Those of us on a biweekly pay schedule have gotten to know those happy months when we get three paychecks instead of two. July was one of those months for me and that means a serious boost to my savings rate for the month.
I think such timing of paychecks makes a monthly savings rate less useful than a full annual savings rate but we won’t have that data to analyze for a few more months. A month like this where expenses remain fairly static but an additional paycheck comes into play will naturally lend itself to a much higher savings rate which can be a bit misleading when looking at the total picture.
I’ve already seen a pretty consistent dollar total for my monthly expenses since I started tracking this a few months ago and this month was no different.
Predictable expenses are always a good thing when trying to project something into the future like trying to estimate a potential early retirement date.
Having a good basis for projected costs is an important part of early retirement planning. Expenses will vary with one-time expenditures and I’ve seen that first hand in August with some already incurred but also upcoming medical expenses(some tests – likelihood of things being OK are high).that have potential to happen any given year to those of us with high deductible HSA plans. These types of costs or others like it are important to add to any projections even if they haven’t occurred in the past few years as they can throw things off path if you’re already cutting things close.
That means August will likely be a much lower savings rate than we’re seeing this month and that adds to the issues around putting too much emphasis on a monthly savings rate. Additional paychecks in a month or surprising non reoccurring expenses(like meeting a medical deductible) can really skew the monthly results so it is the annual total I’ll be more concerned about in the long run.
It’s certainly important to track each month and get that data especially when it includes unexpected expenses that may not happen every year because it makes the total annual spend more realistic and dependable. That’s why I don’t get too excited about months like July when the savings rate is high relative to others nor will I get down about August which will likely be very low.
At the end of the day; this is about getting a realistic expense total for a full year and the savings rate that comes with it and then deciding if I need to make any changes to reach my goals.
Let’s take a look at what we saw this month.
First, let’s take a look at the gross income breakdown. As a small side note, I changed some of the colors of the graphs to be more consistent across both graphs.
That extra paycheck really spikes the gross income savings % this month to 41.7%. That’s a huge jump from prior months and is essentially all driven by that extra paycheck.
My expenses were in line with prior months and my taxes actually increased because my 401k contributions have been reduced a tiny bit. I was getting too close to maxing the 401k out before the end of the year and that would mean missing out the employer contribution which required small adjustments to make sure that doesn’t happen.
My goal gross income savings % is 33.3% and this’ll certainly help get me there on an annual basis since I’ve been below that number every month since I started tracking. The 41.7% this month becomes 46.7% when accounting for employer contributions. That’s a 5% boost to my savings rate so you can see why I want to make sure I don’t miss on even one paycheck’s worth of employer contributions by maxing out my 401k too early.
Let’s take a look at the savings rate.
I had a savings rate of 57.4% this month. That number jumps to 64.2% when I add employer contributions. That means I saved well over half my money for that month. That’s not too hard when you get an extra paycheck and keep expenses the same as any other month but it still feels pretty good to see that high of a number.
It’d be cool if every month was a three paycheck month! If that happened or alternatively if I could only get a 39% raise then I’d be hitting this type of savings rate every month.
The goal is to have this at 50% on a consistent basis but I’ve had trouble with that goal until this month. A big problem has been the quarterly tax bill from last year’s long term gains that I’m saving for each month. That expense continued this month and I actually saw a savings rate above 60% if I were to exclude it. That short term tax expense will likely not be an issue next year as I’m not expecting those types of long term gains to be a reoccurring event. That means that my savings rate will automatically improve by around 4-5% next year when that expense isn’t there.
It’s nice to see my first 50% month even if it is due to three paychecks and this will certainly help the annual savings rate once I have the first twelve months of data to analyze.
Let’s take a look where my money went this month.
Looking at this break out really makes me realize why some people get rid of their cars entirely. The car tax payment went out this month and I paid some extra in principal making my car the biggest expense this month. 30% of my overall spend went to car related expenses which is pretty crazy.
I somewhat understand the appeal of taking a job in the city and selling your car because it can be quite a savings in the overall budget. Sure, the COL of a city is likely higher than the suburbs where a car is necessary but I already live in a very high COL area even though I’m in the suburbs so it wouldn’t be a huge change for me. But at the end of of the day, I’m not a city person and I love weekend drives to a nice park or hiking area more than anything. That means that I feel like the expense is worth it and a car is absolutely necessary for my area as the public transport just isn’t there. I’m also expecting those expenses to drop off quite a bit in the next few years as my car payments disappear although expenses for car maintenance will likely keep them a decent portion of my overall expenses.
I’m also interested to see how that changes as self driving car technology takes off in the future. Lots of companies like Apple, Tesla, GM, Ford and even Uber and Lyft are actively working in that area and that may change how we all see car ownership and public transportation all together in the not so distant future.
Rent was the second highest expense followed by the tax savings/gifts expense. I am looking forward to the day when all these quarterly tax payments are behind me and that money can be saved instead of lowering my savings rate. That expense certainly makes me appreciate long term investing and tax-advantaged accounts more.
Restaurants and groceries are lower than usual. A part of that is due to the benefits of cohabitation as my girlfriend will often pick up the tab at either a restaurant or the grocery store and that happened a few times this month which lowered my overall costs. Splitting costs is certainly one big benefits of a relationship among the many others.
There’s a bunch of 0% categories out there this month which isn’t surprising as I often do a lot of inexpensive or free activities when the weather is warm. It doesn’t cost much more than gas to go for a nice hike or go visit some friends and play board games and it certainly helps reduce the budget when most of your warm weather hobbies don’t cost a thing.
All of the months since I started tracking this have been very close to each other giving me a pretty good idea of my monthly expenses which I really like.
I know August is going to be more expensive as I already have had some expenses that will completely obliterate my savings rate for the month. My car insurance bill has come and gone, another bummer of owning a car as has my renters insurance payment. On top of that I had to visit a doctor and will get some tests done which is not cheap when you have an HSA.
Has anyone else noticed that healthcare costs are pretty crazy? Not only am I paying 4% of my monthly expenses for health insurance premiums that are already subsidized by my employer but then I also have to meet a $3000 deductible before the insurance company kicks anything in! Total rip off! Still, I’d rather take the plunge and make sure everything is OK as being cheap is not something you want to be when it comes to your health!
Thanks for reading and I hope your month was as good as mine when it comes to savings rate.