We doubled our savings rate this past year. Literally doubled it. When I first started tracking our finances closely, we’d been doing “reasonably well” for years when it came to our finances, but there was a lot of mindless spending that occurred each month and we didn’t have a very big buffer left over each month.
This lack of space between spending and saving came to a head in late summer of 2017 when our dog got sick and we unexpectedly had to spend thousands of dollars at the vet for overnight stays, bloodwork, and medication. She is doing well now, and I absolutely don’t regret spending the money to do so, but that in combination with other extra expenditures in the months leading up to that point meant that we found ourselves in a place where we couldn’t pay our credit cards without pulling a significant amount of money out of our emergency fund.
While of course that is what an emergency fund is for in theory, it made me realize we were spending significantly more than we needed to every month and that we needed more space. We make a reasonably good – though still moderate – income, and don’t spend a lot of money on cars, toys, and other typically expensive things, but we did spend a whole lot on food, drink, and other random stuff.
Even so, with the expensive summer and fall months, thanks to a No Spend November and a slow recalibration of our spending throughout the year, we still ended 2017 with a 23% savings rate. Absolutely a respectable number, and outside of the financial independence community, an enviable amount. But we could do so much better – and so 2018 was the year that we made a real change in our spending habits. Between much more mindful spending, small raises, and a change in the tax code, we hit a 46% savings rate for the year, fully double anything we had ever done in the past.
Why We’re Able To Save So Much On A Moderate Income
While 2018 was our big breakout year in terms of a hefty savings rate, it was a long process to get ourselves to the point where that kind of savings was possible. I’d love to say that anyone can save close to fifty percent of their income even with a middle income, but there are so many reasons why it may not be.
For us, the big reasons why it IS possible to save such a portion of our incomes are as follows:
1. We bought our home in the absolute bottom of the market and it is a simple “starter” home that we haven’t overly remodeled (the things we’ve done have been almost entirely for energy and water savings). And then we also rent out one of the bedrooms to further reduce our housing expenses. As a result, our housing and utilities costs are significantly lower than they could be.
Our mortgage (including taxes and insurance) is just 16% of our gross income. Where housing is considered “affordable” as long as it doesn’t exceed 30%, we are seriously lucky to spend just half that in an area where many people spend well more than that.
2. We have one child, and we pay for just two days a week for childcare thanks to support from our family the rest of the week. There are so many reasons beyond the financial benefits to have our son cared for by his grandmothers every week, but the financial ones are pretty dang significant as well.
The daycare our son is at is “reasonably” priced for our area, but it’s still a shocking amount for people who don’t live in a high cost of living area; we have friends who live an hour and a half south and pay less than we do and their child is at the most expensive, top notch school in their area full time. If we paid for full time childcare we would spend more on that than we do on our mortgage.
3. Of course there are a million other little reasons why we are able to save the money we do (great company health insurance, cheap cars, access to some awesome hand me downs from clothing to furniture), but those are the two biggest ones that aren’t easily replicable. We could be living close to the twin of the life we do, but without the ability to buy the home when we did and the proximity and willingness of family, our base expenses could easily be close to double what they are now.
Monthly Financial Update: December 2018
This may be my last financial update for 2018, so the details of this post are a bit broader than my typical monthly updates, but I still think it’s important to walk myself through the reasons why we did – and didn’t – save money this month specifically, not just an average of the year.
Since we decided to have a more restrained Christmas this year with our whole extended family beyond just the three of us, I didn’t so much Christmas shopping or preparing before December this year other than a few stocking stuffers picked up over the months. But because we didn’t expect to spend the money on big gifts for everyone and instead focused on smaller, mostly handmade gifts, the cost really wasn’t too significant to our overall budget since the expense associated with handmade gifts are often measured more in time than money.
I know that some people love the idea of a sinking fund that they contribute to over the year in order to pay for Christmas painlessly, but I think I do a better job restraining myself when it’s paid for all in November and December. I do love giving gifts, and this helps to keep it in check. Just like us, our families don’t want to add more stuff to their homes, and it was really nice to have a Christmas that was focused more on the people than the gifts.
I took our older dog to the vet once again in December for another round of bloodwork, and amazingly her kidneys are back in the normal range! The special kidney diet that costs a ridiculous amount of money appears to be working after all, which is awesome. I’m not ready to say goodbye to our old pup yet. Our cat got bloodwork done as well since he’s 9.5 and considered a senior now, and the vet seemed honestly surprised at how good all of his panels looked, especially for a mostly outdoor cat.
Not the most expensive pet care month ever (hopefully we won’t have to repeat that monthly cost ever again), but definitely a happy one considering the feedback we got because of it.
Food and Drink
Our grocery budget was a bit higher than normal, but that isn’t terribly surprising when you consider Christmas, my birthday, and New Year’s Eve all fall in December. Honestly, I feel like we did a really good job here for a category we are prone to go way overboard on. I’m hoping to bring it down a bit more in January, but we’ve done a good job keeping it mostly in check.
December 2018 Spending (Excludes mortgage + daycare)
|Jul 2018||Aug 2018||Sep 2018||Oct 2018||Nov 2018||Dec 2018|
|Excluding Mortgage Principal||23%||63%||25%||25%||41%||32%|
December Savings Rate: 38%
Total Savings Rate For 2018: 46%
So. We came up short from that 50% savings rate goal I set back in January of last year. I may write more on this later, but I’m trying hard to stick to the positives in this post and not beat myself up for not quite making that big, hairy, audacious goal. After all, I could have easily set a lower bar for the year and we would have hit it, but we also would have likely come up with a savings rate below 46%. And to be honest, I don’t see any one place where we overspent without reason. And if you want to read about my frustrations with missing that goal, I did that plenty in my October update.
While there are things we could have cut out to make it there, we wouldn’t have had a good of a year. As someone who very clearly lands on the side of attempting to live a life now like the one you would once you reach financial independence – rather than the Dave Ramsey concept of “live like no one today so you can live like no one else” years down the line. While I think this idea can be helpful for paying off significant debt and setting yourself up on stable financial footing, once you’re there, I think it’s very important to reconsider that all out push.
None of us has any guarantee of the future, and while I absolutely believe in making good financial choices for the long term (obviously, or I wouldn’t be so focused on saving so much now), I also believe that we need to enjoy ourselves now too. And if that means that we spent a few thousand dollars of discretionary funds that kept us from that 50% savings rate? Then so be it. Happiness now is important too.
Now to go into the big expenses for 2018 beyond our home and childcare, which are largely fixed costs at this point, but also hands down the two most expensive budget categories throughout the year by some margin.
We spent $4,306.55 on our animals this year, which was less than last year thanks to an overnight vet visit and other big expenses. Even so, that means we averaged over $350 a month on pet expenses, and they aren’t going down in 2019. We also did get $100 less in rental income back in May when we reduced our roommate’s rent after he watched the animals when we were out of town for two weeks.
Part of why we keep his rent so low is the agreement that he watches our animals when we go out of town (he pays less than half the going rate for a room in our area at this point). This has been a great deal for both parties because he gets super low rent, doesn’t have to do much when we’re gone, and we don’t have to pay a pet sitter. Considering how many weekends we travel and only bring the dogs occasionally since they aren’t great travelers, having our roommate around has saved us a significant amount of money over the years.
We spent slightly more on vacations than pet care in 2018, coming in at $4,808.52, or $400 a month. This number is actually artificially low because I have tracked food and gas expenses in those categories instead of within vacation spending. I go back and forth whether I should continue doing it this way or lump those costs in here as well.
This does seem like a lot of money to be spending on vacations, but we do travel A LOT and find a lot of value in these trips. We maximize our savings through reasonably priced Airbnbs and a bit of travel hacking, or this number would be thousands even higher than it is now. This line item probably makes it pretty clear that we value experiences and not things.
If you haven’t stayed in an AirBnB before, I would highly recommend it. We love the flexibility it gives us while traveling as a family – full kitchen, laundry, and extra bathrooms, and it’s usually considerably cheaper than a hotel, especially when you travel as a group. Plus plenty of places are like this ones, with toys and games or other supplies that can really enhance your stay. If you’re new to AirBnB, here’s a link for $40 off your first stay (affiliate link).
Gulp. We spent $12,917.87 on food and drink in 2018, or $1,076 a month. $6,005.10 on groceries, $5,922.52 on restaurants, and $990.25 on fast food type meals (I’m looking at your work lunches, husband). The *good* news here, I suppose, is that we have more than cut our food budget in half from our highest point, but over a thousand dollars a month for a family of three is still kind of a lot.
I’m not sure where I want to land here for 2019, but I’d be happy if I could get that average cost to under that four figure mark, even if not by a lot. My husband expends a ton of energy at work and subsequently eats a lot, and our almost four year old is competing for an adult appetite, but we can still do better.
This category ended up at $5,859.31 for the year, or close to $500 a month. While I don’t think I want too many more categories than I already have, I think I should probably add a few, namely home expenses, garden, clothes, and gifts. While we will go months where those categories are zero, they are big enough expenses through the year it would probably be enlightening to see their totals separately. I’ll be adding these categories to my 2019 monthly updates.
Overall 2018 Spending
Excluding our mortgage, daycare, and insurance, we spent $36,667.10 on 2018, or slightly over $3,000 dollars a month. In order to actually hit a 50% savings rate in 2019, we really need to get this under $3,000 a month, or increase our incomes slightly. I’d really like to see both happen so we can solidly pass that 50% mark.
Overall, in regards to our big financial goal, I would give us a B for 2018, with some room for improvement but nothing glaring that I absolutely wish we hadn’t spent money on. For what our situation looks like, I think we’ve done pretty darn well. And at the point we stop paying for childcare in less than two years we will be able to put away some even more serious cash.
Other Financial Achievements
So, we didn’t hit the one big goal I set for 2018, but I had some sub goals within that post that we absolutely did accomplish this year.
1. Continue to share our monthly savings rate here on the blog.
Well, obviously, that one has been a success. Not only do these monthly updates help to keep me honest, it’s been fun to look back and calculate our detailed spending picture for an entire year. I’m looking forward to when I have years of data I can look back on and compare. There are lots of reasons that blogging is a rewarding hobby, and this right there is a big one.
2. Keep cooking meals from scratch.
From homemade cupcakes and pizzas for a houseful of people for our kiddo’s birthday to neighborhood block parties to financial blogger meet ups, I’ve definitely met this goal. And yet we still spend a lot of money on food. This is why we didn’t spend even more in 2018, but it’s time to now start paying attention to cost per meal.
3. Max out my IRA for the first time.
I. DID. IT. And not only did I do it, but I sent the last payment on January 4th. Not quite 2018, but months ahead of March or April when I expect I would probably squeak in just before the deadline. It felt so amazing to log into Vanguard and have it show 100% funded. I’ll have to bump this up 10% this year since the maximum contribution for upped to $6,000, but I’m confident I can achieve it yet again. And perhaps we can max out my husband’s as well? We shall see.
4. Continue my clothes buying ban
March will mark TWO YEARS of my clothes buying ban. I fully don’t expect to hit three years, but I will put some parameters in place once I finally do break it. At this point, the only thing I really expect to need before year three thanks to a few key hand me downs and Christmas presents is a new pair of work shoes, but I can make do past March with what I have for sure. Perhaps I can get lucky and find a pair to trade or something else, but odds are I will be buying some at some point this spring or summer.
5. Pay off our real estate investment.
This happened with our first paychecks in March. Looking back, this felt like SUCH a big number, but now it is simply a cash flowing asset and not something we have to think about (we are passive investors, much like a REIT). Once I buckled down and decided it was time to pay it off for good, it disappeared much faster than I expected it could.
6. Visit the library. A lot.
We visit our local library at least once a month now, and we’ve visited a number of libraries during our travels as well. It has saved us a ton of money both with books for me but also a ton of clutter with the ability to rotate out children’s books instead of trying to buy enough to keep things interesting. We still own way too many children’s books, but I haven’t been able to pare them down very well yet because we read a lot of them even beyond all the books we check out from the library. We were there again this evening just before closing, and it made my heart happy to see it so busy.
7. Get serious about travel hacking.
Success here as well! We are going back to Hawaii later this winter and we spent $11.70 a person on the plane tickets thanks to signing up for the Chase Sapphire Preferred and will be staying two nights for free (with two hotel rooms with balconies and partial ocean views) in Kona during that same trip. Since we’re looking at Iceland for next winter for our tenth anniversary, we’ve gotten started with the Capital One Venture but I’m not sure what’s next. That will be an expensive trip if we aren’t careful, so travel hacking is going to be a big deal going into 2019 as well.
I actually haven’t set any goals for 2019 thus far, but going through and looking back at the ones I had set for 2018 makes me think I want to do so again (though this post is long enough so it will be another day). I’m a big believer in beginning challenges for yourself when you’re ready and not just because it’s January 1st, so for now, I’ll just continue working toward that big 50% savings rate goal, avoiding buying new clothes, and maxing out my 2019 IRA. Everything else can wait for now.
Have you set goals for 2019 yet? How are they going so far?