Yup, I am just going to start off admitting that I had started to draft this post a couple of days ago but after finally having a chance to sit down with my husband last night I realized that I had to start over. Why might you ask? Because I made some assumptions about our total expenditures that were off and had a very eye opening moment when I came to some expenses, namely groceries.
I will start by saying that this experience has been great and although we have not even been on this FI journey for a full year yet I am so thankful we started down this road. Our finances are obviously in a better place but I am also happier as we are working towards this goal together, making process, and I can actually see light at the end of the tunnel. All of this is helping me get through the daily monotony of the rat race. Do we still have years before we are fully financially independent? Yes, but we are making process towards the goal and continuing to learn more along the way.
Although we do have some joint accounts Mr. SFF and I keep our daily spending accounts separate which can make evaluating our total financial situation a little difficult. When calculating my savings percentages on this blog I have only been able to calculate my own savings rate but today I will have a chance to go over everything together. But first I am going to review my own savings progress.
I set a goal at the beginning of this journey to save 40% or more of my take home pay. Being that I don’t make all that much money and approx 48% of my gross income goes to benefits I think this is a very reasonable number. I was writing monthly savings updates tracking this figure but realized that some months were down if I had a car repair or other big expense come up but that these were often off-set by good months so a quarterly review (or for today a yearly review) might be a good enough status report of where things stand. Well I am happy to report that I hit this goal, pretty much exactly at 40%. One thing that is important to note about this 40% savings figure is that this does not take into consideration the 20% that I am putting into my 401(k) and $3,250 into my HSA so the total amount I am saving is actually a little higher.
Although I am envious of bloggers who can save 70% of their income I am very realistic that I just cannot do this if I actually want to live as that would clearly not leave me enough money. I am going to try to improve my 40% savings rate but know that I cannot significantly increase this without making actual sacrifices to my happiness, which I will not do. The Mad Fientist actually just wrote a great guest blog post on the Frugalwoods blog about how going to an extreme affected his happiness.
The Combined SFF Household
Now the important piece as this is the first time I have revealed this on my blog, how do things stand for the combined SFF household? We did fairly well but as we discovered last night there is certainly room for improvement. Our joint expenses include not only Mr. SFF’s spending but also our joint account which is where all rental income is deposited and our mortgage and taxes are paid. So taking all of this into consideration, we saved 28% of our total combined take-home income. Mind you that Mr. SFF is self-employed and although he does pay estimated tax payments the net income we are calculating for him could be off. Also, there are no taxes deducted from the rental income received so this could skew things slightly. Our saving percentage number is a little lower than I had hoped (and anticipated when I started drafting this blog post) but I am still happy with it and we are going to work on the areas that we can improve.
My far our biggest expense is our mortgage and property taxes. Our primary residence is a duplex and the rent covers all of the mortgage and a portion of the taxes so our personal out of pocket amount for this is low but nonetheless, it is a lot of money. Our home is far from being extravagant we just happen to live in a higher cost of living area. Could we move to a different state to reduce or housing costs? Sure, but we love where we live and am reminded of how great our little city is every time I visit anywhere else. I would rather have a larger mortgage in a city I love and delay FI than have a paid off house in an area that makes me miserable. So in reality, there is nothing we can do to help this expense (especially as we have a 30 year mortgage with a 3.25% rate).
Our next biggest expense was food/groceries. Neither of us itemizes our receipts from the grocery store so our “food” category also includes things like toilet paper and soap which I prefer not to eat. When we started this journey we said that eating well/healthy was not something we were willing to sacrifice. We did drastically reduce the number of time we went out to eat from approx. 2-3 nights per week to only a few per month (we do calculate our dining out expense separately) but after reviewing our numbers last night we realized that there is a huge opportunity for additional cost savings in our food category. How much did we actually spend? I am a little embarrassed to admit it but we spent $8,583 last year on food/groceries which amounts to $715 per month, for two people. If you add in our dining out costs this number goes up to $1,000 per month. OMG, eye opening realization! This goes to show that even though I have a personal finance blog that there is still room for improvement. I had been making the excuse that this was a choice because we want to eat healthy but it is clear that we need to make a change.
After being slapped in the face with this massive food number I decided to compare the number to 2014 when we were not as careful with spending (and 5 months of which Mr. SFF was fully employed making more than twice the money he is making now). This number was an even bigger slap in the face. We spent $16,305 in food/groceries and dining out in 2014. This is such an obscene number for two people and I am completely embarrassed to share this with the world. I mean, I know we went out a lot and do enjoy good food, but this is just completely ridiculous! As we were going to bed I mentioned that I didn’t know if I was happy to know about this (acknowledgement is the first step) or depressed by the size of the numbers and Mr. SFF had the perfect response: “I think it goes to show that when we make a concerted effort, we save money.” Yup. Nailed it on the head. We did drastically reduce our dining costs and as a result our total food/grocery and dining expenses were almost 50% less for 2015 but there is still lots of room for improvement.
It was starting to get late at this point but we decided to start tackling this problem right away, starting the following day (today). Now that we know we have a problem (acknowledgement), we need to evaluate it further to figure out where exactly this food/grocery money is going so we can fix it. To do this we are going to save every grocery store receipt and tally things up for the next month. Will this be time consuming? Yup. But I think it is a necessary step for us. This will also enable us to separate out actual food costs from the toilet paper/soap costs.
Goals for 2016
Now that we know where we stand we are looking forward to 2016. Obviously as discussed above we are going to reevaluate our food expenditures but beyond that there are other changes in the works. The biggest happens next Thursday as we close on a duplex that has been under contract since November. Even before starting this journey buying another duplex was in the plan but in 2015 every dollar we saved went to the down payment for it. This purchase will greatly deplete our cash reserves and although we will still have a cash buffer we will be concentrating on building this back up to a more comfortable level which is even more important as we will have two mortgages. This duplex is a huge part of our FI plan as it should generate a net amount of $1,000 per month so I am psyched to check this off the list and anxious to see how the numbers end up playing out in the real world.
Once we have a healthy cash reserve built back up we will continue to save in our taxable accounts. For the short term we will probably just save it to our Ally account. Although the 1% savings rate is very competitive compared to other savings accounts we know we are missing out on potential market gains. We will re-evaluate where it makes the most sense to put this money sometime mid-year but don’t want to jump right into investing until we know how much we are saving. Also, our next long term goal is the purchase of a single family home for ourselves which would mean we would have two fully rented duplexes providing income. This will require more cash savings for another down payment so I don’t want to risk it in the market but also am not sure when this goal might actually happen. This is the reason we will need to re-evaluate.
As we are believers in savings towards big planned purchases we are also going to continue to grow our vacation account so we can take an epic ski trip next year to celebrate Mr. SFF’s 40th birthday (which is actually this May but the duplex purchase will put off this vaca off until next year). We have taken some pretty stellar vacations in the past but we always save towards them as I cannot imagine paying credit card interest for a vacation. Could we save this vacation money instead and put it towards our FI goal? Sure, but we are also trying to enjoy life now so a nice vaca every now and then is worth it.
Beyond this, we will just continue to cut expenses and save as much as possible since we haven’t felt the spending cuts have negatively affected our lives. Happy New Year and best of luck to everyone with their 2016 goals!