Monday, January 4, 2021

Income & Expenses For December 2020 and Year End Summary

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 2020, as well as those of 2019 for comparison. You can see all my monthly budgets here.
Dec 2020Cum 2019Cum 2020% Change
Other Income$484.99$9,425.89$9,259.30-1.77%
Total Income$10,085.11$218,661.62$133,676.11-38.87%
Federal Income Tax$19.76$22,894.06$9,572.84-58.19%
Federal Tax Pmt/(Refund)$3,474.30$3,415.02-1.71%
Student loan repayment$0.00$492.66$139.23-71.74%
Car Insurance$286.00$234.91-17.86%
Car Reg/Tax/Maint$20.00$22.0010.00%
Cell phone$0.00$11.87
Amazon sale costs$5.50$0.00-100.00%
Other Expense$82.67$170.49$214.7225.94%
Total Expense$301.52$36,310.44$19,811.41-45.44%
Before Tax Saving Rate97.01%83.39%85.18%2.14%
After Tax Income$9,982.83$185,319.85$116,908.53-36.92%
Ex-Tax Total Expense$199.24$2,968.67$3,043.832.53%
After Tax Saving Rate98.00%98.40%97.40%-1.02%
Wages was my primary source of income in 2020. I retired in July 2020, hence the 41% drop in wages YoY. In December, I received my first VA disability compensation along with 4 months of retropay, which bumped up my "wages".

Dividend income decreased 30% this year compared to 2019, as I replaced higher dividend payers with lower or non paying ones, most aggressively performed over the covid-19 induced bear market early in the year to minimize taxes. 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, which can be deferred indefinitely. 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 can be 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: $11,084.65, down 29.82% from a year ago. This is a wonderful development, as I continue to switch from high dividend paying stocks to lower or non paying ones to reduce my taxes.

Here is table of my dividend income by month and year since inception of the blog in 2014:
Dividend Summary
Expenses were kept low this month, limited mostly to essentials. Other expense of $82.67 was spent to buy an electric heater and a cold weather sleeping bag for the freezing temperature during winter.

YoY, housing costs 12% to $750.41, mainly due to $249.16 spent on plumber to replace a broken bathroom faucet. Property taxes actually dropped 24% from $655.54 to $496.96, thanks to a successful appeal on my annual property tax assessment.

Student loan repayment plummeted 72% due to automatic forbearance for COVID relief since April 2020. The forbearance is expected to last till end of April 2021. 

Food expense went up 61% to $1,146.49, due to a combination of timing of bulk purchases and splurges on expensive nuts (walnuts, almonds, cashews), etc.

Car related expenses went down as expected as the car was seldom driven, as evidenced by gasoline expense plummeting 55% to just $13.11. Car insurance of $234.91 annual premium was for state minimum coverage, and $22 was for annual registration + extra $2 for postage and credit card use. I probably should have brought a checkbook to the DMV to save the $2, but I was too lazy.

Cell phone expense popped up again this year, as I paid $11.87 in July for a new cell phone on sale.

Electric utility dropped 82% to $44.60, due mainly to rebates and rate cuts.

Water utility rose 36% to $373.65, due to increased usage and rate increase.

Gas utility went up 1206% to $92.89 because it was not used for most of the year during 2019, only resumed in December 2019.

Clothing/laundry costs dropped to zero due to no need for new clothes and cutting out laundry costs by using more hand-washing instead of machine washing and cheaper detergents.

Donation went down to zero due to no more solicitation at work to donate for office parties.

Amazon sales costs went to zero to lack of selling activity.

Total expenses for the trailing twelve months: $3,043.83, up 2.53% from a year ago. My ttm expenses have stabilized at around $3k for about 2 years 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:
Expenses Summary
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 = 3.64, down from all time high but remains quite elevated.

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. 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 taxable annual dividends is around $9,000. I need to halve this amount to reach my optimal state.

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. In fact, my current expense ratio of 0.14% is like that of a low cost index fund, which basically tracks the market without taking away much for maintenance. 
My after-tax saving rate (calculated as after-tax expenses divided by after-tax income) was 98.00% this month and 97.40% for the full year, well above even my ambitious 95% saving rate target.
How is your budget? Did you meet your savings goal in 2020? 

Thanks for reading!!


  1. These are huge dividends! Any chance I could get your transaction list, so I could import them to to see how a portfolio of this size would render there?

    1. Check out my monthly portfolio updates: There you can find all my holdings and transactions.