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.

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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? 

New car + weekend happenings

What a weekend. Saturday was very busy… because we FINALLY BOUGHT A CAR! Longtime readers might remember we have been trying to buy a Rav4 Prime (a plug in hybrid) for over 2 years. We were even working with a car broker and were on multiple waiting lists in multiple states to no avail. So this fall we gave up and decided to get a Rav4 hybrid. We could not bare to go through another Minnesota winter without 4WD. So on Saturday morning, we sold my 2015 Camry to Carvana. It was SO EASY - the process once the Carvana guy arrived took 6 minutes! Phil did all the paperwork online which seemed pretty easy. I paid $18k for my brand new Camry in 2015 and we sold it for $15k!! I lucked out and bought my car when there were lots of cars on the lot so paid below MSRP. This is clearly a different car buying environment. Our car only had about 45k miles since we don’t drive all that much so that is part of why the value stayed high, I’m sure. But it’s pretty crazy to think that we got $3k less than the new car purchase price 8 years later! Had we sold it to the dealership, we would have gotten about $3k less so it was worth it to work with Carvana.

The boys were entertained by the towing process!

That afternoon I dropped Phil off at the dealership so he could buy our Rav4 hybrid. We looked it over/Phil did a test drive since we had never seen one or test drove one before and then I took the boys to the zoo for the last hour before it closed while he handled the buying process. That’s the perk of having a membership - you can swing by for an hour. We saw the penguins, monkeys, the Minnesota Trail and the aquarium. We mostly stuck to the indoor exhibits since it was 32 degrees outside! Leaving was not pleasant, though… 

 

Paul has the wingspan of a peregrine falcon; Taco has the wingspan of a pileated woodpecker; I have the wingspan of a Canadian goose.

What a day, though. Buying and selling a car from 2 different companies. Hats off to Phil for dealing with every single aspect of the buying and selling process. He got bids for our Camry, talked to several dealerships, worked with the car broker (who ended up being terrible at his job but refunded the $300 retainer we paid him), dealt with the dealership, etc. 

Our shiny new car - hopefully worth the wait!

Other weekend happenings:

- We were supposed to attend and co-host a pumpkin carving party on Saturday but we had to cancel as one of the host’s kids was sick. We will push it out a few weeks and host a fall party sans pumpkin carving. It was sad but for the best as our family is still kind of limping along. Phil is still pretty worn out from influenza and I’m nursing a pesky cough. Plus I had traveled for work Wed-Fri so overall we just felt tired and worn out. I also managed to hurt my lower back last Sunday when I pushed Taco in the stroller for an hour plus. Apparently my body isn’t used to pushing 50+ lbs of weight and wow has it been protesting. So we carved our pumpkin on Saturday night. I cleaned out the pumpkin which is something I am good at and oddly enjoy. Phil did the carving. Can you guess what we carved? 

- No runs for me between my cough and sore lower back. Instead I wore for a chilly walk (28F) on Sunday am.

The neighborhood geese are ready for Halloween!

- We went to a Halloween party at my former neighbor’s after nap on Sunday. We were kind of late joiners but the boys had fun and I enjoyed catching up with my friend. Phil took our cat back to his mom and worked on some projects for her so missed out on the fun.

The boys in their costumes earlier in the weekend. Definitely going to need winter coats over their costumes for Halloween since the high that day is 35F.

All in all, a good and productive weekend but I am worn out. I decided to make a clinic appointment for Tuesday to have my cough looked at. I’ve had it for 10 days so am not worried about passing it along to others - I wouldn’t be out and about if I was, although I did mask on the plane out of respect for my seatmates. I just wonder if I have developed bronchitis and maybe need some steroids or something to kick it. I’m going to try to snag an office when I am at work this week so others don’t have to listen to me cough (I work in an open air environment without many cube walls, etc).

How was your weekend? Did you carve pumpkins? Can you guess what we (by we I mean Phil) carved in ours? 

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!

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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: 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: 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!

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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: 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?

Finance Friday: 2018 Spending

Happy Friday! Last year I intended to talk more about finances, but I totally failed at that because baby Paul took over the blog in 2018! I don't expect that to change too much in 2019 but hopefully I'll have the bandwidth and energy to talk about something besides my adorable baby. I love reading other peoples' finance-related posts and usually get great comments when I post about finances. So maybe I can attempt to do a finance post each quarter? We'll see!

For my first finance post of 2019, I'm sharing my annual spending review (see my 2017 post here, 2016 post here, and 2015 post here). It's hard to do a year-over-year comparison as something "new" pops up in each year that makes it unique. In 2016, I didn't have combined finances as I moved in with Phil mid-year; in 2017, we got married which cost a pretty penny; in 2018, we had a baby which came with a whole new set of expenses! But I'll try to draw some comparisons between 2017 and 2018.

Looking back on 2017, our 3 largest expense categories were wedding (23%), Auto and Transport (17%) and Home (16%). The wedding was a large, one-time expense (thank God!) and Auto and Transport was large because Phil paid off his car loan. Home was one of our top 3 expenses in 2018 but it will probably always be one of our top 3 expenses.

In 2018, we spent about 20% less than 2017 since 2 of the 3 expense categories of 2017 were temporary (wedding and auto/transport). Our 3 largest expense categories in 2018 were taxes (33%!!!), Home (19%), and Daycare (13%). I'll talk more about these categories below but man was I surprised by the size of our tax bill in 2018 (for 2017 income). After years of always getting (huge) refunds, we had to pay in - BIG TIME. I had no idea there was such a thing as "the marriage penalty." Phil knew all about this because his other married friends had complained about their first tax bill as a married couple (taxes is just not something my girlfriends mention, maybe because their husband handle the taxes??). I won't get into the nitty gritty but basically the sum of your tax obligations for your income as a single person is way less than the tax obligation of a married couple when that income is combined. Oy.

Here is our 2018 spending graph! I'm not going to talk about every category - just the ones that bear mentioning!

Taxes (33%): After having to pay in big time last April, we decided to make an extra tax payment at the end of 2018 to lessen our burden come April and avoid the potential of a tax penalty.So we paid A LOT in taxes in 2018. I don't think anyone really has a good idea of what is going to happen to them at tax time with the large scale changes that were made to tax policies in 2018 - like will it make sense to itemize deductions with the standard deduction increase? I guess we will find out in April (gone are the days of doing my taxes early as Phil gets a K-1 for some of his income and they aren't done until March usually). As much as it sucks to have a large chunk of change go to uncle Sam, we also recognize that we are in a higher tax bracket and that we need to contribute a larger % of our income to taxes. We also live in a state with one of the highest tax rates, but that comes with excellent schools, parks, libraries, etc. You get what you pay for!

Home (19%): I sold my condo in 2018 (woo hoo!) and managed to make a small profit (which adds another element of uncertainty when it comes to taxes - woo hoo). So our home expenses would have been a higher percentage of spending if it wasn't for that gain. But I had years of slight losses from the rental property so from a multi-year perspective, I about broke even. I expect that our home expense category will increase in 2019 as I REALLY hope this is the year that we find a house - which will come with a slightly larger mortgage payment.

Daycare (13%): Oh boy, daycare is expensive, and this was for a little less than 1/2 of the year! But this is not an area of the budget where we want to cut corners. Paul's daycare is not cheap but it's also not the most expensive program we looked at and it's probably about 1/2 the cost of hiring a nanny! We feel that we made an excellent choice and it's worth every penny to know that Paul is being well cared for and is learning Spanish! This expense will decline as Paul moves up to less high maintenance rooms where the teacher to student ratio is higher.

Groceries (5%):  This remained the same % as 2017. This is probably a bit under-stated as I buy some of our groceries at Target but I do not go to the trouble of splitting out the grocery part of Target transactions. That's just too much work! Our grocery bills stay reasonable because we only cook about 2-3 meals a week and get by on leftovers the rest of the week. Also, Phil buys his lunch every day but he usually spends less than $7-8. The guy barely spends any money so if he wants to spend $35-40/week on lunch - go for it!

Target (4%): This represents a combo of things for Paul, groceries, and household goods. There is a Target one block from where I work, which is DANGEROUS! But it's really nice to be able to pick things up during the workday.

Gifts and Donations (3%): This category went down in 2018, but doesn't include what I contribute to United Way through automatic deductions from my paycheck. We made fewer charitable contributions in 2018 but I think this category will go back up in 2019. We just need to sit down and figure out what we want to make contributions towards as a couple.

Amazon (2%): This was much lower than I thought it would be but then I remembered that we used hundreds of dollars of Amazon gift cards from our wedding and baby showers in the early part of the year. Amazon gift cards are probably the best gift you can get a new parent, especially if they have prime (we do - couldn't imagine not having it!)

Restaurants (2%): We continue to spend very little at restaurants. I was surprised that we spent the same, percentage-wise, as 2017 because we barely go out to eat. But I do treat myself to lunch once a week and for my first 6 weeks back at work I gave myself permission to buy lunch every day because I had enough going on between caring for Paul, pumping, and adjusting to working full time again!

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Looking ahead to 2019, there isn't too much that I want to change about how we spend money. This pie chart doesn't factor in the money we save. We save quite a bit between the two of us as we are definitely savers, not spenders. So when I factor in our savings, I feel like we spend the "right" amount of money and we certainly live well below our means which is important to both of us - especially since Phil and I work in a very volatile industry.

I do hope that travel shows up on our pie chart for 2019. We did not travel in 2018 since it would be too much work with a baby but we are hoping to go on a little beach getaway in April with my parents!

Do you look at your spending on a regular basis? I keep an eye on it on Mint.com throughout the year but do a detailed review each January.

Finance Friday: 2017 Spending

Happy Friday! I'm back with another finance post - this time focused on my 2017 spending (see my 2016 post here and 2015 post here). I debated whether to do a spending post this year since it's no longer 'my money' and is instead 'our money' as we combined all of our accounts. But it's still mostly my money since Phil spends very, very, very little! I consider myself to be pretty frugal but he just takes it to a whole new level! This doesn't show a 100% complete picture of our spending as there are a few credit/debit cards of Phil's that aren't on my Mint account. But it comes pretty close to showing our total spending.

I can't really do a 2016 to 2017 comparison, though, because 2016 was only my expenses, so didn't include the mortgage for our house and other miscellaneous spending by Phil. But I can still make some general comments about what categories increased. And I can say for certain that we spent more money in 2017 than 2016 thanks to our wedding. But I'll get more into that below!

Here's how our 2017 spending broke out! I won't talk about every spending category, just the ones that are noteworthy. Also this only includes spending - not savings.

Wedding (23%):  It's kind of sad that this was our biggest spending category for the year, but weddings are expensive. We tried to keep the cost down as much as possible by DIY'ing the decor, but the cost of the reception venue/food was sort of a set amount. And since we had so many out of town guests that flew in for the wedding, we wanted to provide a nice meal and we hosted beer and wine. We did receive money from both of our parents, but I didn't adjust the amount we spent on the wedding to account for their contributions so that this would be a true reflection of how much the wedding cost. I'm really glad we will only be getting married once as I would not want to pay for it again!!

Auto and Transport (17%):  This was another big spending category for us as Phil payed off his car loan since the 0% interest on his loan was expiring. We both have cars that are fully paid off now, so this category should be very small in the years to come hopefully!

Home (16%):  This category includes our mortgage, miscellaneous house expenses, like getting some walls of our house painted, and utilities. We spend very little on the house category right now but we are planning to buy a house in 2018 so this category will go up. This category has gone down SO MUCH since I moved in with Phil, though, as his mortgage is quite a bit less than the rent was for my downtown condo. We don't have cable so that keeps this spending category lower than it could be. I can't believe how expensive cable is and we really don't miss having it.

Condo Rental (8%): This category depresses me because it goes to show how not economical it is to rent out my condo. I had some expenses related to the condo and my rent didn't quite cover the mortgage, HOA dues, taxes, and insurance, so posted a loss for the year. However, I am putting my condo on the market in February so fingers are crossed that I can sell it and break even. Buying that condo was the worst financial decision I have ever made as the value steeply declined during the great recession. It's depressing that I have to cross my fingers and hope to break even after owning it for almost 13 years! But oh well - soon it will be behind me! I can't wait to have it off our balance sheet!

Donations (7%):  I'm proud of the fact that this category is as high as it is. It's actually understated as it doesn't include the United Way contributions that come out of each paycheck. But it's too much of a pain for me to add in those deductions. We feel very fortunate to be able to afford to give back to others who are in need of help.

Financial (6%):  This category mostly represents investments we made in 2017.

Miscellaneous (6%):  This is a catch-all category that represents lots of things like haircuts/hair products, amazon purchases, gifts, postage, entertainment and pregnancy/baby-related items. I put anything that was too small to break out on its own in this category.

Groceries (5%):  I'm happy with the amount in this category as it ends up being less than $100/week which is a reasonable budget for 2 people who value eating lots of fresh produce and locally-raised meat (well, I mostly value it, Phil is 'along for the ride' when it comes to grocery decisions because I do all the cooking/meal planning).

Travel (2%):  I'm actually really surprised how low this category is. We went on 3 vacations this year - San Diego, Maui and Asheville. But we used miles for the Maui trip and used companion fares for the San Diego and Asheville trips, so we only had to buy 1 tickets for each of those trips. I also took solo trips to NYC and St. Louis but I used miles for both of those trips so didn't pay out of pocket for my flights and my accommodations in NYC were very inexpensive. I have a feeling that the apartment rentals for our San Diego trip and honeymoon aren't included in this total as Phil might have put it on a credit card that isn't on my mint account. So it might be understating our travel expenses - I would guestimate that travel should have been more like 5-6% of our spending. But all in all, we did not spend all that much on travel and I highly doubt we'll spend much in 2018 since we'll become parents!

Restaurants (2%): I'm also proud of how little we spend on dining out. We really view dining out as a special treat and do not do it very often. And when we do dine out, we usually go to inexpensive places that we love. This is one of those 'you do you' categories, though. Some people really value eating out but we just aren't those people, especially because of my gluten intolerance as it kind of takes some of the fun out of dining out.

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Looking ahead to 2018:  We won't have a wedding so our total spending *should* decline. We will have a new baby but I am hopeful that we'll spend far less on him/her than we did on our wedding.  However, we'll start paying for daycare when I go back to work full-time, which is not cheap! But we will see how it all shakes out. Luckily we still have a lot of amazon gift cards from our wedding so we can use those to pay for the various things we'll need for a new baby. And we will save money by cloth diapering!

Our housing expense will go up in 2018, but we won't spend much in the auto and transportation category. It will be interesting to see what happens as the result of selling my condo. I'm hopeful that I can sell it for enough to cover my mortgage + some of the things I need to do to prepare to list it (new carpeting, paint, and a new light fixture).

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Overall, I'm pretty happy with how our spending broke out. There's always opportunities for us (well, mostly me) to tighten the belt on spending. But in general, I think we make wise spending decisions and we are also big savers so I'm happy with how we are managing our money. I think we've found a good balance of saving aggressively, living below our means, and spending money on things that matter to us.

Do you review your spending on an annual or more regular basis? I use mint.com and keep track of my spending throughout the year. It does require some work as you need to make sure that expenses are categorized properly, but it's worth the effort to have a clear view of where your money is going!

Finance Friday: The Time Value of Money

When I wrote my first "Finance Friday" post back in April, I did not intend to go 6 months before writing another post in this series. But life happens. These posts take some time, and in this case, math, to write so I kept putting it off! But today I'm ready to share my next post in the series.

In my last post, I talked about the importance of saving for retirement. As I said in that post, I place an incredibly low probability on the existence of the social security program by the time I retire. I'm a risk averse individual so I do not like to assume that social security will be around, or that it will be provide a sufficient amount of monthly income if that program is still in existence. So Phil and I have really focused on saving for our own retirement so that we can afford to stop working, ideally in our early 60s.

In today's post, I want to talk about the time value of money - a phrase or concept that gets thrown around often but might not be something that everyone grasps or thinks about. This is purely a mathematical concept. In simple terms, it is talking about the fact that the longer you save and the more you save, the larger the pile of money is going to be when you want to retire and live off of your retirement accounts.

Before I delve into the math, I want to address the fact that there is a certain level of privilege associated with saving for retirement. To be able to save for retirement, you need to be able to live within your means, provide for your family, and have money left over, after all your bills have been paid, to put money aside in savings or a retirement account. I completely recognize that this is not possible for everyone.

That said, I think we live in a culture of entitlement, and a culture of "keeping up with the Jones's." Saving for retirement requires sacrifices. We have to say no to some of our current wants and desires in order to be able to stop working at some point in the future. That's not always easy, especially if you are struggling to make ends meet with your household income. This reality has been brought even more to light recently as we start to look at daycare options and have had to come to terms with the fact that we'll spend over $18,000 for daycare in the first year of our child's life. Each year of our life requires evaluation about what our savings goals are and how we are going to achieve them as our expenses fluctuate. I also recognize that there is a certain level of privilege associated with being able to save for retirement - I understand that many people in our country are living paycheck to paycheck and don't have excess money at the end of the month to put in savings or towards retirement.

I bring all of this up as a precursor of getting into the time value of money because saving has to be so intentional. I'm going to share the math behind the time value of money, but the first decision we all have to make is how we are going to go about finding the money to save each month or year. It requires discipline and for most of us, it requires automation. All of my savings occur before the money hits my bank account. My 401k contribution gets deducted from each paycheck, and a certain amount of my take home pay gets automatically transferred to a savings account that I can not easily access. I use that savings account to fund my IRA contribution each year. Granted, not everyone needs their savings to be this automated. For example, Phil does not have money automatically transferred to a savings account. Instead he transfers money to savings once he reaches a certain dollar level in his checking account. That could work for me, but I'd prefer if the money just automatically goes to savings without me seeing it in our checking account.

Now - let's get into the math behind the time value of money. I'm going to share 2 examples of the math behind the time value of money - meaning the power of your money to earn interest each month or year and how it will multiply and grow exponentially with time. In these calculations, I made the assumption that your money will earn 4% per year. That might be an over-optimistic assumption but it's a common estimate used by financial planners. One point worth mentioning - you can not earn 4% per year in a savings account. You would need to invest it in a mutual fund or some sort with exposure to equity markets. Having money in a savings account is fine and important - but that is not where you should be saving money you intend to use for retirement, for a variety of reasons.

Example #1: Saving $100/month. In the first example we'll look at what happens if you save $100/month for 10, 20 or 30 years. The time value of money calculation is powerful to look at in graphical form because it illustrates the fact that the sooner you start saving, the better. In this scenario, let's pretend you are 30 years old and want to retire when you are 60 (which might not be realistic - this is merely meant to be illustrative) and will either start saving $100/month in a retirement account this year, when you turn 40 or when you turn 50.

As this graph clearly illustrates - the longer you save, the more money you will have when you are 60 years old. Let's use the 30 year investment period to illustrate the time value of money, and the power of compounding of interest/dividends (i.e. interest earned on interest). In this example, contributing $100/month for 30 years will grow to a total of about $69,500 in 30 years. If, instead, you put $100 per month under your mattress for 30 years, it would total $36,000 in 30 years ($100 x 12 x 30). So you'd be missing out on about $33,500 in compounding interest/dividends if you didn't invest the money in a mutual fund or some other financial product.

Example #2:  Saving $5,000/year. In this example, we will look at what happens if you save $5,000/year for 10, 20, or 30 years. You can think of a 30 year old person who makes $50,000/year and puts 10% of their paycheck in their 401k, or about $192/paycheck if you are paid every other week, either at age 30, 40, or 50 and wants to retire at age 60.

Again, the graph shows that sooner you start investing, the larger that pile of money will be when you turn 60. In this case, the 30 year old who contributed $5,000 year for 30 years has put aside $150,000 dollars over 30 years, but it grows to about $290,000 in 30 years.

In closing, there are 3 ways that you can impact the size of an investment account at your retirement age:

1. The amount you contribute. The more you are able to put away each month or year, the larger the amount in the retirement account will be when you retire.

2. The length of time you save/contribute to the retirement account. As these graphs show, the earlier you start investing in your retirement account, the better.

3.  The return of the investment product. We can't control how certain areas of the financial market perform - they will fluctuate over time. But we can control what areas of the financial market we invest in. Let's use the example of investing $100/month for 30 years. If you would have put this in a savings account that earns 1%, in 30 years the account would grow to just under $42,000. Which sounds great until you compare that to the investment account earning 4%, which becomes $69,500 in 30 years. This illustrates why it is important to be thoughtful about how we invest our retirement savings. Picking the least risky investment might seem like a good idea, but you are likely missing out on returns that you could be earning. I'll talk more about this in a future post. I understand that it is VERY OVERWHELMING to look at your investment options in your 401k or IRA. But if it overwhelms you, instead of picking the least risky investment option, consider working with a financial advisor. They can asses your risk tolerances and make a recommendation. In general, the younger you are, the more heavily invested you should be in equity markets.

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Hopefully I haven't bored you all to tears by this point! If you have any questions, please let me know as I am always happy to talk about all things finance. You can always leave a comment (make sure it's linked to an email address so I can respond) or send me an email at lisasyarns at gmail dot com.

Are there any finance topics in particular that you'd like me to cover in future posts? I want these posts to be as useful as possible, so I welcome your feedback. 

Disclaimer:  The thoughts in this post are my own thoughts and are not meant to be taken as investment advice. I have no fiduciary responsibility to anyone that reads this post. Additionally, my comments are US-centric; retirement benefits vary from country to country.

Finance Friday - Thinking About Saving for Retirement

Happy Friday, everyone.  Today I'm kicking off a new post series called "Finance Friday." As many of you know, I work in financial services and am a CFA Charterholder (CFA stands for Chartered Financial Analyst). So finances and financial management are kind of my thing.  That said, I recognize that financial topics like saving for retirement and selecting investments and such are topics that others have varying levels of interest in and knowledge about.

When something intimidates you, the natural response is to ignore it. But your financial health is such an important thing to think about because we all have a goal to retire at some point and enjoy the fruits of our labor. And while there are programs like social security that should enable us to leave the workforce and retire, there are varying levels of confidence that social security will remain funded long enough to provide retirement income for Americans, especially those in my generation and younger.

According to this article from CNN, the trusts that funds social security income will be depleted by 2034. That does not mean that social security will go away in 2034, but social security benefits will be cut by about 20% as the payments to beneficiaries will need to be funded by incoming tax money (right now there are assets in a trust that earn income to supplement the amount of social security taxes that the government collects). I will be 53 years old in 2034.  I won't even be at the age to receive social security benefits. So if the benefits are being cut by 20% at that point, how much further will they be cut by the time I start to receive social security in 2048? [full retirement age is 67 for those born after 1960 - you can start to collect at 62 but the amount of your benefit is reduced by 30% if you start to collect at age 62.]

I recently received an article at work (that I can't share because it requires a paid subscription, but this Huffington Post article from last summer says that same thing) that said nearly half of baby boomers have no money saved for retirement and intend to rely on social security income in their retirement years. Granted, the baby boomers that are entering their retirement years likely never feared that social security income wouldn't be around to provide retirement income. But in my opinion, my generation - generation X - and millennials can not assume that we will receive social security benefits when we retire.

Maybe there will be some sort of large scale reform that will increase the likelihood that we'll receive sufficient social security income, but that's a big maybe, in my opinion. I know this is probably scary for many to read and think about, but it's something we need to be aware of and plan for.  Granted, if you happen to work for a company or industry that provides a pension then this is less of a concern for you. But nonetheless, ignoring thoughts and conversations about how to plan for retirement is akin to never going to the doctor because you don't want to know what the state of your health is. Because just like your physical health, your financial health is going to matter in the long run.

Again, I want to stress that I understand that thinking about this might make some of you really uncomfortable and quite anxious. But isn't it better to think about it and do something about it now when you potentially have 30+ years to put a plan into action versus thinking about it when you are approaching your retirement?  The good news is that time is literally money when it comes to investing (a topic I'll be touching on in my next post in this series). Yes, there will be times when your investments decline in value, but over time, those investments will grow.

This first post in my "Finance Friday" post series is more of an 'ideas' post that is meant to get you thinking about your retirement. But I do want to leave you with some 'actions' to take.

Finance Friday Actions

1. Consider working with a financial advisor - I personally do not work with a financial advisor because between Phil and I, we have the knowledge and resources to manage our assets and prepare for retirement. But I would say we are the exception, not the norm. If thoughts of retirement freak you out and make your stomach hurt, I think a great first step is to meet with a financial advisor. They will have the tools and resources to talk about preparing for retirement and if they are good at their job, they will do so in a manner that will make sense/not intimidate you. If you have 401k, IRA, and other investment accounts, they should be able to run an analysis on how much income those retirement accounts will provide. They can factor in social security income, or they can exclude it to give you a 'worst case scenario'. Your company may even provide a financial advisor as part of their benefit package. If you aren't sure, just ask your HR department.

2.  Set your 401k contribution to your company's matching rate, or greater - Most companies provide a 401k match as part of their benefit package. It's usually in the range of 3% to 6%. At a minimum, you should set your contribution to the % that your company matches - otherwise you are leaving free money on the table.

This post is already super lengthy so I will stop here. Since this is a new post series for me, please let me know if you have any feedback or if there are topics you'd like me to discuss in the future. My goal is to post something at least once a month on this topic.  And if I ever post something that you don't understand, you can always email me at lisasyarns at gmail dot com. I know this is cheesy, but knowledge is power, so the more you can educate yourself on finances and preparing for retirement, the better.  My goal is to empower everyone to take more ownership in making sure their financial health is in tip top shape!

Finance Friday Question:  Have you given much thought to saving for retirement?

Disclaimer:  The thoughts in this post are my own thoughts and are not meant to be taken as investment advice. I have no fiduciary responsibility to anyone that reads this post. Additionally, my comments are US-centric; retirement benefits vary from country to country.

Year in Review: 2016 Spending

While my focus is mostly set on 2017, I have one last year in review post!  I know that talking about money is such a source of discomfort for most people, especially women it seems. But I think it's important to try to find ways to talk about as we can all stand to learn something from one another. Last year I did my first spending post, so I thought I'd do it again this year as I got a positive response to it last year. 

Here's what my 2016 spending looked like:

Observations:
Home and Condo Rental: This year I decided to split out the expenses of my condo rental from the home category. 2016 was a bad year for renting my condo. Between flooding in the unit that required me to replace the flooring in the kitchen to buying a new fridge to a range of other maintenance expenses, I lost money in 2016. I sincerely hope this is my last year having this rental as I would love to sell it in the fall and be done with it. On a positive note, I spent far less on housing expenses for myself as I moved in with Phil and he doesn't charge me rent!  We have an agreement that I will buy groceries and pay for things like vacations and such.  He felt it wasn't worth the effort to split the expenses evenly since we knew we would be getting married eventually and would combine finances at that time.

Wedding:  Yes, we already have spent a considerable amount of money on our wedding, even though we just got engaged on December 9th! We booked the reception venue and photographer in December so have to make deposits on both of those items.

Auto & Transport:  This is new category this year as last year my spending on this category was so small it got lumped into other. My car literally died on me in July so I had to buy a new car, hence the reason why that was my biggest expense category for the year. I didn't pay for the car in full as the financing fee was so low but my goal is to pay it off in 2 years. 

Donations:  My donations category increased this year as I identified a few new charities that I donate to on a regular basis. Since Phil and I live well below our means, I feel that giving back is a very important thing to do.  I don't want to sound like I'm up on my high horse by saying that as I recognize that finances are tight for many people and they don't have extra to give, but since I do have extra to give, it's something I try to do. 

Travel:  This category grew a bit this year since I paid for our vacations in full instead of splitting the cost with Phil. This category doesn't include our Mexico trip as we paid for that in 2015, but I feel good about the amount spending considering that it includes trips to San Francisco, Bend, Spain, and several out-of-town weekends for friends' weddings. Travel will ALWAYS find a place in our budget as it's something we both value.

Target:  Target is still a big spending area for me.  It's hard to split up this category, though, as I get a lot of groceries (non-perishable goods) and household products from Target. I know I still make some additional purchases that I could limit but it would be so much work to get a handle on what I'm spending at Target. I do expect my Target spending to decline now that we have Amazon Prime as now I rarely buy household goods from Target and instead opt to have them shipped to our house.

Shopping:  I actually feel good about the fact that my total for shopping (which includes clothes, books, Amazon, and miscellaneous other purchases). Last year, clothing was 5% of my spending so I feel good about the fact that my total spending in this category was equivalent to what I spent on clothes last year. I bought far fewer clothes this year and instead tried to rely on what I already have. I will need to add to my wardrobe this year as some of my clothes are starting to show their wear, though.

Other:  This catch all category includes things like personal care (haircuts, Arbonne products, massages, and other random expenses). 

What about savings?
I didn't include savings in the graph as I like to see how my spending breaks out. But I also focused on savings in 2016 and significantly increased the amount I have in savings. We know that we will be buying a different "forever" home in the next 1-2 years so I am saving in preparation for that.

Final Thoughts
This is always an important activity for me to do each year, and it's something I encourage others to do.  I keep a close eye on my spending throughout the year, but it's always eye-opening to look at the totals at the end of the year. I feel like I am a pretty frugal person that spends money wisely, but when I review my spending it reminds me I have opportunities to spend less.  I utilize mint.com to track my spending. It does a pretty good job of classifying my expenses, but I have to do a lot of reclassifying of expenses so that it's accurate.

Lastly, this will be my last year of sharing my spending in this manner. Phil and I will be fully merging our finances after we get married and I don't feel right about sharing our spending as a couple. But I will still talk about money and finances, especially about how we adjust to having joint finances, as that is going to be an interesting experience for us after managing our finances independently for so long!

Do you track your spending? If so, what do you use to track it?