Monday, August 5, 2019

Income & Expenses For July 2019: Saved $36,442.21, 99.53% of After-Tax Income

Since 2014, I have been tracking my monthly income and expenses. You can see a breakdown of every penny I earn and spend. For perspective, this budget is for a household of two in a small US city. By documenting my journey, I aim to demonstrate the feasibility of saving a significant portion of your income and provide some ideas and inspiration for your own budget.

Below are my income and expenses for July 2019. You can see all my monthly budgets here.

Jul 2019
Other Income$587.41
Total Income$45,178.06
Federal Income Tax$7,954.80
Federal Tax Pmt/(Refund)
Student loan repayment$46.41
Total Expense$8,735.85
Before Tax Saving Rate80.66%
After Tax Income$36,615.14
Ex-Tax Total Expense$172.93
After Tax Saving Rate99.53%

Wages remain my primary source of income by far, although dividend income is now more than enough to live on. Other income include interest and miscellaneous non-recurring income.

Here is a chart of my dividend income by month for the past 13 months:

Total dividends for the trailing twelve months: $17,209.85, down 3.67% from a year ago. This is probably due to trading off some higher yielding stocks for lower yielding ones in my portfolio.

Here is chart of my dividend income by month and year since inception of the blog in 2014:

Dividend Summary
YTD 2019$9,306.48

Tax remains my top expense by far. Since tax is proportional to my earned income, there is nothing I could do about that. Tax will go way down once I retire.

No housing expense this month, which is typical. My home is pretty low maintenance, the way I like it! My only major home related expense is the annual tax bill due in October which was $708.14 last year and is projected to be $655.54 this year.

Student loan repayment is $46.41 this month.

Food expense was $72.23 this month, which is typical for me. I still try to save money on grocery as much as I can. Cheap pinto beans (good source of protein), oatmeal (good source of carb), and peanut butter (good source of fat) make a good healthy and balanced meal. 

This month's food expense included $5.61 spent on restaurant meal at an Italian buffet. I ate about 8 plates pictured below:

$26.12 for electric bill is higher than that for last month, but still okay. The fridge accounts of most of my electric usage.

The $28.17 for water bill includes a mandatory garbage collection fee from the city and 2 CCF usage, same as last month.

And that's it. No other expenses. I bike to work and most places, saving a lot on gas, so most months I don't have transportation related expenses.

After-tax expenses came in at $172.93, typical for me.

Total after tax expenses for the trailing twelve months: $3,009.09, down 60.74% from a year ago, as my housing expense went down. It will probably bottom out pretty soon, as I approach my currently projected annual expense.

Here is a summary of expenses (not including tax) incurred since 2014:
Expenses Summary
YTD 2019$1,188.41
Big drops in housing expense accounted for the big drops in annual expenses from 2014 to 2015 and from 2017 to 2018. My housing expense is now near rock bottom so I don't expect any more big drops in annual expenses in the future.

Dividend to expense coverage ratio = 5.72, yet another record high!

Here is a summary of my passive income (dividends) to expense coverage since 2014:
Coverage Summary
YTD 20197.83146.54%
<1: div="" financially="" independent="" keep="" not="" working="">Below 1: Not financially independent; keep working!
Between 1 and 1.24: Financially independent, but not much margin for error.
Between 1.25 and 1.75: Sweet spot for financial independence: passive income adequately covers expenses, with room for error, but not too as to cause tax drag.
Above 1.75: Too much passive income, which becomes a tax liability: try to convert some passive income generating assets to zero dividend growth stocks to maximize return without excessive tax drag.

The chart below shows my TTM dividend (red line) versus TTM expense (blue line) since I started tracking in 2014. One is financially independent when the the dividend (red) line exceeds the expense (blue) line, which happened around June 2015 for me. 
Given that my expenses have gone down significantly, dividends have become too much of a good thing now. Any excess dividends above the amount needed for expenses incurs excess taxes and becomes a drag on my returns. I think an ideal dividend to expense coverage ratio is around 1.5, which allows room for error without incurring too much tax liabilities. 

I project my overall expenses will bottom at approximately $3,000 annually, so that $4,500 annual dividends would be plenty. My currently projected annual dividends is around $20,000, so I have a long way to go. 

Fortunately, it appears that my dividend trend line is flattening as well. I will exchange more high dividend paying stocks for low or no dividend paying ones when the next bear market strikes, to minimize my capital gains taxes.

My after-tax saving rate (calculated as after-tax expenses divided by after-tax income) was 99.53% this month, easily surpassing my 95% saving rate target. I am confident I will meet or exceed my savings goal this year.
How's your budget? Did you meet your savings goal this month?

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