopping:

Last week, we spent $42 at Aldi and $58 at Cub, which is our local big box grocer. I do not pay close attention to our grocery spending so I asked Phil if this was a typical week. He said it's about what we spend on groceries each week. Our total grocery spending for January was $500, so his thought that last week was a typical week bears out since we bought groceries 5 times in January.

Last Saturday, besides our staple items that we buy each week, Phil was buying ingredients for lentil enchiladas, Spanish rice and turkey wild rice soup. We had the majority of shelf-stable ingredients for the enchiladas and rice in our pantry, and the turkey for the soup from a turkey breast I made last week so he didn't have to buy much for the meals I planned. We also had planned to get take-and-bake pizzas one night. Usually I plan 3 meals/week but this week I only planned 2 since we got pizza. Our staple items include eggs, milk, yogurt, cottage cheese, fruit, a rotisserie chicken, a container of mixed salad, veggies for my salads, and popcorn. 

Phil does all of our grocery shopping and he will tell you that the biggest way we've saved money over the last several years is by going to Aldi. I really don't know how they charge so little for their products! From my days of working in finance at Target, I know there are "loss leaders" that companies willingly lose money on to get people into the store, but so much of what we purchase at Aldi seems so cheap. Phil stops there first and buys as much as he can from the list we make (we use a shared iPhone note so we can both add items to it). Most of our produce and meat comes from Aldi as well as a bunch of other pantry staples like popcorn, tortilla chips, granola, cereal/granola bars, etc. That means that a majority of the produce/meat we purchase is not organic (some is, like my mixed salad, but much isn't). Phil is naturally very skeptical of things and that includes the importance of buying organic groceries. Insisting we buy only organic produce and meat is not a hill I am willing to die on, so I let him make these decisions. We used to split a local meat share with a friend but it was increasingly more difficult to get to the farmer's market to pick it up when juggling kids and such, and I didn't like that the meat share kind of dictated what we were eating. When we are in a different stage of life where shopping at a farmer's market is easier (nap times have made farmer's market shopping challenging in this stage of life), I'd like to purchase some meat and produce from the farmer's market during the summer months. Maybe this summer will be the year to do that. 

Back to the thrilling topic of shopping! Whatever he can't find at Aldi (which is a number of things - Aldi is not a one-stop place for us), he gets at Cub and/or Target. We go to Target about monthly so most of our other purchases come from Cub.

So with only 3 planned meals, what do we eat at other meals? 

Breakfast: I eat oatmeal with a cut up banana every single day, Paul has a bowl of cheerios and milk every day, Will nurses so I just give him some cheerios or slices of bananas on weekdays. On weekends he eats peanut butter toast, yogurt and fruit. The boys also eat breakfast at school M-F but since we leave for school at 7 and breakfast is at 8:30, they get 2 breakfasts. Phil eats peanut butter toast or a granola bar and sometimes a bowl of cereal on the weekend or when he WFH.  

Lunch: The boys eat at school M-F - and thank God they do! We joke that we wish we were on that meal plan as they eat SO WELL. On weekdays, I eat a salad with rotisserie chicken and various chopped and sometimes roasted veggies nearly daily. Phil buys lunch at work the days he's in the office, which is 4-5 days/week. He spent about $5-8 on lunch so it's pretty inexpensive. He would never pack a lunch because he feels he could not spend less making his own lunch. Pre-covid, I brought my lunch 4 days/week and enjoyed a lunch out once/week, usually a fancy salad that was $12 and worth every penny. On the weekends, Phil often makes eggs so we'll give some to the boys, or we'll have leftovers or easy meals like a can of soup. 

Dinner: All 3 planned meals (enchiladas, soup, pizza) yield several days of leftovers. The lentil enchiladas yielded 4 servings of leftovers, the pizza will yield about 2-3 days of leftovers, and the soup will yield probably 5 additional servings. Will will eat the vegetables from the soup but not much else. Selective Paul won't eat any of the soup. But at least he gobbles up lentil enchiladas (but not the rice - he oddly will not eat rice!). So on the nights when we aren't eating a meal I made, the adults mostly get by with leftovers. The boys sometimes eat leftovers, but also eat simple meals like banana pancakes topped with peanut butter (banana pancakes are made with overly ripe bananas, 2 eggs/banana, and a dash of cinnamon and vanilla), mac and cheese, cauliflower tots, and dino chicken. Clearly our kids eat processed foods. This is another hill I am not willing to die on at this stage of life. I hope they become better eaters with time so we are all eating the same thing every day of the week because the meals I make for Phil and me are not processed foods. We are not there yet, though. 

I am lucky that a) we are happy to eat leftovers and b) I don't mind eating the same thing every weekday for breakfast/lunch! It makes things far simpler to not have to plan 5+ dinners, different lunches/breakfasts, etc. Most weeks, us adults eat 3 meals that are usually pretty healthy (pizza isn't but you can't always eat healthily). I would like the kids to eat more vegetables but that is an uphill battle right now. I hope this changes as they become older and more rational. So far, Will is a pretty open-minded eater but I know that can change because children are fickle! 

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Wow, that was a lot of detail about how we eat.  Are you bored out of your mind? I think inside looks at these quotidian aspects of life are fascinating, but I may be in the minority.

Please enlighten me and tell me how you/your family eats? How many meals do you plan/prepare each week? Do you eat the same things over and over like me or do you need variety in your diet? Do you think you spend more or less on dining out and groceries?

Finance Friday: Our 2021 Spending

Hey hey! 2 posts in one week with pie charts derived from excel! I guess this is the week for digging into data!

I love reading other's summaries of their spending and feel like more and more share a summary of their spending on a monthly, quarterly, or annual basis. I have chosen to share it on an annual basis and I stick to percentages. We use Mint to track our spending, although my active use of it has been at an all-time low this past year! Between work and parenting, I just don't think to track it, so putting together this annual summary was more time consuming than it had been in the past because I had to fix a lot of things that were incorrectly categorized. 

Some disclaimers up front:

1. This chart does not include savings or contributions to things like 529s, 401ks, brokerage accounts, etc.

2. I took taxes out of the calculation this year. It just really throws things off and we do not have any control over how much we pay in taxes. And we pay A LOT. I've commented in years past about how much our tax obligation has changed since getting married... even with claiming 0 allowances, we still end up needing to make extra payments, and then owe money when we file taxes. Anyways, I'm not complaining about the amount of taxes we pay. We are fortunate to work in well-compensated industries. We live in a great city with great parks/running paths and libraries that we take advantage of every week, great schools, and a host of other benefits. But taking taxes out of the equation going forward seemed to make sense since nothing we can do is really going to change the amount of taxes we pay. 

3. This spending summary finally includes all of Phil's spending. It took until mid-2020 to get him onboard with using mint, but now he's a fan. It has made our quarterly financial reviews way easier since all of our account balances are summarized there. And it has prevented him from seeing the balance on a credit card bill and asking what I bought. Now he can just look at mint and solve the mystery on his own. Ha. 

So here goes! 2021 spending, in a nutshell. Get comfortable, this is a lengthy post!!

Daycare (27%): Surprise, surprise. Daycare is our biggest expense category. But they earn that money, and then some. We are very happy with our daycare and while I know our kids get way more illnesses from being in a daycare center setting, overall it works for our family. In 2 years, Paul will be done with daycare, although surely it will be somewhat replaced by a before/after care program at the public school. So a pretty significant amount of our spending will go to daycare/child care for the foreseeable future. 

Financial (19%): This category includes the purchase of equity in my husband's firm. I think I left this out previously but decided to keep it in. He receives quarterly dividends so it's been a good investment for us. 

Home (13%): So this category is probably surprisingly small to many. It includes home furnishing expenses and utilities. The big ticket items in 2021 were purchasing patio furniture and the 50% down payment on converting our wood-burning fireplace to gas. Long-time readers of the blog may remember that we paid off our house in 2020, so this category is a small fraction of what it was in 2020. Again, I know it is not typical to pay off your mortgage at age 40 and we feel very lucky to have been able to do that, but we are also a very frugal couple. Sometimes people will ask us why we did that instead of investing the money and the answer is that we really value having absolutely no debt. We both work in a really volatile industry so our jobs are not very stable/safe, and we have no diversification of income since we both work in the same industry (we work for asset managers). So our jobs are pretty much entirely exposed to financial markets, and then our investments are completely exposed to financial markets. So we make the decision about investing v paying off debt differently than we might have if we worked in different industries. 

Our spending in this category also decreased because we no longer have a house cleaner. We had one for about half of 2020 when it felt safe enough to have people in our house up until a month before Will was born. But Phil asked that we not re-hire them and instead he does the cleaning. If it was up to me, I'd re-hire them because they do an amazing job, but it's one of those "pick your battles" type of situations. I'm just glad Phil is taking on the cleaning because my MO was: we re-hire them or you do it... That probably sounds kind of, well, cut throat? But I think hiring cleaners is a good use of money. I like having a clean house but I do not enjoy cleaning whatsoever! Phil doesn't love cleaning but would rather clean our house than spend money on a house cleaner. 

Groceries (7%): Our grocery spending increased by about 5% over the previous year, but that was missing months of Phil's credit cards, so overall we probably spent about the same or maybe a little less? The year-over-year comparisons will more accurate going forward.

Shopping (7%): This is mainly Target and Amazon Prime purchases. In 2020 I would go into mint and categorize those purchases but I gave up on that in 2021. Surely a lot of what we purchased at both stores would fall under household goods and kids stuff. But it's not worth the effort of categorizing the embarrassing number of  line items. Yes, I know Amazon is a problematic company but in this stage of life where it's hard to get out and run errands, I've accepted that we are going to get a lot of packages from Amazon Prime. When possible, I shop local, like for books - I buy so few that I always buy from an independent book store. But right now, I need toilet paper and compost bin liners, etc, to automatically show up on my door.

Gifts & Donations (7%): This is 70% donations, 30% gifts. The donations bucket is higher than past years because my company stopped taking charitable contributions out of my paycheck in 2021 (which I didn't manually add to past spending summaries), but I did not realize that until November 2021... But I partially made up for the donations I would have automatically made to United Way by contributing a chunk in November. In 2022 I plan to set up recurring donations with them. Giving to charity is something that is really important to me since I recognize how incredibly lucky we are to be in the financial situation we are in. Besides United Way, I donate to our county library and a few other local charities.

Auto & Transport (6%): Nothing very interesting here - it's car insurance, parking and gas. This spending category is higher than is was pre-covid since we used to both take the bus. But we still drive very little. Phil's 2013 Corolla has 25k miles on it and my 2016 Camry has 30k miles on it. Which is very low! Hopefully this spending category increases next year - we are hoping to buy a Rav4 Prime when one becomes available near us. A Rav4 Prime is a hybrid that 100% uses a battery for trips until 50 miles or something like that? Which is 90% of our driving.  

Dining out (4%): I think I had 2-3 restaurant meals this year - 2 eaten outdoors, 1 was in a covered patio. So the bulk of this spending is Phil's lunches when he goes into the office, take-out, coffee shops, and alcohol (which is a pretty small percentage of the spending - it's Phil's maybe monthly/every other month craft beer purchase and the occasional bottle of wine for me). My coffee shop spending was 1/2 of the 2020 level, though! But I bought a venti whole milk vanilla latte every day during the last trimester of pregnancy since it was one of the few "treats" I could have on a gestational diabetes diet. This year my latte purchases are fewer and far between, but I will usually get one when I do daycare drop-off, which is pretty rare. 

This category is an example of our frugality. Even when there isn't a pandemic and even before we had kids, we did not spend a lot on meals out. We are both home bodies and with my gluten intolerance, eating out just isn't something we do all that often. But I have very much enjoyed getting take-out on about a monthly basis this past year. This category is very much a "you do you." If eating out brought us more joy, we'd do it more often. But between the pandemic and having kids, it's not something we are looking to do much of. 

Travel (2%): I'm excited to have a travel line after not having one in 2020! We did take one trip in February 2020 before the pandemic hit, but we had paid for our tickets and accommodations in 2019, so we didn't spend any money on travel in 2020. Our 2021 spending was plane tickets for our Feb 2022 trip to Arizona to visit my sister! I hope and pray this trip will happen. And it will as long as we don't get covid in the week or so leading up to that trip! Fingers crossed we stay healthy! 

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So there you have it! Overall, these finance posts feel similar to the time-tracking post I wrote earlier this week. Nothing is terribly surprising to me, and I don't know that I would change anything after putting this post together. But it's interesting to see what our spending pie chart looks like, especially in contrast to others! 

Do you do a similar exercise and look at your spending on a regular basis? Besides putting this post together every year, Phil and I have a quarterly financial review that is focused on our investments and what charities we'd like to donate to.

Finance Friday: What I Do for a Living

Hey hey! Several years ago I tried to start a "Finance Friday" post series with the intent to do them quarterly. Well, that sort of fell by the wayside but after talking about these posts with a new blog friend, it kind of reinvigorated my motivation to start them up again! Plus, I had an exchange with another blogger about careers/how I ended up in finance. So I figured this would be a good topic to start with. 

I've referenced that I work in finance/financial services but haven't expounded much on it besides that. I think because I fear it is not very interesting to others? I kind of hate it when people ask what you do for a living at social events and such because my job is kind of hard to explain and my expertise is in an area of the market that is not well understood (the bond market). So I usually just say "I work in financial services" or "I work for an asset management company." 

But I am curious about what others do and I always appreciate a deep-dive post about what others do for a living, like this post from Stephany where she delves into what she does and how she got into her role as a content writer. So here is my attempt to explain how I fill the hours of my work day without boring you to tears. ;) 

Overview of my industry (asset management) and sector (fixed income):

I'll start off by explaining the industry/sector I work in to lay some basic ground work. I work for a large global asset management company that manages assets across basically any area of the global financial market - stocks, bonds, real estate, alternatives (too complicated to get into), etc. When I say "manages assets" I mean that my company manages mutual funds, ETFs, separate accounts, etc. My firm also specializes in responsible investing which focuses on environmental, social and governance factors (i.e. how are these companies treating their employees, addressing climate change, assuring diversity on their boards, etc).

The two areas of the market that most people are familiar with are stocks and bonds, but most people have a better understanding or are more familiar with the stock market since that is what gets discussed in the press most often (i.e. the S&P 500 went up X% today). That is the sector that my husband works in - he's a trader and research analyst at another small asset management firm. But I work in bonds, which is a sector that is technically referred to as "fixed income." To try to simplify things, a company can generally borrow money in 2 different ways - they can issue stock or they can borrow, either from a bank or from a pool of investors. When they borrow much from a pool of investors, they issue bonds. But there are lots of different companies and institutions that borrow money by issuing bonds such as corporations, governments and municipalities. Companies can also use bonds to pool a bunch of loans they've made. Think of a mortgage company that has generated thousands of mortgages to individual home buyers like me and you. They can take a bunch of mortgages, pool them together, and sell them to investors - the investors then receive the principal and interest payments the individual mortgage borrowers make on a monthly basis. Something similar can be done with credit card debt, auto loans, student loans, commercial mortgages on shopping malls or apartment buildings, etc. 

Overview of my role:

My job title is "client portfolio manager" but I rarely mention that title outside of my company because people see "portfolio manager" and think that I am actually managing assets for clients, but that is not the case. Instead I would describe myself as a product expert. I mostly interact with a sales team that works with financial advisors and tries to get them to use our products in their clients accounts. Our sales team covers every ETF and fund that we manage, which is probably 100+ products! They can not be an expert and know the ins and outs of every product so they rely on a team of sector specialists, like myself, to answer questions. So I get on zoom calls to go over a product and answer questions with the sales person and the financial advisor or I will have a call with the sales person to prep them before a call, or I will answer questions over email that are raised. I also answer general questions about the fixed income markets.

Examples of questions I answer:

- How has this product performed during other periods of rising rates? What products are you recommending for this interest rate environment?

- What is your portfolio management team's thoughts on inflation and whether it's transitory? What is your forecast for the 10-year Treasury rate a year from now? What do you think the Federal Reserve will do in 2022 to manage inflation?

- What factors drove your fund's outperformance or underperformance? How are you positioned versus this list of competitors?

- Here is a list of bonds this client owns. If you were to manage the account, what would you keep and what would you sell?

- How does the relative value of this sector compare to other sectors? How does it compare to historical averages?

So there you have it - what I do in a nutshell (am I the only one picturing the "in a nutshell" scene from Austin Powers? Hee hee!). Let me know if you have any questions! In a future post, I'll share how I ended up in this field. I'd love to hear what you do for a living in the comments!

Finance Friday: 2020 Spending

This is certainly the most time consuming post I write each year, but the most useful for me! It was more challenging to write it this year thanks to our clingy newborn! Baby carrier for the win! 

Here are a couple of disclosures before I dive into the numbers:

1. Housing makes up the largest spending category by far as we ended up paying off our mortgage in 2020. I recognize how incredibly lucky we are to be able to do this at our age. I've received questions about why we decided to do this versus investing the money. The primary reason is that we love living debt-free. Phil and I both work in the same incredibly volatile industry so we have no diversification of income. We both feel fairly safe at our jobs, but you never know what might happen. We take great comfort in knowing our monthly expenses are lower thanks to not having a mortgage. Additionally, we both find the equity and debt markets very over-valued - i.e. it's not the best time, historically, to put a large sum of money into the markets. We still max out our 401ks, put money in our boys' 529s, etc. But since the rate on our mortgage was so low (below 3%) we opted to put cash we had saved towards our mortgage instead of investing it in the market. This is one of those 'you do you' decisions and I am sure there are other CFA charterholders (a designation we both hold) that would make a different decision, but it was the right decision for us! Next year our home category should look much more reasonable! Similar to 2019, I took out the payments towards our mortgage - otherwise that piece of the spending pie would be so huge and everything else would look tiny. By taking it out, this pie is more representative of the typical spending decisions we make each year.

2. This chart does not include savings or contributions to things like 529s, 401ks, etc. 

3. This chart does not include payroll deductions for things like health/dental/vision insurance, taxes (I break out extra payments) or charitable contributions. I could easily add these items in but I haven't in the past. The charitable donation is in my control, but the insurance items aren't so I don't feel it's necessary to include them. I do pay the out-of-pocket maximum for insurance each year thanks to my pricy RA meds, but I use my HSA so I don't 'feel' the expense of those items so it doesn't feel like I need to add them to our spending pie.

4. This chart finally includes all of Phil's spending as he added his credit cards to my mint account mid-year. So next year I will be able to make comments about year-over-year spending. It won't be completely accurate since 2020 spending is missing Phil's credit cards during the first half of the year, but he spends so little that it will still be pretty accurate!

Here is how our 2020 spending broke out, with notes on notable categories below!

1. Taxes were once again the largest spending category by far. And this is what we pay IN ADDITION to what is automatically withdrawn from our paychecks! This is the reality of 2 well-compensated people who are married. The marriage penalty is REAL. We both claim 0 allowances and have to make extra tax payments at the end of the year to avoid a penalty for underpaying our taxes come tax season. We have just come to accept this. I really miss my huge refund checks from my single days. Even though I made a similar amount of money, I would always get a refund, even with claiming 1 allowance! That said, we recognize that we should have a higher tax burden than others so I am not complaining about the amount of taxes we pay. 

2. Home was our #2 spending category even without payments toward our mortgage. This category includes home improvement expenses, furniture, house cleaning, and home supplies like toilet paper, cleaning supplies, etc. This line item was higher than usual this year as Phil and his cousin built a new deck, we bought a new fridge, and had the interior walls painted last summer. Plus we bought some new furniture at the beginning of the year as we moved into this house in November so had some purchases to make. We bought end tables, stools, a tv stand, and bedside stands - mostly from Wayfair so they were inexpensive, but still costly!

3. Kids is our 3rd largest category, thanks to daycare! I also went to the trouble of categorizing our Target and Amazon purchases this year instead of having a line item for those stores. It turns out we buy a lot from those stores for our boys! This line item is going to get even bigger in 2021 with a 2nd child in daycare, but it's a worthwhile expense and part of having kids!

4. Groceries was the next largest line item. I didn't have a handle on our grocery spending last year since those purchases were on Phil's credit card (he does all of our grocery shopping - yay!). It's nice to see what we spend and I feel good about it. We tend to not eat out much and that was especially the case in 2020 thanks to Covid (we have only done take-out since late February - can't see us eating in a restaurant until 2022 most likely). Phil started going to Aldi this year and that has certainly resulted in savings! He goes there first and gets as much as he can and then goes to a big box grocery store for the rest. We look at the ads before meal planning so we can take sales into consideration when picking out meals. 

5. Dining out just slightly edged out auto and transport. This category was higher than I expected but over 20% of our dining spending was at coffee shops since I drank a large Starbucks latte every single day during the last 10 weeks of pregnancy which really adds up. This drove my frugal husband crazy but he learned not to say anything. I was in a lot of pain from RA flares and didn't have many treat options due to gestational diabetes so he accepted this as a temporary expense. I can count on one hand the number of Starbucks/Caribou purchase I've made since Will was born so this line item will be back to normal in 2021! We probably order food about 1-2 times/month so we really don't spend much on dining out. Phil buys his lunch on the 2-3 days he goes into the office each week but spends less than $8 so that expense is pretty low. I miss my weekly lunches out when I was working in the office, but will occasionally have him bring me home a salad from my fave place which ends up being $12!

6. Auto and Transport is mostly insurance premiums. We probably drove more in 2020 than years past because Phil drove into work when he went into the office. Pre-pandemic, we took the bus. It's hard to imagine resuming a bus commute for a long time, but maybe by 2022 he can go back to taking the bus. I doubt I will as I think I'll be working from home part of the week going forward (hopefully!). But even with driving in a few days each week, we still don't spend much on gas. This category will be higher in 2021 as we are looking to buy a small SUV like a Rav 4 or CRV now that we have 2 bulky car seats.They do fit in our Camry so we could keep our current car, but we'd also like to have an all-wheel drive car as we've gotten our Camry stuck multiple times when we've had heavy snowfalls. We will sell my Camry and keep Phil's Corolla. I think we will get quite a bit for our Camry as it's only 4 years old and has less than 25k miles on it. When Phil test drove a Rav 4 this month, the sales person was told him our car would be in high demand, especially with our low mileage!

7. Donations and Gifts were split 50/50. My donations used to be a higher percentage of spending but I now primarily contribute to charitable causes through my paycheck since it's easier/automatic!

Other things of note are that shopping and personal care were very low. I can count on one hand the number of times I wore make-up in 2020 and don't expect to wear it very often going forward. This has made my skin VERY happy! I struggle with acne, and had it really bad during Paul's pregnancy but didn't get a single blemish this time around! I did spend some money on maternity clothes, but most were purchased at a pregnancy consignment shop so I didn't spend all that much. I don't expect to buy much for clothes in 2021 either but in 2022, I told Phil I'd like to splurge a bit and hire a wardrobe consultant. A good friend did this and I got to come along on the shopping trip. I'm not great at putting outfits together so I would benefit from having an expert look at what I own, help me determine what to keep, and help put outfits together! I do a lot of zoom calls with clients and would like to look more presentable/polished! But I want to be back at a stable/normal body size so that needs to wait until I am done breastfeeding!

***

So there you have it! All in all, I feel good about our spending. There are always places that you can cut back, but in general I feel very good about how we spend our money. I know Phil would like us to spend less money because he is incredibly frugal!! But I think splurges like ordering coffees during a difficult pregnancy and hiring a house cleaner are worthwhile and brought me a lot of joy in 2020! We have our cleaners on hold for the first 2 months of Will's life to limit our exposure to others (they do wear masks but a team of 4-6 people come in to clean so we felt it was best to put them on hold). Can't wait to bring them back!

Do you do a deep dive/review of your spending on a regular basis? Besides this annual review, Phil and I sit down each quarter and review our account balances/discuss how we want to invest going forward. 

Finance Friday: What I Learned from Selling 2 Homes

It's been a little over 3 months since we bought our new house and almost 2 months since we sold our previous home. That was a chaotic time but I feel like the dust has settled. I've been involved in 2 purchases (the purchase of my condo and this latest purchase) and 2 sales (the sale of my condo and sale of our recent home which Phil bought on his own before we were married) so I feel like I have a decent handle on the buying and selling process and have learned a lot. My finance posts tend to go over well, so I thought I would share what I've learned in the process. I feel like people talk about the purchase process quite a bit, but there's very little discussion of selling a home so I thought I'd focus on that.

Selling a home 

There is really just one big take away from selling a home - IT IS EXPENSIVE. We talk about fee compression in my industry (financial services) but holy smokes, there is no fee compression happening in real estate. When I was a mortgage underwriter in my 20s, we assumed that people would pay about 10% in closing/transaction costs when selling their home. It turns out this is pretty accurate, especially if you have to contribute towards your buyer's closing costs. 8% would probably be the lower bound of transaction costs, unless you don't use a realtor - which I honestly wouldn't recommend unless you are very comfortable with real estate transactions and don't mind negotiating directly with buyers. The realtor commissions (you pay for the buyer's realtor, too) are where the bulk of the closing costs come from, but there are other title-related expenses and, like I mentioned, potentially seller-paid closing costs. Our closing costs for our most recent sale were over $30,000 so it is a significant amount of money!!

So bottom line, you want to sell as few homes in your lifetime as possible (in my opinion) because to 'break even' you need your house to appreciate by 10% - otherwise you are going to lose money.

Our most recent sale worked out well for us because Phil bought at a good time and sold at a time when first time home buyer homes had appreciated quite a bit. His house had appreciated by 38% in 5.5 years which is NOT normal! For example, the home we purchased this fall appreciated 6% in the 4 years since the owners purchased it. They certainly did NOT make money on the sale (plus we were told they put over $15k into the stamped concrete patio/steps in the back yard).

I've been on the losing side of a purchase before as I bought a condo in 2005 and sold it for 15% less than I paid for it ~13 years later in 2018 (I bought close to the market peak). While I didn't have to bring money to the closing table since I had paid down my mortgage quite a bit over 13 years, I certainly did not 'make money' or break even on that purchase. I was stuck owning that condo for far longer than I would have liked as I couldn't afford to sell it since I would have had to bring quite a bit of money to the closing table. Luckily I was able to rent it out, but that wasn't ideal either.

Knowing selling a home is expensive, does buying make sense for you?

Here are a couple of things worth considering when buying a home:

- How your mortgage/taxes/insurance (referred to at PITI by mortgage lenders) plus other expenses like HOA dues compare to your rent payment? If the PITI and other expenses is significantly lower than your rent, buying a home might be the right decision, even if you technically lose money on the sale down the road.

- How long will you be in the home? If you plan to be there for a long time, then you don't really need to think about the sale of the home down the road. I think the best reason to own a home is that eventually you won't have a mortgage payment if you stay there for a long time. So your monthly housing expenses will be much lower eventually. You'll always have to pay for insurance and taxes but that should be much lower than a rent payment. So the longer you plan to stay in the home, the less future value of the home matters. In our case, we expect to be in this home for 20+ years. We will keep the value of the home in mind as we make changes/improvements but we are less concerned with the future value of the home since we won't don't anticipate selling for a very long time.

***

By writing this post, I'm not trying to scare anyone away from purchasing a home. I just think there is so little discussion about the economics of buying and selling a home. I felt such pressure to buy a home in my 20s which is why I bought one at age 24 and rushed into the purchase since my lease was expiring. So I wanted to provide a counter argument to the assumption that everyone should buy a home!

Do you own or rent a home? Have you sold a home before?

Finance Friday: 2019 Spending

The calendar year has turned, so it's time to review my 2019 spending! I've been doing this since 2015 (see 2018 here, 2017 here, 2016 here, and 2015 here). When I wrote my finance post last year, I made it a goal to do a financial post each quarter... and then never wrote another one! Whoops! My finance posts always get a lot of good comments and seem quite popular, so I am really going to try to write 3 more in 2020. We'll see if I achieve this goal!

Before I dig in, a couple of notes about adjustments made:

1. 2019 ended up being an expensive year since we bought a house. I feel weird talking about this, but I'm all about transparency, so here goes! We paid off our mortgage early in 2019. Phil bought our last house at a great time 5 years ago, so the mortgage wasn't very high since the price was fairly low and he'd made extra payments over time. The rate was going to reset (we had a 5-year ARM) and would be higher so we decided to just pay it off (we had money saved from previous bonuses, etc). Then in December, we sold it for almost $100k more than he paid for it and put all of the proceeds from the sale towards the mortgage on our new home. So paying off that mortgage/applying the sale proceeds toward our new mortgage combined with the down payment on the new house was a big chunk of money. Some might wonder why we are so committed to paying off our mortgage. The reason for this is that we both work in financial services which is a very volatile industry. So having 2 incomes that are subject to a lot of volatility means that we want to reduce our monthly expenses as much as possible in the event one or both of us gets laid off. Phil got laid off when the hedge fund he worked for blew up after the 2008 financial crisis and I had to move to Charlotte to keep my job when my department was moved, so we've already experienced the volatility of our industry. And it's only going to get worse as the financial services industry is shrinking. If we worked in less volatile industries or didn't BOTH work in a volatile industry, we might feel differently about not having a mortgage. Our goal is to pay off our new mortgage within 5 years. 

All that said, I removed the down payment/extra lump sum paid towards our new mortgage from the spending chart, because it was several multiples of the rest of our spending. Had I included it, the pie chart would have had one huge piece and some teeny tiny other ones!

2. This chart does not include savings. 

3. This chart does not include payroll deductions for things like health/dental/vision insurance or charitable contributions. I could easily add these items in but I haven't in the past. The charitable donation is in my control, but the insurance items aren't so I don't feel it's necessary to include them.

4. This chart doesn't include all of Phil's spending. He has some credit cards that are not on my mint account and it's not really worth the hassle of adding them. The guy barely spends any money so he doesn't really want/need to track it. But that means things like grocery shopping aren't included since he does all of our grocery shopping!

Overall, our spending (excluding our housing expenses) grew by 10%. Here's the category breakout - I'll talk about the categories that bear mentioning. 

Taxes: We paid less in taxes in 2019 compared to 2018, but I think Phil made a payment toward our 2019 taxes in early January, so we'll probably end up spending about the same amount as 2018. As I explained last year, we have to make extra tax payments because even though we each claim 0 with holdings, our companies don't hold back enough for taxes. Part of this is the "marriage penalty" - meaning the tax obligation of our combined income is significantly higher than the tax obligation when we were single (we used to both get large refunds each year and claimed 1-2 with holdings). It's too complicated to explain the marriage penalty but you can google it if you are interested. Things are further complicated because some of Phil's income doesn't come on a w-2, instead he gets a K-1 and has to estimate how much taxes he owes on his K-1 income. I let him do all the math and make the extra tax payments.

Kids:  This is mostly child care. This category jumped by about 1/3 this year as we only paid for about 4 months of daycare last year. Daycare is not cheap but we are so happy with the daycare Paul goes to. He has learned so much under their care and he seems to genuinely enjoy his time there! It was nice when tuition went down $40/week when he moved into the toddler room in September, though. Other than child care, I really do not spend much on Paul. I rarely buy clothes for him (mostly pajamas, not much else) and if I do buy clothes, I go to Once Upon a Child. Luckily Paul has received a lot of hand-me-downs from friends and Paul's grandmas, especially Phil's mom, enjoy shopping for him! We also have not bought many toys since he received a lot for his birthday and Christmas - plus we got a bunch of hand-me-down toys from my college friends in December. I do buy books for him but it's really important to have lots of books around the house and he thoroughly enjoys them!

Home:  This includes our regular mortgage payments before paying off our mortgage, and the payments on the new house, our cleaning service (I talked Phil into hiring one in August), moving expenses, some of the furniture for our new house and miscellaneous repairs. Overall I'm content with what we are spending on our house. Hiring a cleaning service isn't cheap but it's money well-spent!

Target:  Ay yi yi. This is a category I would like to cut down on. I was surprised to see that I spent more at Target than Amazon since it feels like we buy a lot from Amazon! There is a Target a block from where I work so I go there quite a bit. I think a lot of this spending is on groceries, household items and things Paul needs, like pajamas, winter hats/gloves, etc. My plan for 2020 is to track what I am buying at Target so I can get a better handle on why I spend so much there! I don't feel like I make many frivolous purchases at Target - it usually feels like I am buying necessities - but I want to watch it more closely in 2020.

Travel:  I am happy that travel is back on my spending grid in 2019 after spending next to nothing on travel in 2018 since we had a baby that year! We took one trip in 2019 - a trip to the Sarasota area of Florida. We also paid for 1/2 of the VRBO for our 2020 trip to the Tampa area of Florida. We are hoping to continue to take one family/trip per year and are really hoping to take our first trip without Paul in May or June if my mom is able to watch him - we'll see if she is able to retire this year!

Food and Dining: Since I don't do the grocery shopping, this is money spent on meals out, coffee, alcohol, etc. This increased by about 50% in 2019 but it was really low in 2018 since I was wrapping up the pregnancy (and laid up for 6 weeks with a blood clot) and then home for a good chunk of the year with a young baby. We really do not eat out much as a couple/family- maybe once every 2-3 months, if that! So a good portion of that expense is lunches during the workweek (I eat out once/week), meals out with my book club, and coffee. I typically only let myself get a coffee once/week but broke this rule during our move as our coffee pot was packed away. I had packed it away early in my pregnancy as coffee was a huge turnoff. I didn't feel like unpacking it after the miscarriage it so got lattes every day for about 5-6 weeks. Oh well!

Personal Care: This increased quite a bit from 2018 as well, mostly because I replaced all my make-up and skin care with cleaner products (Beauty Counter). I also treated myself to a couple of massages which was money well-spent! I expect this category to shrink in 2019 since I won't be buying much make-up/skincare products.

Focus for 2020:

2019 was an incredibly expensive year between paying off a mortgage, buying a house, and buying some furniture for the new house. We had been saving for the house/furniture so we were ready for it, but it's still hard to look at the outflow from 2019. In 2020 I'd like to really focus on spending LESS! Not buying a house will really help! I am a frugal person in general, but there's always room for improvement. Here is what I plan to do:

1. My biggest focus for 2020 will be examining my spending at Target and trying to spend less there. We'll continue to aggressively pay down our mortgage this year, so it will still be a spendy year, but overall I'd like my spending at places like Target to decline.

2. I also want to stop ordering so much from Amazon. With free 2-day shipping through Prime, it's so easy to buy things when I realize we need them. What I'd like to do is add something to a wish list if it's not something I absolutely NEED. If it's something we need, I'd like to add it to our cart and wait 1-2 weeks to place the order. Obviously if it's something we urgently need, I will order it, but a lot of my orders aren't urgent needs. This will cut down on the number of boxes we receive (which is a bit of a sore subject in my house)!

Overall, I know we are doing well with how we manage our finances, though, so I am trying not to be too critical. Life is meant to be enjoyed so I fully believe in continuing to spend money on things like coffee, lunches out, meals with friends, our bi-weekly cleaning services, etc. If it was up to Phil, we'd cut most of that spending out. Ha! But, "you can't take it with you!" so I want to enjoy the fruits of our hard labor - within reason, of course!

Do you review your spending? Is there a spending category you'd like to spend less on? Are there any finance topics you'd like me to cover this year?

Finance Friday: Conducting a Financial Review

Happy Friday! Look at me posting 2 "Finance Friday" posts in the first month of the year! I was hoping for one post/quarter but I'm exceeding that goal for the first quarter! The wheels might fall off quickly, though, so we'll see if I can keep this up.

I talked about our 2018 spending in my last Finance Friday post and today I'm going to talk about the financial review that Phil and I just conducted. We try to do these about twice a year. We always do one at the beginning of the year in preparation for tax season. When Phil and I got married, we decided to combine our finances because it just seemed easiest. That said, we still have a lot of individual saving, retirement, and investment accounts so it's necessary for us to sit down on a regular basis to review things. Regardless of whether you are single or married, I think a financial review is an important thing to do on a regular basis so you are being mindful about your financial goals! Here's what our process looks like.

How?

Even though I use mint.com to keep track of our spending, Phil prefers to keep our 'financial review' data in an excel spreadsheet. We are both excel geeks so this makes sense.

What?  

For our review, he updates the balances of all of our accounts such as savings, 401ks, IRAs, investments, health savings accounts, etc. He also updates the balance of our mortgage which is the only debt we have between us. We use credit cards to take advantage of points but we pay the balances off each month. I used to have a sickening amount of student loan debt thanks to grad school but I worked hard to pay that off early in my 30s. I mention that because I don't want to come off as "being holier than thou" when it comes to finances.

Why?

Gathering the data can be the pesky part of the process but the important part of a financial review is what you actually do with the data. This is why some people opt to do their financial review with a financial advisor. Phil and I have opted to not work with an advisor because we feel like we have more-than-adequate knowledge between the two of us since are both CFA charterholders.

The most important question to ask is:

- What is your goal? This question will drive all the other questions you will ask yourself. In our case, we are hoping/planning to make a down payment on a home - hopefully this year! Besides that, we want to make sure we have enough saved for retirement, that our retirement accounts are properly invested, and we want to save for the expense of Paul's college education. Additionally, I would love to retire early - like in my 50s! So we need to save, save, save to make that a reality!

For others, the goal might be to pay down debt, establish emergency savings, save for a down payment for a home, increase retirement savings, etc.

Once you've established your big goals, more questions will follow that will help you accomplish that goal. For us, our follow-up questions are:

- Do we need to make changes to the allocations of our retirement accounts (i.e. the balance between equity and bond mutual funds/ETFs)?
- Do we have the right amount of money in savings or should we move some of that into an investment account?
- What should we do with the bonuses we will receive this spring (Phil and I are fortunate to work in industries with bonus payments) - should we put them in savings? Invest them? Pay down our mortgage? When making this decision we consider the interest rate of our mortgage compared to what we could earn in an investment account.
- When and how much will be contribute to Paul's 529 plan (a 529 plan is a tax-advantaged college savings account)?

After this financial review, we didn't make any changes because we need a lot of financial flexibility (i.e. we are keeping more money in savings than we normally would) since we hope to buy a house this year. Once we find a house we'll finally be able to make some substantial changes.

In closing I will say that part of me feels a little bit uncomfortable even talking about our financial review process because I know that our financial situation is different than a lot of people. That said, I would say we are probably more frugal than the average couple so our frugality coupled with working in a well-compensated industry has resulted in financial stability. However, we also work in a very volatile industry so we have to be really mindful about saving enough in case one or both of us loses our job at some point. But that said, I recognize that we are very lucky to be in the position we are in. But it hasn't come easily - we've worked really hard to advance our careers and have been really mindful about what we do with our money.

This openness about financial decisions is something we are going to be mindful of as Paul gets older. We feel that our parents did a really good job preparing us to manage our finances. We then built upon the basic knowledge they gave us about the importance of savings and living within our means. That's something we really want to instill in Paul.

Do you do a financial review? Is there a financial goal you are working towards?