My savings rate and expenses – June update

This is the fourth month of tracking my expenses and I’m actually quite happy with what I’m seeing.

If you exclude last month which had a pretty big one time tax expense that will be spread more equally across future months then my spending is pretty predictable. There is a 3% difference between my highest and lowest months which is pretty freaking close.

If you include last month since one time expenses do happen and there will be more in the future(car insurance payment is coming up soon) then the range is 10% which still isn’t all that wide.

That tells me two things. The first is that my month to month expenses don’t vary too much. There will certainly be months in the future that deviate from these ranges(vacation months for example) but predictability is a good thing to have when thinking about savings rates with an eye towards early retirement.

Flexibility is also important in a budget if want predictability and it seems like I am pretty flexible in my expenses so far. This allows me to reduce in certain areas to account for bumps in others. Even last month where I saw a ~15% jump in my short term savings spend category, my overall spend only went up around 5% due to reductions in other areas. I saw the same thing in April where a one time electronic purchase spiked that category by over 10% and yet I saw no noticeable increase in monthly spend.

That’s all good news for me when planning for my future. It’s good to know when I’m trying to think of a future target that my expenses will likely be X or within 10% of X each month.

It also bodes real well for my savings rate in future months once this annoying quarterly tax bill situation I talked about in last months update(large long term stock sale) is out of the way. That’ll mean another potential 8-10% in savings that is currently going to the tax man that will flow into savings for 2017.

That actually makes me excited for 2017 as my savings rate should see a nice bump that year!

If my aim is a savings rate of 50% each month then I’ve missed the mark each month so far. However if it’s due to an explainable and unrepeatable cost that will disappear in 2017 then I’m not really that upset about my situation since it’ll likely improve next year and make hitting that goal a lot easier. .

Let’s take a look at we saw this month.

First, let’s take a look at the gross income breakdown.

I’m at 26.4% savings rate this month when I look at a gross income breakdown which is better than last month. My expenses went down versus May due to the reduction in tax bill savings. However, they were about the same as they were in April which is interesting considering I had a sizable one-time electronics expense there when I bought a new smart phone.

That means I must have spent more on other categories this month than I did in April.

Without even looking at the cost break down, I know I saved a bit more towards my September tax bill this month than I did in April since I didn’t want a huge expense in September like I had in May. When it comes to these known one-time expenses, I’d rather save a little bit more each month going forward versus shelling most of it out in one month like I did in May.

My girlfriend’s birthday also happens to fall in June so that meant extra restaurant and gift expenses. I certainly don’t mind spending money on people I love and experiences with them I’ll remember.

The goal when it comes to gross income savings rate is to see this number at around 33.3% on a consistent basis which means reducing my expenses to get there. I’m not too concerned about it being below that right now since the tax expenses drive it down quite a bit and I’m still in the early process of analyzing my numbers so far.

33.3% is just a made up number that I’m not sure has any basis in reality. It just sounds nice and is based on that old adage of spend 1/3, save 1/3, give 1/3 to charity(charity/taxes in my case)!

If I add employer contributions to this number, the savings rate for the month is 31.2%.

Gross Income savings rate doesn’t have much value to me but I do like to look where all my money is going.

I concentrate more about my savings rate which ignores taxes. Let’s take a look at that now.

I had a savings rate of 35.8% this month. That number jumps to 42.66% with employer contributions. That’s a good deal above last month and right around where we saw April. That’s not bad but still a good deal below my 50% target.

Tax savings certainly had an impact on my savings rate this month but if we exclude that then my savings rate was actually worse than last month.

I cut costs pretty heavily last month and my savings rate excluding what I saved for taxes was 47%. This month if we exclude that expense, it was only 41% which means I spent more this month in other areas. What’s interesting about last month is that I didn’t do anything specific to spend less. It just happened to work out that way. This month I didn’t do anything specific to spend more, it just happened to work out that way again!

It’s interesting how’s there’s a natural flow to our expenses and I look forward to see this across a few years to see what kind of trends I’ll see. I think there might be an underlying mental aspect to it all. I’m a relatively goal oriented person by nature so perhaps just knowing that I’ll have a big one time expense in one month forces me to cut back in other areas without even realizing it.

I guess I’ll see if that’s the case after a few years of tracking this or if that was just a little coincidence.

Let’s take a look at where my money went this month.

Rent, groceries and car related expenses are around where they usually are this month.

Rent is a relatively static number which will vary on a % basis against my overall expenses.

Car payment + expenses were actually higher than average this month not because of a higher payment towards my principal but due to car registration fees which come along every two years. I generally do put a little bit extra towards my principal to pay down my loan faster not because the interest rate is too high but because I’d rather have the extra cash flow faster.

Once that payment is out of the way then that part of my expenses will drop drastically and assuming my car still runs fine then I can push that money into my savings further bolstering my savings rate.

Groceries will vary month to month but have been similar since I started tracking this.

Gifts and short term savings are down from the huge spike we saw last month. This is less tax payment savings this month and more gifts for my family and girlfriend(her birthday!). Her birthday is also one of the reasons restaurant expenses were up against his month although I’ve noticed a reduction in that expense since I started tracking this. In March, it was nearly 10% of my spend and has been down to between 3-7% in the months since then.

I think the trend is seasonal as I’m less likely to go to dinner when it’s nice outside. I can grill or cook at home and go for a walk instead. Those aren’t great options when it’s cold and there’s not much to outdoors so I’m more likely to go to dinner for a date night.

The rest of the stuff is mainly repeatable costs. I did buy a few new shirts which means clothes show up again as a category. I don’t spend a ton on expensive clothes but I do buy mid-level quality items at outlets when they’re on sale. I find these items are more likely to last a few years unlike the really cheap stuff which loses quality pretty quickly.

I added a new category called fees which captures the various miscellaneous things that don’t fit into another category. In this case it’s an annual fee that I pay on one of my cash back credit cards as well as some parking fees for some city visits. The annual fee on the credit card is easily worth it considering the 6% cash back it gives on groceries which means I get more than the fee back when compared against any other no fee credit card.

Taxes again are the one expense that’s holding my savings rate back but there’s no way to avoid that.

That’s why I love tax-advantaged accounts so much when it comes to savings. Any moves you make in those accounts that generate a profit and any dividends that are paid in those accounts are yours to keep without the IRS taking their cut.

That’s it for my expense and savings rate update this month. The savings rate still isn’t anywhere close to 50% but I’m not seeing a ton of fat in my expenses. I know that certain costs disappearing(quarterly tax bill after 2016, car payment after 2017ish) will cause my savings rate to rise quite a bit which gives me comfort around my expenses so far.

How was your savings rate this month? Was it where you want it to be or are there improvements to be made?

Thanks for reading and see you again in a month for another savings rate update. July is a three paycheck month so that should help the savings rate but after that, there’s some annual bills coming due that will surely put a cramp in the savings rate.

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