Tuesday, February 4, 2020

Income & Expenses For January 2020: Saved $13,688.77, 97.35% 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 January 2020. You can see all my monthly budgets here.

Jan 2020
Other Income$823.79
Total Income$15,664.73
Federal Income Tax$1,003.64
Federal Tax Pmt/(Refund)
Student loan repayment$46.41
Total Expense$1,975.96
Before Tax Saving Rate87.39%
After Tax Income$14,061.96
Ex-Tax Total Expense$373.19
After Tax Saving Rate97.35%
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: $16,121.51, down 10.88% 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:
Dividend Summary
2020 YTD$983.13
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.

$249.16 housing expense this month was spent on plumber to replaced broken bathroom faucet. Next month's water and gas bills will likely be higher too as a result.

Student loan repayment was $46.41 this month. 

Food expense was $34.08 this month, not bad. 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. My splurges are on fresh and frozen vegetables like cabbage, collard greens, broccoli, turnip greens, mustard greens, when I can buy them for under $1 per pound.

The utility bills are typical. No other expenses this month.

After-tax expenses came in at $373.19, significantly higher than typical due to nonrecurring housing expense on plumbing problem.

Total after tax expenses for the trailing twelve months: $3,166.97, down 40.16% from a year ago, mostly as my housing expense went down. This ttm figure is hovering around $3000 for the past four months. My current expense ratio, the ratio of my ttm expenses to my net worth, is only 0.17%, which is far less than the 4% SWR and should allow my net worth to compound near market return.

Here is a summary of expenses (not including tax) incurred since 2014:
Expenses Summary
2020 YTD$373.19
Big drops in housing expense accounted for the big drops in annual expenses from 2014 to 2015 and again 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 = 5.09, slightly lower than last month and remains quite high.

Here is a summary of my passive income (dividends) to expense coverage since 2014:
Coverage Summary
<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. The dividend (red) line overtook the expense (blue) line around June 2015.

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. 

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 falling, 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.


My after-tax saving rate (calculated as after-tax expenses divided by after-tax income) was 97.35% this month, exceeding my 95% saving rate target. I am confident I will meet or exceed my savings goal this year.

How is your budget? Did you meet your savings goal this month? If so, how did you manage to do so? If not, what do you plan to do differently to reach your target next month?

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