Prior to writing this report, I haven’t set or managed a budget in well over a year. This wasn’t an accident or a product of my laziness. It was to see how my expenses would fair after taking some time off and living frugally, but not obsessively.
Unsurprisingly, my expenses have risen. They rose so much, in fact, that I’m practically embarrassed to share the report in such a public forum. Fortunately, our expenses are still lower than your average suburbanite and should easily get back down to my goal of less than $2500/month.
|Gifts & Donations||$301|
|Shopping (clothes, books, etc)||$219|
|Cord Blood Registration||$125|
Many of these expenses are unusually high…
Between groceries and eating out, we spent $800! My wife and I talked about this, and we have absolutely no clue how we did this. We’re not dining on filet mignon, and we rarely eat out. Restaurants were higher than usual (along with some other expenses) because we had family in town after Christmas and that tends to result in more dining out. But still, we have no explanation for almost $700 in groceries. Because of this, we agreed to keep a closer eye on our trips to the grocery in February. This isn’t about depriving ourselves from good food, we simply want to understand what’s going on. I have a feeling this will naturally drive our expenses closer to my expectation of $400-$500 in groceries.
The cable bill was $82, but we cancelled that this month. We’re back to over-the-air HDTV, Netflix, and Hulu. The only reason we ever added cable was because we had cable internet and we ignorantly fell for the “package deal”, but we’ve now switched to DSL for $35/month and no cable. So this saves $50/month, and $600/year. It also gives us back time, since we can all admit that watching cable TV is not a long-term rewarding experience.
Our cell-phone bill is $69/month, which is just the cost for my wife’s phone. I’ve recently given up my work cell phone, which was paid for by my company, and I’ve switched to a Republic Wireless subscription for $10/month. My wife is locked in to her iPhone deal for another year, but then she’ll switch to the $25/year Republic Wireless offer. That will save us another $45/month, and $540/year.
We spent nearly $250 on doctors and pharmacy bills. Sickness hit us hard this month, including both kids coming down with strep throat. This was unavoidable, but its safe to say the expenses were more than we will budget for in the future.
January is also an expensive time for gifts. My wife, son, and daughter all have birthdays between January 12th and February 3rd, so between gifts and party favors, it’s tough to keep expenses down. So while $143 in gifts seems high to me, it should be closer to $0 most of the year until December, with the exception of small gifts for grandparents’ birthdays.
Our dog was also very expensive in January. Sadly, after 13 great years with her, we had to say goodbye. She had a wonderful, healthy life, but a few weeks ago she stopped eating and the vet diagnosed her with failed kidneys. At her age, this was untreatable and we had to let her go. From a heartless, economic perspective, we just saved any future costs of the dog. But while she did cost us $250 this month, we would have gladly paid it many times over for a few more months with her. Unfortunately this wasn’t an option.
Entertainment is another area where I expect to reduce our costs. It’s sometimes easy to “buy” fun activities if you’re not budgeting, and out lack of a budget got the better of us here. My experience has been that the most fun activities tend to be free or very cheap, but it’s also very easy to outsource the fun. For example, while our extended family was visiting from out of town we dropped $30 for the kids to go ice-skating for an hour and we also paid $30 for some overpriced science projects online. The skating, while fun, was really no more fun for our small kids than sled riding is for free. And the science projects could have been done with basic household ingredients for a few cents. That would have saved us $60, just between those 2 hours of kids entertainment.
The last unusual expense was for the kids’ cord blood banking. This is an annual fee, so it will not be incurred for another 12 months. Honestly, I’m not sure this is a worthwhile expense, but we decided to keep paying for it, and it’s not something we’d ever want to regret in the future.
All told, I think our expenses could have been worse. But I also see drastic room for improvement. As it stands, we’re already set to reduce cable/internet by $50, pets by $250, and entertainment by $30. This would take us from $3176/month to $2846/month. Additionally, the cord blood fees averages to $10/month rather than the $120 we just spent, so that reduces our expenses another $110. I’d also like to reduce groceries by atleast $250, and expect medical costs to average at least $100 less per month, and gifts to average $100 less per month. If those goals come to pass, then our monthly expenses would be closer to $2346. This is, in my opinion, without any deprivation or sacrifice. After next year, we’ll also rid ourselves of $200 in school tuition costs – but that’s down the road.
Income (not including my full-time salary) $2,376
Now the fun part… Here’s a list of my diversified income portfolio and nano-businesses.
|Real Estate Private Equity #1||$208|
|Real Estate Private Equity #2||$0|
My income is much lower than I expect it to be in the future. The basic reason for this is because I have quite a bit of money tied up and not working for me currently.
Rental – In December 2012, I bought a rental house. I paid $162K, cash. It was a huge mistake. Although I got a pretty good deal on it, I live in an area where rental rates just aren’t high enough to justify being a landlord. I quickly rented out the house for $1400/month, but after taxes and home-owners association fees, I was only making $1000/month. This still seems like a lot, until you consider the costs of upkeep and vacancies. After 5 months, my renters broke their lease and there was no penalty because they were a military family. I decided to cash out, and for 7 months I’ve sat on a vacant house. Thankfully, the house is under contract for $190K and set to close in a few weeks. This will free up $178K after transaction fees, which as 4% would pay out another $600/month.
Hard Money – I also have quite a bit of cash sitting in a savings account right now, waiting to lend out as hard money. I’ve been working with a friend of mine who flips houses, and will likely be lending him about $100K at 12% sometime in February or March. If this works out, my income will be increasing by $1K/month for the duration of that loan and hopefully be setting up a good long term partnership.
Real Estate Private Equity #2 – This is a new investment I’m in the process of funding. The company has about $50M in capital, lending to builders and renovators in Washington state. I’m currently on a 2-4 month wait list to invest with them, where I will receive a preferred interest of 6%, and a historic interest of 12%. The minimum investment is $100K, which means I should recieve about $1K monthly with the minimum investment.
Realty Mogul – This investment is experimental, much like I’ve treated Lending Club and Prosper. Realty Mogul is a crowd funding website that invests in real estate and pays anywhere from 8% to 18% interest depending on the deals and risks involved. Currently I’m invested in a Bed and Breakfast renovation with $5000 in capital, paying 10%. I should get my first interest payment in February or March.
Nano-Businesses – As you can see, my wife and I have 4 different nano-businesses. One is just her, one is just me, and two are things we’re doing together. Once I quit, I’m hoping all 4 can be things we do together with more of our time when the kids are in school and after they go to bed. These are really just fun hobbies, that happen to pay.
All in all, we spent $3176 and made $2376, for a net cash flow of -$800 (not including my salary). This would be alarming, except that I fully expect my expenses to drop by $700 and my income to increase by $1500 over the next few month. Once that’s achieved, we would be left with a net cash flow of +$1400, which would be a savings rate of 61%. I still need to account for health insurance, but even after that I should be sitting around a 50% savings rate in retirement.
Don’t forget to check out the forum to see others’ January reports, and to start your own if you’re interested. Several people have already signed up and written their first reports.