Not Go Gentle

Every month this year has brought one off or ‘special’ expenses. April was higher than usual. We moved one of our parents from abroad to come live with family in the US. A campus visit for our college bound son…and finally birthday and anniversary celebrations.

There is no doubt that when things get busy, expenses go up due to less planning and a desire to just get things done quickly. Looking at this month’s categories, of the top 6, the top 3 would usually be classified as one-off. At the same time, I try not to obsess over spending in isolation. The family also needs a sense of comfort and well being and constantly injecting the topic of spending into the conversation takes away from that goal. The occasional splurge and gift giving adds a lot to the quality of our life.

I do try to focus my attention on structural changes to our lifestyle that increase efficiency. As part of that, we have been considering getting a solar system installed. The costs of electricity will rise by about 20% this summer after our contract expires. On average we consume about $2200 worth of electricity in a year at the old rates, which will likely rise to $2500 going forward.

The quoted cost of a PV system that covers 100% of our needs, comes to $20,000 after all tax incentives and rebates. This implies a 12.5% after tax rate of return, or the same as a taxable investment return of 19.8% at our marginal rate of 37% or 16.6% at our average tax rate of 25%.

Another way of looking at such investments is that they allow us to opportunistically move gains from market investments to hard assets that lock in certain rates of return. As the market is doing very well now, it makes sense to take some money off the table into a sure thing.

The down side of a house project is … owning hard assets … dealing with maintenance, delays, contractors etc. Any deviation from the plan on paper resulting in additional costs can kill the promised rates of return. However that is life, and as an engineer, there is a certain joy in tinkering with technology that adds to the intangible value of the project.

The solar system should get installed over the next 2 months and we will catalog the journey as well as the cost / benefits.

April brought college decisions – and a campus visit to California where our son will be going this fall. This incurred some travel expenses but everybody was excited to see the uncertainty end and future unfold.

Our expenses for the month were $11,032. April also brought 2 birthdays and an anniversary so gifts and kids parties also featured on the expense line.

Income for the month was $47,337. Severance payments continued as did distributions from our income portfolio. Distributions from taxable and non taxable accounts were $25,551 and severance payments were around $21,000.

In other financial news, an interesting employment opportunity appeared on our horizon and we decided to take it on. The first payments from that will show up in the balance sheet for the month of May. Without further ado, here is how the expenses fared …

March was a special month as the 2018 year bonus from my previous job paid out…netting us $60k. In addition, the severance payments continued so that added another $19k. So almost $80k of the increase in net worth was due to new money added to the pile. On a smaller note, we also got a $3k tax refund … when it rains…!

Our expenses for the month were $9,264. This is significantly higher than the norm because of a series of one-off expenses all bunching up together. College visits for our son added on travel and eating out expenses and an improvement project in our backyard cost $1.400. The detailed expenses are in the table below.

The investment portfolios spat out income … doing what they are designed to do! The distributions from the taxable income portfolio were $8,977. It was a bit concerning to see a number that was lower than our expenses for the month, but only by a little.

The retirement portfolio income distributions were $5,244 which were reinvested without any further ado.

Home improvement	$1478
Restaurants	$1362
Travel	$1228
Groceries	$1114
Automotive	$754
Home Maintenance	$555
General Merchandise	$494
Telephone	$448
Tax Prep	$424
Simplysafedividends subscription	$399
Clothing/Shoes	$267
Entertainment	$239
General Merchandise	$210
Utilities	$179
Gas	$118
Everything Else	443
Core Expenses: $3,619	Non Core Expenses: $5,645

We had some concrete work removed from the backyard that cost $1,400. There were also lumpy automotive costs due to a ripped tire in the Mercedes SUV that cost about $500 and some repair work on the van. Phone costs were higher due to overage charges by ATT. We have switched to an unlimited plan since then so there should not be any more surprises though the monthly costs will increase a bit.

Our income for the month was $98,617
Paychecks : $80,000
Taxable Portfolio Distributions: $8,977
Tax Sheltered Portfolio Distributions: $5,244

All in all, a month of good progress. Our expenses till the end of March totaled $21,166. Our income in the corresponding period was $169,149. Of this, taxable investment income was $30,837. This is an important metric as sometime in the future, this will be the only income available for us to depend on and we will have to also allow for the impact of taxes and healthcare.

2019 brought many changes …quickly and some unexpected. Crossing $3MM in net worth, a kid headed to college and a decision to leave a high paying job and take better control of our time and choices. Overall, I have the say the effect has been net positive … in spite of early fears and uncertainty. This also explains why it took a little time to be able to articulate our goals for 2019. We finally have some stability of intent and outlook so here goes:

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• Achieve Net Worth of : $3.5MM
• Achieve Portfolio Income of: $180k/year or $15k per month using a mix of investments with Beta < 1.
• Fitness: Develop the ability to sustain 100 pushups, 100 squats and 5 pull-ups each day for 30 day stretches.
• Surround ourselves with people and thoughts that are positive, supportive and definitely non-toxic.
• Continue to simplify, focus and make our life more joyful and intentional.

Long term goals:

• Net Worth: $10mm+
• Portfolio Income: $300k/year
• Fitness: as in 2019 goals.

The numbers are coming together for 2018. Here’s a snapshot of what our tax return looks like. Numbers are rounded for some anonymity.

This is a combination of many fortunate circumstances. Having a high paying job in a very low cost of living city, a paid-off house and no state tax.

Interestingly, post retirement and once the high W2 income is no longer flowing, the high property taxes become a negative as the savings from not having a state tax diminish. Our property taxes are $17k out of our core spending of $92k.

The month of February saw steady progress. I put some effort in consolidating my 401k accounts but apart from that, the portfolio was free to keep reinvesting independent of what happened in the market any given day. We broke over the $3MM mark once again after having been there late last year.

Our expenses for the month were $6,000 .. almost identical to January. Due to Valentine’s day, we let ourselves go a bit with gifts and dining. Could we have done with less .. for sure. Would it have been worth it…probably not! Let us see where the money went.

Utilities	$720
Groceries	$676
Home Maintenance	$648
Restaurants	$632
Education	$618
Gifts	$558
General Merchandise	$494
Travel	$329
Telephone	$317
Healthcare	$140
Clothing/Shoes	$137
Entertainment	$124
Gasoline	$104
Everything Else	$503
Core Expenses: $3,863	Non Core Expenses: $2,137

We paid two months of heating costs this month, leading to almost $500 in utilities cost. This should lower the expenses next month. Restaurant spend continued to be high as several of us were sick due to the changing weather and this led to ordering in more than usual. Home maintenance included $300 for one time mulching and lawn work.

The education expense was almost all a one time exam registration fees for my son in his final year of school. I also traveled abroad in connection with a possible consulting assignment and the travel costs incurred here should get reimbursed by the client.

Entertainment was almost all iTunes. I was a bit surprised to see the gas expenses still high at $104.

The non-core expenses for the month include the one time travel, the restaurant spending, the one time education bill and the gift spend associated with Valentine’s day.

Our income for the month was $30,571
Paycheck : $18,020
Taxable Portfolio Distributions: $8,112
Tax Sheltered Portfolio Distributions: $3,435

The ‘paychecks’ will continue for the next few months as part of the severance agreement.

,The markets recovered nicely in January – what a relief. However it is still unsettling to see such wild and unexplained swings. That said, my attention was diverted by negotiating a six figure severance from my current increasingly toxic job and by mid January, I was free!

Our expenses for the month were $5,903, which came in a bit higher than December. , when we spent around $4,117. Let us see what drove that.

Auto Insurance	$1,109
Groceries	$762
Restaurants	$683
General Merchandise	$678
Home Maintenance	$638
Telephone	$301
Clothing/Shoes	$243
Kids classes	$205
Utilities	$175
Electronics	$151
Online Services	$127
Everything Else	$831
Core Expenses: $3,700	Non Core Expenses: $2,203

Our biggest expense was a 6 month auto insurance payment to Geico in the amount of $1109. We have 3 late model cars – two Toyotas fully owned and a leased Mercedes. All in all, the insurance price is not too bad, though I plan to eventually get rid of the third car once the mercedes lease is over.
As I was home in January after exiting my job, we had a lot of nice family time together and the resultant increase in eating out. The restaurant budget spiked to almost equal to the grocery budget at $700 or so. Some of that was driven by a dinner with extended family where we hosted.

Telephone and home maintenance were as expected. Utilities were low as we only looked at the electric bill. The gas bill, which is usually high this time of year will get pushed out to next month.

The ‘everything else’ bucket is larger than usual. It includes a $100 bill for 2 months of home security monitoring, repair for a broken iPhone, entertainment charges from Netflix and Itunes, almost $90 for dry-cleaning and $85 for gas.

The non-core expenses for the month include the one-time insurance payment, the restaurant expenses, kids classes and some general merchandise spend.

Our income for the month was $39,744
Paycheck : $13,163
Taxable Portfolio Distributions: $15,442
Tax Sheltered Portfolio Distributions: $8,896

Total: $39,744

Net Worth: $2,985,497 +4%

Arguably most of the net worth increase is from the $33,000 in net worth contributed by the paycheck and investments. The market recovered a bit but still short of its high point from last year.

December was a quiet month at home where we took time off as a family. It was anything but quiet in the financial markets as the stocks went on a wild ride leading to gut churning changes in net worth.

Our expenses for the month were $4117, which came in significantly (33%) lower than November, when we spent around $6000. Without further ado, let us dive into the details.

Groceries	$709
Home Maintenance	$566
General Merchandise	$501
Restaurants	$494
Telephone	$368
Utilities	$357
Kids classes	$325
Clothing/Shoes	$298
Other Expenses	$107
Dry Cleaning	$89
Everything Else	$303
Core Expenses: $2600	Discretionary Expenses: $1517

Groceries topped the list of expenses – we use the amex blue cash to get 6% back on those. Home maintenance included pest treatment, mosquito treatment, and maid service for house cleaning. General merchandise is basically Amazon shopping…everyday items small and big.

As a family of 4, we end up eating out or ordering in 4-5 times a month. Sometimes it is just to celebrate the holidays, the weekend or occasionally when one of us is sick and don’t feel like preparing food. The average tab for eating at our local restaurants is $70-$80 for the 4 of us. That said, restaurant spend is one of our higher discretionary spending that could be cut back if needed.

The phone bill is with ATT and includes gigabit internet ( $70) and a 4 phone 15GB plan @$160 plus taxes. Gas expenses were low at $30 and are included in ‘everything else’. The rest of the expenses are self-explanatory.

In my view, discretionary expenses for the month included eating out, kids classes, clothing and shoes. This is not to imply that we don’t want to have shoes for our kids .. only this is an occasional lumpy expense so adding it as a core expense will distort the numbers.

Our income for the month was
Paycheck : $19,220
Taxable Distributions: $10,808
Tax Sheltered Distributions: $7,473

Total: $37,501

Net Worth: $2,868,509