TLDR: this turned out to be ridiculously long, so: expenses high, income high, minimal free time. Can I cut expenses without cutting into free time?
The recent
"What are your annual expenses" poll shamed me into taking another look at my overall expenses, and reminded me that I have a long way to go.
Income: Primarily from my job, and is high enough that I can save substantially despite this astronomical level of spend. Reaching FIRE won't be terribly hard for me, but I really don't want to live off the portfolio when I retire (at least not for a decade or so). I want to have a "hobby job" (similar in spirit to MMM's construction business) that will cover my expenses. But I doubt most hobby jobs pay enough to cover our current expenses. And furthermore, I don't even know what my hobby-job will be: it will take some time to find out what I really like to do and enjoy, so until I find the groove, I expect income to be quite low. And that's the whole point of a hobby-job anyway, is to emphasize the
hobby part of it: the income is a nice perk, but not the end goal. If I approach it with the attitude of, "this hobby-job has to pay $75k/year", I'm quite certain it will look a lot more like a
job than a
hobby.
Assets & Liabilities: The only debt we have is the mortgage on our house, which we bought less than a year ago. It's a 7/1 ARM at 3.5% (for now). We put about 50% down. This rate is actually around 2.1% after the mortgage interest tax deduction is taken into consideration. I have a typical Boglehead-style portfolio whose value is about 4x mortgage balance. And that's why I went with the ARM: I intend to sell, pay-off, or possibly re-finance before the rate starts adjusting.
Specific Question(s): How can I get my absolute expenses down, from shameful to Mustachian? I'll elaborate below, but right now, many of our expenses are blatant conveniences in the interest of saving time. We have plenty of money, but consider ourselves "time poor". I
know there are a lot of things we can do to cut monetary costs---but at the expense of increasing time costs.
Expected ER expenses: The plan for our FIRE is to move out of the big city, and back home to small-town Midwest. At this point, our kids will be older, and I intend to be at least "semi" retired, meaning, we'll hopefully be "time wealthy" or at least "time middle class". And the cost of housing will be lower, so we'll buy our house outright. (Although property taxes will remain high, unfortunately.) We'll be close to both mine and my wife's extended families, so babysitting costs should go down dramatically. Certainly no more "Professional Services" at this point.
Current expenses: These are basically the biggest expense categories, per-year, for 2012 and 2013. There's a handful of smaller stuff that I left out, because they are effectively rounding errors relative to the heavyweights below.
My methodology: although I rounded the numbers here, in reality they are literally tracked down to the penny in
GnuCash.
Entertainment 5,900 7,500
Automotive 5,200 1,900
Babysitting 1,000 5,000
Cell phone 2,300 1,700
Clothes 1,000 1,300
Gifts 2,000 3,300
Groceries 8,000 7,200
Household Goods 3,000 4,500
Pets 1,900 1,800
Professional Services 400 4,000
Vacation 7,000 1,800
Utilities 5,000 4,500
I'll go through these, adding some prose in anticipation of the "obvious" responses I expect. Fair warning, some (all) of this will border on complainypants whining, to which I'm sure MMM would reply with a facepunch and a mocking "waahhh waahhh" response. :)
Entertainment: this one has actually averaged closer to $500/month for the last two years, but, yes, it's mostly pure indulgence. No boats or country club memberships; I can't even remember the last time we've been to the movies. We very rarely dine out now that we've got two kids. But ordering in (e.g. pizza) on the weekends is commonplace. No cable TV, but we do have Netflix with the DVDs (to get stuff that's not available via streaming). Includes hobby supplies, craft-making stuff for my wife, and computer parts and audio equipment for me (although last year, I funded all my hobby purchases by selling something first).
Automotive: we became a one-car family last year, and I foolishly held on to the second car for far too long at that. I take the train to work ($86/month, not shown in the table above). We drove about 8000 miles total in 2012; that included two vacations of about 1000 miles of driving each. 2013 we didn't drive those vacations, so the total mileage will be much lower. Most driving is short errand trips by my wife, typically once or twice a week. We used to drive to our hometown every month or two (300 miles round trip), but have only done that once since the second kid was born. The big cost in 2012 included $2500 worth of maintenance. Paid-off, 10-year old vehicle (but lousy gas mileage).
Babysitting: huge for last year because it includes two days a week for our toddler to go to an in-home day care. This started when our second was born. For the first six months, she was ridiculously fussy (zero sleep all day, inconsolable every night from around five to midnight). It started as a break for my wife. We have no nearby family who can help out. Our baby is much easier now, but our toddler has made friends at the day care, and we value the socialization aspect.
I suspect this is an area where people want to start face punching (if their arms aren't too sore from the Entertainment category). When our first was born, my wife did try going to some Meetups, hoping to connect with moms in a similar situation. It didn't happen. Neither of us are particularly outgoing, so we struggle to make new friends. Frankly, we're homebodies.
Cell phone: 2012 is high because we both got new smart phones. Not the biggest line item, but I do intend to switch to a MVNO soon and hopefully lower the bill. This is some "low hanging fruit" that hasn't yet been picked.
Gifts: Largely we're guilty of caving to implied peer expectations.
Groceries: One of the categories that actually went down last year! We buy everything we can from Costco, and fill in the gaps from Jewel. I recently finished Jacob Fisker's
Early Retirement Extreme book, and for anyone else who's read it, you may remember his description of three "levels" of grocery shopping:
1. Go to the grocery store and buy whatever you feel like.
2. Go to the grocery store with a list and stick to it.
3. Really learn to cook and only buy loss leader groceries on sale.
We're at (2). I admit, my gut reaction to (3) was that it's a sacrifice: what if the store puts the exact same thing on sale four weeks in a row? But then I realized, the whole point of the book, being a Renaissance man, means you use your creative problem solving abilities to turn what superficially appears to be deprivation into a luxury. So I agree with the premise. But in the ERE world, "really learning to cook" doesn't simply mean following recipes: it means having the fundamental "food theory" knowledge to create your own recipes. My wife and I actually enjoy recipe-based cooking, but I don't think either of us possess any real "food theory". So being able to maintain the (hedonistic?) level of comfort we're used to while buying only on-sale foods requires an investment in time ("food theory tuition") that we don't feel we have at this point.
Furthermore, we try to buy mostly staples, but I'll admit there's more convenience foods in our basket than the truer Mustachians around here. Part of my excuse is our picky toddler. So we buy a fair amount of fish sticks, chicken nuggets, dried fruit, nut mixes, etc. But we splurge on ourselves too---has anyone had those frozen mozzarella cheese sticks from Costco? They are delicious!
This category doesn't include any restaurants or delivered food; those things would go in "Entertainment". But it does include alcohol. I'd say my wife and I each average three to five drinks per week. Typically beer or wine. We buy cheap wine (< $8 bottle), but do by micro brew beer. Like the "Pets" category, this is something I'm happy to work longer for to pay for from my portfolio!
It also includes bottled drinking water delivery (the big 5 gal bottles that are re-used). It was about $30/month, but has gone up to $50/month since the baby was born, as we use this water for her formula. As a side note, the formula is actually 100% paid for by insurance, since it's by prescription. The water is blatant hedonistic adaptation at it's finest, but we so love it!
Household Goods: As I said in the other thread, this does not include furniture. This category for us has always been high relative to everyone on these forums. It includes things like diapers, baby wipes, batteries, over-the-counter medications, cleaning supplies, feminine products, laundry detergent, toothbrushes, deodorant, toilet paper... I had hopes that this would go down when we joined Costco, as virtually all of this stuff is purchased there, but it didn't seem to have much of an effect. Offhand, I'm guessing about half of that cost is for diapers and baby wipes. And 2013 had an unusual bump due to buying a bunch of random stuff for our new house.
As someone in the other thread mentioned, there is potential for savings with DIY here. Interesting side note (or maybe just indulgence on my part), I came to MMM via ERE, although I found ERE just as he was passing the torch to MMM. I came across ERE by a comment on The Simple Dollar (TSD). For anyone who's read TSD, DIY laundry detergent is one of his "classic" frugality tactics. So I've read the description of how to make it. Neither hard nor particularly time-consuming, but I do question the value to me personally. I might save $200 a year or so on laundry detergent, but that's a rounding error in the numbers above. That's why I phrased it as "death by 1000 cuts" in the other thread. How many household goods do I have to DIY to see some significant reduction in costs? I can see my wife and I happily enjoying each other's company after the kids go to bed, making homemade laundry detergent... but I do struggle with the vision of turning all of our already-lacking "adult time" into frugality DIY projects. Maybe that attitude is part of my problem?
Pets: Two cats. One is on medication. Premium food. We are animal lovers, and will always have pets, so this is a line item I'm happy to work more to support in FIRE.
Vacation: last year
should have been zero... but one of our close friends had an out-of-state marriage, and I was in the wedding. Airfare, hotel stay, the whole works. IIRC, this was a six-figure wedding, so you can imagine the expectations that went along with it. The previous year we took an indulgent resort vacation; it was when we had only one kid, and the grandparents were able to take her while my wife and I took a trip with friends. That's certainly not a routine, and I don't expect to even be able to do that again for a few years.
Professional Services: driven by three big things: house cleaning, snow removal, tax preparation. These I'm committed to doing away with in FIRE, hopefully sooner. In fact, this year I bought TurboTax, but still intend to pay the accountant. If I come up with the same result, it will give me the confidence to DIY in the future. Before getting the snow removal service, I timed myself at over two hours to shovel our sidewalk and driveway. Anyone who lives around Chicago knows we've had a ridiculous amount of snow this year. This is time away from my wife and/or kids, pure and simple. House cleaning is a similar story. A long process, wife's high standards, time away from family. I really expect to get away from outsourcing these things once the kids are both old enough to not require 100% adult supervision.
Utilities: I forgot to include this in the other thread. This includes: Internet service ($50/month), water, gas, and electricity (seems like I'm forgetting something). Gas and electricity dominate, though. We keep the house at 67 in the winter and 78 in the summer. I don't think that's too hedonistic. A smart thermostat won't make a difference, since the house is virtually never empty. It is zoned HVAC, but the kids' napping schedules leaves practically no room for scheduling upstairs' temps. The house we were renting was poorly insulated, drafty and had an undersized HVAC system. The new house is already showing considerably lower heating bills, despite a brutally cold winter here in Chicago.
In terms of DIY stuff, I wonder where people with
young kids like us get the time? During the week, we get up at 5:30 so we can work out (in our garage, no gym fees here). I leave around 7:00 before the kids are up, and get home a little after 6:00. Dinner and cleanup usually takes about an hour (the toddler is picky and eats dreadfully slow, baby is just learning to feed herself, so makes a huge mess, plus adult dishes, pots, pans, tupperware, etc). We might have 15--30 minutes to play with the kids; their bedtime routine starts at 7:30 and ends at 8:30. Need to be
asleep by 9:30 to get eight hours of rest, so the wife and I usually get ready for bed right after we put the kids down, or sometimes hang out for 30 minutes or so.
On the weekends, we usually don't have any formal obligations, so we try to make this all about family time. Simply preparing for and cleaning up after three meals a day for the kids alone takes up a surprising amount of time.
One way I look at it is this: I like to think I run our household finances like a business. I think this is a natural result of learning accounting principles through the use of GnuCash, and also reading things like MMM and ERE. So looking at our expenses from the lens of a business, we have a lot of "overhead", but it's offset by being a highly profitable business.
In other words, which business would you rather own and operate: the one with overhead
x and profit
4x, or the one with overhead
3x and profit
12x?
I don't intend to stay any longer than I have to in the "12x" business. I anticipate my future hobby job will be more like an "x" business, so I'd like my expenses to scale down accordingly as well, preferably
before I leave the 12x business.