2005 Expense Review Part 2

To kick off the new year, I undertook the task of reviewing ALL our income and expenses from the past year.  The Income Review was posted first and fit nicely into a single post.  The Expense Review however, was getting too large and needed to be split into two posts.  Part 1 of the Expense Review was posted a few days ago where I began looking at all our top-level categories of expenses.

I rolled up all our expenses into five categories: (1) Car & Property Purchases, (2) Investments, (3) Taxes, (4) Loan Principal Paydown, and (5) All Other Expenses.  It was very eye-opening to see how much we spent overall.  But it was very helpful to see that breakdown by category in order to get a clearer picture on our spending.

In this Part 2 of the Expense Review, I want to dive deeper into some of those categories.  I want to open them up and share the specific dollar amounts of what was spent.  Everything was tracked throughout the year using Microsoft Money, so its all there, ready to be analyzed.  I just needed to export it.

I won’t claim that 2005 was a perfect year.  Quite the contrary.  As I look at the numbers, my fiance and I are finding quite a few areas that for change in 2006.  That’s what makes this exercise so valuable.  The insights gained will help us to improve for the future.  And we intend to learn from it and make those kinds of improvements!

Top 10 Expenses in 2005

Let’s put aside our savings and investments for just a moment.  We’ll talk about that category in more detail later.  For now, I want to focus on all those other things that took money away from us.  Our Top 10 Expenses in 2005 were as follows:

FI Champion's Top 10 Expenses in 2005

My initial impressions? Here we go:

  1. We spent a lot on “one time” expenses
  2. Taxes were more than expected
  3. Utility bills were lower than expected and didn’t even show up in the Top 10 list
  4. We must drive around and eat out a lot!

My other initial impression is just how interesting it is to actually see this data.  It’s one thing to budget throughout the year and have a rough idea of where the money all goes.  But to see the summed up totals for the entire year, in this type of list, tells quite the story.

Full List of Expenses in 2005

Up above was the summarized Top 10 list.  Now I want to share the unabridged list of ALL expenses from 2005.  I’m going to group them in the same way they show up on our monthly budget, hoping that will make it appear a little more organized:

Housing

Bills : Rent $5,182.00
Household : Furnishings $383.43
Household : House Cleaning $93.35
Household : Maintenance $12.85
Household : Supplies $103.50
Insurance : Homeowner’s/Renter’s $740.00
Loan : Mortgage Interest $4,094.13
Subtotal   $10,609.26

Utilities 

Bills : Electricity $689.30
Bills : Natural Gas/Oil $309.52
Bills : Water & Sewer $22.47
Bills : Garbage & Recycle $17.00
Bills : Online/Internet Service $878.53
Bills : Cellular $801.30
Subtotal   $2,718.12

Transportation

Automobile : Gasoline $2,300.14
Automobile : Maintenance $727.38
Automobile : Parking $92.00
Subtotal $3,119.52

Food

Food : Groceries $1,605.31
Food : Dining Out $1,878.54
Subtotal $3,483.85

Personal Care

Personal Care : Toiletries $206.97
Clothing $621.18
Jewelry $4,187.00
Healthcare : Eyecare $277.40
Insurance : Dental $51.10
Insurance : Health $367.00
Subtotal $5,710.65

Entertainment

Bills : Cable/Satellite Television $243.82
Bills : Membership Fees $360.00
Leisure : Books, Magazines, Newspapers $259.32
Leisure : Computer & Video Games $1,621.42
Leisure : Movies & Video Rentals $208.60
Leisure : Sporting Events $57.10
Leisure : Entertaining $701.84
Vacation : Lodging $540.30
Vacation : Travel $126.12
Vacation : Other $52.00
Subtotal $4,170.52

Rental Property

Rental Property : Supplies $4,308.55
Subtotal $4,308.55

Side Business

Business : Supplies $664.73
Business : Advertising $890.30
Subtotal $1,555.03

One-Time Purchases

Duplex Property Purchase $38,877.03
Car Purchase $8,005.00
Subtotal $46,882.03

Other

Education : Books $41.71
Loan : Student Loan Interest $81.15
Charitable Donations $160.00
Gifts $670.00
Insurance : Life $53.20
Insurance : Personal Articles $57.95
Subtotal $1,064.01

Taxes

Taxes : Federal Income Tax  $5,577.09
Taxes : State Income Tax $1,707.00
Taxes : Local Income Tax $137.64
Taxes : Medicare Tax $715.39
Taxes : Social Security Tax $3,059.06
Taxes : Real Estate Taxes $1,415.54
Subtotal $12,611.72

Principal Paydown

Mortgage Principal Paydown $947.85
Student Loan Principal Paydown $171.65
General Loan Principal Paydown $400.00
Subtotal  $1,519.50

Investments

Fiance’s 401K  $3,392.00
Fiance’s Roth IRA $4,000.00
My Roth IRA $4,000.00
Sharebuilder $11,593.00
Ameritrade $4,845.00
Vanguard $5,041.00
Subtotal   $32,871.00

I should mention that most of these categories were built-in to Microsoft Money, which is the primary software I use to track all our finances.  Every transaction, whether its the swipe of a credit card, the writing of a check, or the handing over of cash — it ALL gets categorized within Microsoft Money.  The tough part is typing it all in, but the fun part is seeing this kind of data at the end of the year.

Now that it’s all there for everyone to see, I want to go back to my initial impressions and elaborate a little more.

We spent a lot on “one time” expenses.

Right away I see three items that are not “everyday” types of expenses, but rather were “one-time” expenses during this past year.  They are (1) our duplex property purchase, (2) automobile purchase, and (3) engagement ring purchase, shown under Jewelry.  All three were clearly sizable purchases, in comparison to the other top expenses.

Now this really wasn’t a surprise.  In the Part 1 post of this Expense Review, I actually pulled out the duplex property and automobile purchases and called it “Car and Property Purchases” on the pie chart that was shown.  But I did not include the engagement ring.  Totaled together, these three items represent $51,070 of spending!  Wow!

Taxes were more than expected.

We made more money as income that at any other point in our life, so it should have been understood that we would pay more in taxes.  I get it.  Seeing it listed out though, it just really settles in how much we pay!  Just the two items on the Top 10 List (Federal Taxes and Social Security) represent $8,638 of spending!  And I know this is far from the total of all the taxes we pay.  Pulling from the complete list of expenses, I get the following “taxes” that were paid last year:

FI Champion's Taxes Paid in 2005. Federal. State. Local. Social Security. Medicare. Real Estate.

The taxes add up quick!  Beyond our Federal Income Taxes and Social Security Taxes that are withheld, we also paid a considerable amount in State Income Taxes, Real Estate Taxes, Medicare Taxes, and Local Income Taxes.  Altogether, it represented $12,612 in spending.

One note on taxes, I know this number does not represent our “final” tax liability for the year.  In the case of Federal, State, and Local Income Taxes — these are the amounts that have been withheld from our paychecks.  Come tax time, we will fill out our individual tax returns and determine our “true” liability.  Now that may result in us having to pay MORE.  But more than likely, we should get some small refund.  So the “final” tax numbers should end up slightly lower.  I hope to write-up a big post around tax time, after I fill out our returns.

Utility bills were lower than expected and didn’t even show up in the Top 10 list

I recently received our second water & sewer bill after moving into our 1/2 of the duplex.  (It’ll be paid in 2006 bill, so it won’t be reflected in these expense numbers.)  I was staring at the bill trying to understand how it could cost so much for water service to the property.  But beyond that, I was trying to understand why the sewer service was a separate line-item on the bill — and it cost MORE than the water!  Growing up, I lived in the country.  We didn’t have a water bill or a sewer bill.   And in our apartment here (and in college) it was always paid by the property.  So this is one of the first times seeing the details up close and in person.

These types of utility services certainly cost more in the city.  I guess I expected to see at least 1 or 2 of them show up in our Top 10 Expenses.  But no, they all were low enough to not break onto this list.  Most were not even in the Top 20 either!  Gas and Electricity combined did not add up to a full $1,000 for instance.

We must drive around and eat out a lot!

Sheesh, $2,301 on gas and $1,879 dining out?!!  Once again this is another category where the spending just added up faster than I realized.  Both of us have a daily commute to work.  But it’s not bad.  Mine is roughly 10-15 minutes and my fiance’s is 25-30 minutes.  We are certainly driving more than when we were in college because of work.

Another negative factor was the gasoline price.  It kept above $2.00/gallon the entire year and around August/September it spiked to nearly $3.00/gallon.  We never did cross over the $3.00 mark, but the average prices this Fall and going into Winter were higher than at any other previous time in history.

As for dining out, I don’t have a great explanation here.  We cook at home a lot.  Really.  Almost every single night!  Rachel Ray’s 30-minute Meals have provided some really good eats at home.  And we both bring our lunches to work every day.  About the only time we do eat out is with friends.  I had to dig into this a little more, so I came up with the following chart:

FI Champion's Food Spending in 2005. Dining Out vs Groceries.

The numbers are close.  But I will admit, I am surprised to see Dining Out higher than our Groceries bill.  In percentage terms, Dining Out is 17.0% higher than what we spent on Groceries last year!  And combined…..we spent $3,485 on food.  Wow!

I will say, although we are budgeting and saving, we decided we would try our best to always say YES when invited to dinner with friends.  We’re new to the city, new to the area.  We want to make friends and enjoy the new restaurants all around us.  As I think about it more, that could be a big reason why it was so high.

Savings and Investments

Last year was a GREAT year when it came to savings and investing.  We made it a priority to save as much as we could starting out, knowing that there was no better time than the present — while we are still young!  In total we invested $32,871 across our various retirement and non-retirement accounts.  A chart showing the break-down can be seen below:

 

FI Champion's Investments in 2005

Amount of NEW investment dollars into each account

Some the highlights were:

  • Maxing out both of our Roth IRA accounts.  The government allows for a maximum contribution of $4,000 per person to a Roth IRA account during a tax year.  That means we could put in a total of $8,000 between the two of us.  We made sure to contribute up to that full amount.
  • Started my Fiance’s 401(k) account at work. As soon as she was eligible to contribute, we made sure to start the payroll deductions.  We did not have much of an opportunity to contribute since it was so late in the year, but we still managed to get $3,392 put into the account.
  • Non-Retirement Savings for Future House.  Our duplex is meant to be a stepping stone to an eventual home of our very own.  That means we need to get real serious about saving for another down-payment in the future.  Therefore we started putting as much extra income aside for that purpose, investing it at Sharebuilder, Ameritrade, and Vanguard.  The money has been put into a combination of money market funds, index mutual funds, and individual stocks.  In total we put in $21,479 between all three accounts.
  • Excludes credit card contributions.  You may have seen recent Net Worth Updates that I have been doing a little financial arbitrage using 0% credit cards.  Money that is meant to pay off bills on those credit cards has instead been invested in Vanguard Money Market funds.  We plan to earn some extra money in interest through the practice.  But at any time, we can always pay off the credit card bills in full.  The investments made for this purchase have NOT been included in this Savings and Investment section.

Principal Paydown

I did not create a chart for it, but another area of savings is the amount of principal reduced on our various loans.  We currently have a home mortgage, student loan, and general loan.  Every dollar spent to reduce the principal on these loan balances is an investment towards our future.  It will reduce the amount of total interest we will pay over the life of the loan and speed up the payoff of those loans.  During the past year, we reduced the total principal by $1,520.  Here is a quick textual breakdown:

  • Mortgage Principal Paydown = $948
  • Student Loan Paydown = $172
  • General Loan Paydown = $400

It did not amount to much this year, but I see it being an area of focus in future years.  In the short-term I do not plan to be very aggressive in paying down the balances for a few reasons: (1) the interest rates are relatively low by historical standards, (2) our biggest loan balance is helping to get paid by our renters, so it is not much of a stress at the moment, and (3) I think there are better opportunities available to deploy our money right now.

Lessons Learned for Next Year

This exercise of reviewing our expenses from the past year is not purely for entertainment or nostalgia.  It also provides valuable insights that can be used to shape next years spending.  I’m right in the middle of reviewing our 2006 financial goals with my fiance — and you can safely bet we have been combing over the details in this Expense Review to find areas to change.  Our ideas include the following right now:

  • Increase Charitable Donations. Last year was TERRIBLE when it came to our financial giving.  That will change.  We have found a great church in our new city and intend to increase our donations this next year.
  • Dial back our Dining Out.  I really don’t want to see our Dining Out expenses to be MORE than our Groceries expense again.  It’s just plain embarrasing!  We need to be more steadfast when it comes to cooking at home.  There is a time and place to eat out, so we will not cut it out entirely.  Of course not.  But we need to dial it back a bit.
  • Begin saving for another vehicle. My fiance’s vehicle is getting older.  While we should not need to replace it in 2006, I want to make sure we begin setting aside money now in anticipation of a purchase in the coming years.  It’ll feel a whole lot better to have saved a big chunk of money rather than have it catch us by surprise some time.  We likely will begin to budget a monthly amount of money for a “future vehicle.”
  • Plan for vehicle maintenance.  The number of oil changes should be reasonably predictable, based on a 3,000 to 5,000 mile interval.  And hopefully we can anticipate what it will cost for tires and brake pads and when it’ll be needed this next year.  This will allow us to budget accordingly.
  • Shop around for insurance.  I want to make sure we look at a variety of providers before the next renewal term comes around.  We have a home, two vehicles, and a personal articles policy that we pay yearly premiums on.  If there is an opportunity to lower those premiums, I want to find it.
  • Plan for gifts.  We have a number of weddings to attend this next year.  We also will have a number of family birthdays — and eventually Christmas to plan for!  We better get ahead of it by budgeting an appropriate amount for gifts.

This is our first Expense Review since graduating college and starting our working lives together.  But I also have to remember that it only includes 1/2 year of actual full-time work too!  Next year at this time, we’ll be looking back at a FULL year’s worth of data.  It’ll be fun to see how it turns out — and fun to compare to this year!

 

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