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 December and full year 2019, as well as those of 2018 for comparison. You can see all my monthly budgets here.
-->
Income
Wages remain my primary source of income by far. Wages this year has gone down 7.28% compared to 2018 due to a small bonus, which is fine with me.
Dividend income has decreased 14.49% this year compared to 2018, as I replaced a few higher dividend payers with lower paying ones. Given that I have way more than enough dividend income than needed, it is best to limit taxable dividends as much as possible in favor of unrealized capital gains. Buffett would approve, as his company BRK has never paid a dividend since he took over.
Other income include nonrecurring items like interest, cashbacks, incentives, surveys, etc. This is highly variable from year to year.
Here is a chart of my dividend income by month for the past 13 months:
Total dividends for the trailing twelve months: $15,795.49, down 14.49% from a year ago. This is a positive development, as I continue to switch from high dividend paying stocks to lower or non paying ones to reduce my taxes.
Here is chart of my dividend income by month and year since inception of the blog in 2014:
-->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 December and full year 2019, as well as those of 2018 for comparison. You can see all my monthly budgets here.
-->
Wages remain my primary source of income by far. Wages this year has gone down 7.28% compared to 2018 due to a small bonus, which is fine with me.
Dividend income has decreased 14.49% this year compared to 2018, as I replaced a few higher dividend payers with lower paying ones. Given that I have way more than enough dividend income than needed, it is best to limit taxable dividends as much as possible in favor of unrealized capital gains. Buffett would approve, as his company BRK has never paid a dividend since he took over.
Other income include nonrecurring items like interest, cashbacks, incentives, surveys, etc. This is highly variable from year to year.
Here is a chart of my dividend income by month for the past 13 months:
Total dividends for the trailing twelve months: $15,795.49, down 14.49% from a year ago. This is a positive development, as I continue to switch from high dividend paying stocks to lower or non paying ones to reduce my taxes.
Here is chart of my dividend income by month and year since inception of the blog in 2014:
Expense
Expenses were kept low this month, limited mostly to essentials. I did buy $18.04 worth of gas fuel, an infrequent expense. Other expense of $81.12 was spent to buy two second-hand bikes.
On a year-to-year basis, student loan repayment went up due to monthly payment increasing from $35.70 to $46.40 in June 2019 on a graduated repayment plan. The payment amount should remain constant in 2020.
Food expense dropped 22% to $712.11 from $909.35, due to a combination of substitution for lower cost food (e.g. pinto beans, oatmeal and peanut butter, and occasional foraging), decreased consumption, and timing of bulk purchases.
Car related expenses went down as expected as the car was seldom driven, as evidenced by gasoline expense plummeting 91% to just $29.37. Car insurance of $286 annual premium was for state minimum coverage, and $20 was for annual registration.
Cell phone expense finally dropped to zero as I don't pay for phone service anymore. It does not provide enough value for me to pay for it.
Electric utility dropped 28% to $250.15, due mainly to reduced usage.
Water utility rose 25% to $275.76, due mainly to increased usage.
Gas utility dropped 95% to $7.11 because it was not used for most of the year, only resumed in December last year.
Clothing/laundry costs dropped 45% due to minimal need for new clothes and cutting out laundry costs by using more hand-washing instead of machine washing and cheaper detergents.
Donation went down by 86% due to no more solicitation at work to donate for office parties as an implicit change in policy from extortion to non-cash transaction potluck parties.
Amazon and ebay sales costs were insignificant due to lack of significant selling activity.
Total expenses for the trailing twelve months: $2,948.67, down 49% from a year ago. My ttm expenses have been hovering around $3k for about half a year now. This seems to have become my new norm. It is surprisingly easy to live comfortably on $3k if one owns a modest home and is frugal, spending money mostly on essentials and deriving enjoyment from free resources such as the public library.
Here is a summary of expenses (not including tax) incurred since 2014:
Dividend to expense coverage ratio = 5.32, down from all time high but remains quite elevated.
Here is a summary of my passive income (dividends) to expense coverage since 2014:
-->
Interpretation:
<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: a tax burden. Any excess dividends above the amount needed for expenses incurs excess taxes and becomes a drag on my returns. For me, an ideal dividend to expense coverage ratio is around 1.5, which allows room for error without incurring too much tax liabilities.
My overall expenses are bottoming out at approximately $3,000 annually, which means $4,500 annual dividends would be plenty. My currently projected annual dividends is around $19,000, so I have a long way to go.
Fortunately, it appears that my dividend trend line is is falling now, thanks to actions I have taken to replace some high dividend payout stocks with lower yielding ones. I will continue to exchange more high dividend paying stocks for low or no dividend paying ones as the market drops, to minimize my capital gains taxes.
I have now tracked my monthly net worth for over 3 years and have accumulated a lot of data to display my expense ratio in a chart. My annual expenses is far below 4% SWR and has been steadily trending downward, a good sign.
Savings
My after-tax saving rate (calculated as after-tax expenses divided by after-tax income) was 98.42% this month and 98.40% for the full year, well above even my ambitious 95% saving rate target.
How is your budget? Did you meet your savings goal this month?
Thanks for reading!!
No comments:
Post a Comment