Friday, January 09, 2009

Where Did Our Money Go in 2008?

Now that the holidays are over and all the credit card transactions have been processed and checks from last year have been cashed, it's time to see how we spent our income last year. As background information, my wife and I have three kids: a 6 year old son who attends public school and an after school programs; and three year old twins that go to pre-school. My wife has been fully employed until October, but has been working part-time since, while I am an executive in a technology company. We have medical insurance (PPO). Although we do not have a formal budget, we are careful about our spending and lead a modest life style. We live in the San Francisco Bay Area in good ol' California. So where did our money go last year?

The really good news is that including our retirement savings, last year we saved 29.3% of our after-tax income.  The remainder of our after-tax income was spent as follows:

Childcare 35.1%
Rent 20.4%
Medical 6.93%
Groceries 5.87%
Dining 4.4%
Utilities 3.98%
Vacation 3.69%
Household 3.33%
Auto 3.22%
Recreation 3.07%
Clothing 3.04%
Cash 1.78%
Insurance 1.25%
Gifts 1.2%
Charity 1%

A few comments on the numbers: 

First, careful readers will notice that the numbers do not add up to 100% - there are a few other categories that I track, each of which accounts for under 1% of our spending. Nothing too exciting.

Medical - What struck me as amazing is that our third largest expense was health care, which accounted for about 7% of our spending, and this does not include the fact that I pay another $200 per pay period, or $4,800 a year, to cover my family under my company's PPO. This is insane! What do people WITHOUT insurance pay? We are pretty healthy and have decent medical insurance and still pay a very large amount of money for coverage. This system is truly broken.

Auto - note how little we spend on our two cars. We purchased each with a lump sum cash payment, and my 1997 Geo Prism - or as I lovingly call it: crap-on-wheels - is serving me well for my 12 mile round trip commute every day.

Vacation - normally we spend more of our money on vacations, but this year we were more modest given the economic situation.

Charity - we gave too little to charity last year. This is a spending category that we need to increase for sure.

All in all, I think that we save and spend very reasonably and I hope we can repeat this performance in 2009. Incidentally, to gather this report that I shared with you, I used Quicken software.

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Anonymous said...

Does your wife actually make enough marginal income to pay for your childcare expenses? Given your marginal tax rate you might save more on child care, transportation, and dining out than she makes working part time.

Anonymous said...

I have been tracking medical expense this year for the first time. We are a family of 5 in good health, expect we seem to have a far bit of teeth work and we all wear glasses or contacts. Our mediacal expense for 6 months are already over $3500 Aus. I'm expecting the total bill to be $7,000 for the year. We don't have medical insurance but will seriously consider it in the future. If you had a really sick family member it would soon mount up.


Andy said...

Wow, 30% after tax income saved is great. I am at about 20% and that is with difficulty. With my investments in 2008 though, I actually ended up losing money overall. Hope to correct that in 2009.

Shadox said...

Anonymous - it's borderline. I will respond to your comment in a full post later today.

Chris - medical insurance is something that everyone should have - at least as far as catastrophic coverage that will cover you and your family in case of a serious illness or accident.

Andy - we live a pretty modest life. We rent our place, which means we have no giant California mortgage to deal with and we are pretty careful in how we spend our money. The market crash has been painful to all of us - we came out ahead in 2008 on total net worth, but only because we got a substantial amount of money from an unexpected family source. Our portfolio has also taken a major hit - like everyone else's.

Ren said...

I wanted to comment earlier, but I hadn't summed up our data at the time, though this post sparked me to do so. However, I then realized that my categories didn't really compare to yours, so I sort of dropped the idea of commenting.

Well, today I decided to see if I could map the categories. It turned out to be much easier as the real problem was simply that I had finer grained categories -- with a few exceptions.

I was a little disappointed that our savings rate was only 23.1% of our after-tax income, but then I recalled a couple of mitigating factors were that we spent some potential savings on refinancing our mortgage and on paying off our auto loan a year early. Including those amounts in our savings rate would make it 28.7%.

I'm a bit surprised at how different our breakdowns are.

25.02% House (mort, int, prop tax, refi, assoc dues)
16.40% Auto (includes early payoff)
13.07% Kids (childcare, summer camps, tuition, etc.)
10.67% Household (includes pet, lawn, pool, etc.)
7.65% Vacation
5.90% Discretionary (see below)
5.47% Utilities
3.50% Gifts
3.38% Dining
2.37% Insurance
1.72% Recreation
1.56% Medical
1.47% Groceries
0.99% Charity

Discretionary is our individual monthly allowance, much of which is actually spent on Dining -- at least my portion. Also, Clothing comes out of this, which is why it isn't its own category (kids' clothing is including in the Kids category).

Charity is too low this year, primarily because we did not make a stock donation due to the market downturn. My wife wanted us to make one last summer -- I wish we had.

One thing I'd normally switch up from this is that I wouldn't (and didn't, originally) have a separate category for insurance. Instead, I'd put the auto insurance in the Auto category, the homeowners' in the House category and the health insurance in the Medical category. I guess there would still be a Life Insurance category. That would change House to 26.04%, Auto to 17.26%, Medical to 1.92% and leave Life Insurance as 0.13%.

Sorry for the long comment, but I'm enthralled by this topic.

Shadox said...

Ren, thanks for the long comment. I enjoy getting into big discussions on my blog, so feel free to do this anytime.

Very interesting numbers you have there... how many kids do you have and how old are they? Our three kids all go to day care 5 days a week, full time. It's by far our biggest expense.

Where in the country are you located? Regarding your auto category - I am guessing you are making car payments? My car is 12 years old and I have been driving it for 10. Paid cash for it. My wife's car is a 2005 Sienna which we bought from a rental company (again, paying cash). Not having to make car payments makes a huge difference.

Ren said...

I have two daughters, 9 3/4 and 11. We're spending less on after-school care lately as my wife works from home when she isn't traveling (about 50%) and usually picks the girls up from school. When she is traveling, I try to pick them up one or twice a week -- we switched to drop-in rates rather than monthly a few months ago to make this worthwhile.

Similarly, we've reduced the amount of time they spend in summer camps. Previously, the went to a day camp of one kind or another pretty much every week of the summer. Now they spend more time both at home with my wife and visiting friends or family out of town for a week here and there. Combined with the reduced after-school care above, I've had to reduce the amount of money we set aside in the Dependant Care Savings Account for this year.

We are in the Austin, Texas, area, and you are correct that we were making car payments last year -- and quite high ones at that. My wife completed her MBA a while back and had planned to purchase a luxury car as a reward for herself for doing see. We paid for half of it in cash and got a three year loan for the other half.

In December I decided to pay it off a year early, which made the annual amount a lot larger, obviously. I am not updating our budget with this change as they payment amount is now going directly to "repay" the savings fund from which I took the money.

Shadox said...

Don't get me started about summer camp... this year is going to be killer for us.

I guess the big differences between our spending patterns come down to day care (3 vs 2 kids and I assume lower cost of day care in Austin) and cars (since ours were paid with cash from the get go).

This year we are also replacing much of our really old furniture, which is going to be a big hit - but it got to the point that we really had no choice.