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In order to increase the amount of money we save each month, my wife and I have decided to track our expenses.
No … we are not tracking what we spend using any kind of budget. Instead, we are grouping our expenses into a few categories like housing, transportation, utilities, etc.
Keeping track of every single dollar we spend may sound time consuming and difficult. It isn’t all that hard to be honest.
Since we rarely use cash, all of our financial transactions are electronic. I would estimate close to 99% of our expenses are paid using a credit card or a savings/checking account.
The good news is that all of these transactions can be tracked through our Personal Capital account.
Our long range goal is to become financially independent. In order to do this, we need to grow our net worth.
It sounds simple … keep our expenses low, increase our income, and invest the difference.
Tracking our monthly spending is just a part of that – keep our expenses low.
So how did we do last month?
Where Did We Spend Our Money in December (2016)?
As mentioned earlier, we like to look at where our money is being spent. Which is why we broke our transactions out into several high level categories.
Our ultimate goal is to push our savings category higher and keep everything else as low as possible.
Here is a high level breakdown of where we spent our money in December. We also keep a more detailed breakdown of these categories … which we won’t discuss today.
These are the high level categories of spending … listed in percentage order.
Housing – 48.7%
Wow! Compared to last month (29.2%), our monthly housing expenses accounted for almost half the money we spent.
The reason for this was our property taxes for the year came due.
Years ago, we opted out of having escrow through our mortgage lender. I didn’t want to pay money up front each month to our lender giving them an interest free loan.
Instead, we opened up a separate savings account that we paid money into each month so we could earn interest.
I think in 2017, I will try and factor this spending over the course of a year … instead of a lump sum at the end of the year.
In addition to our property taxes, we also made one of our two HOA payments for the year.
Finally, we made our mortgage payment which makes up the rest of the spending for housing.
Note – in the future I believe our housing spending is probably going to be closer to 25% each month.
Other – 15.8%
Our miscellaneous category or “other” as I like to call it came in second last month.
This category includes spending for general items like gifts, vacations, sports and school expenses, and anything else that doesn’t fit into one of our main groups.
Eventually we would like to break some of these categories out … but for now we are grouping them together.
Why was this month so much higher than last month (November was 9.9%)? – Christmas
We spent more money on gifts last month. In addition, we took an impromptu family vacation between the holidays which also pushed this category higher.
Overall, this is the hardest category to report our spending on.
Transportation – 10.9%
Another category of expenses that saw a good jump in spending compared to last month (November was 7.1%) was transportation.
Our car payment is included in this category, along with gas for our 2 vehicles. Since we just bought another new car and are getting rid of our older one … we will soon see even more expenses in the transportation category.
While we will certainly see higher transportation expenses in 2017, the reason for the jump in December was that we paid our car insurance.
Just like with our property taxes, we pay our car insurance in lump sum amounts twice a year. We do have the option of paying monthly … but it would cost us an extra $3 per month to do this.
Anyways, I would like to start allocating money each month for our insurance – just like we do with our escrow and property taxes.
Don’t you just love the price of transportation? Most days I wish that we only had one car, but that is not possible at this point.
Savings – 9.2%
A distant 4th on the list … unfortunately.
As each one of those categories listed above goes up … the money ultimately is taken away from our savings. And when I say savings … it is really investments.
During December, we put away over $950 to invest. Some of this was invested in 529 plans for our kids. A small portion was used just for savings.
The majority of it was used to invest in dividend stocks. We have a goal to invest well over 20% of our income each month.
Unfortunately, 9.2% is not even half of that. The good news is that in November, we saved over 30% of our income which will help offset last months decline.
I think that January will also be difficult as we work to pay off lingering Christmas bills and our new vehicle. But soon after that in February and beyond we hope to get back on track.
Why are we trying to save so much of our income? Because we want to grow our net worth and the best way to do that is to put our money to work earning more income.
We believe the best way to do that is through dividend stocks.
Food – 8.9%
The percentages are skewed a little bit with our high housing expenses … but this one surprised me.
We actually spent only $11 more in December compared to November on food. This may not seem like a big deal, but with the Christmas and New Years holidays … I figured we would have spent a ton more.
I know that our food expenses will be higher at the start of 2017 – and I am totally cool with that.
During January, we are starting another round of the Whole30 (which I totally recommend). It is a lifestyle that keeps processed foods, sugar, grains, and a lot of other bad stuff out of your diet.
So items like fruits, vegetables, nuts, lean grass-fed meats, and healthy fats make up most of our diet. And unfortunately, these all cost more than food from a box or can.
But we feel that spending more on food is considered an investment in our family’s health.
Utilities – 5.4%
I wouldn’t expect this category to change all that much. It includes expenses like – gas, electric, and water payments for our home.
Fortunately, our gas and electric bills balance themselves out through the year between seasons.
Our utility bills were about $100 more in December compared to November. This was due to colder temperatures and a spike in our heating bill.
We are also including other utility like items here. Cable, internet, and home phone make up a decent percentage of costs.
The good news is that we have been able to save over $1,000 annually by ditching our cable.
Finally, we have included our cell phones in this group. We have 3 cell phones in our house – my wife and I … along with our oldest son.
Business – 1.2%
As I mentioned last month … my goal is to move these expenses out of our personal finances.
They are all related to business expenses that we have incurred from our online websites.
For example, throughout the year we will pay for hosting, domain names, and other tools like Canva and Aweber.
We are not really making any money at this point from our sites … so the expenses need to get paid somehow.
Medical – 0.0%
Not much to say here really.
In my opinion … we keep our food bill higher … and our medical bills will be much lower.
Note – our second child is due to get braces later this spring … so this category will jump up a bit in coming months.
Investing the Savings
Now that we know where our money was spent last month, it is important to discuss what we plan to do with the money.
Since we are not comfortable taking the easy (and lazy) route of putting our savings in a bank account – we need an alternative.
That alternative for us is – dividend growth stocks.
Just last year, we earned over $1,900+ in dividend income. This year we plan to earn over $2,400 in dividends.
We are building this income stream one month at a time by investing our savings.
I have never been a fan of strict budgets. There are way too many variables that could go one way or the other for my taste.
But just because we don’t follow a hard and strict budget doesn’t mean we are throwing our money away.
So instead of sticking to strict budget guidelines, we prefer to take care of our most important expense first – that would be our savings. And at least 20% (this month was only 9%) of our income (on average) needs to be saved.
At the end of each month, we break our spending out into the categories you see above and look for ways to improve and save more.
This is a great exercise that will help us build and grow our net worth so one day we can become financially independent.
Do you track your monthly spending? How was your December spending?