how much we spend

How Much We Spend

This week, we’re doing an in-depth look at numbers and we’re kicking it off by taking a good, hard look at how much we spend. Annual expenditures are really the magical number needed to retire. We’re getting real (with charts!) and taking a look at 2013, 2014, and 2015. First up, 2013:

2013 Expenses

Let me address something right off the bat. We pay 10% of our income in tithing and then make other donations on top of that. Why do we pay tithing? Because it builds our faith. Donations are our second largest expense, and because tithing is 10%, if our income increases, our donations will increase as well.

Housing is our biggest expense, obviously. Our telecommunications charges are ridiculous, but there aren’t a whole of of choices in Alaska, so that’s that. In 2013, our “Travel” expenses were nearly exactly the same as our “Household Expenses +Stuff.” The problem with this category is that we include toilet paper, junk we buy, and experience-related costs in the same category. I might break these apart in 2016. But really, I hope our “junk we buy” section of this goes down and our “Experience-related costs” section goes up so that it ends up staying the same.

Total Spending in 2013: $53,218.12

2014 Expenses

2014 expenses look very similar though our medical expenses increased because we had a baby (Lui) and Kid Education costs decreased because none of our kids were in preschool.

Total Spending in 2014: $53,343.99 – just $120ish more than the prior year!

2015 Expenses

2015: Yikes! The House Updates category is through the roof (pun intended)! But, if you’ll recall, we spent a lot of money on the Alaska State Energy Rebate Program and will be getting $7,770.74 back (soon, I hope!). Our transportation expenses doubled because we got a second car at the end of 2014. Also, 2015’s Travel category includes $1108 for our plane tickets next summer to get the kids to the grandparents’ house and Mr. T and I to the UK/Paris!

Total Spending in 2015: $63,580.89. Subtracting the $7,740.74 rebate from the energy program, we spent a total of $55,810.15

Ideal Expenses

Based on our actual spending from the previous three years, we can draft an “ideal spending” scenario for after we hit our early retirement goal (being generous for future calculations).

  • Our transportation costs will go back down since we’ll be just fine with one car.
  • Food will be the same.
  • As I said before, I intend the “Stuff” part of the Household Expenses + Stuff category to go down and the “Experience cost” part of that to rise, so we’ll count on it being about the same.
  • Utilities and telecommunications charges, if we remain in our house, will be the same.
  • Our Housing prices will drop tremendously once we pay off our mortgage. $7,680 would pay for all the homeowners insurance and taxes, etc. for the year.
  • As for donations, our tithing will go down because our income will go down, but we hope to raise other donations. So, overall, this category will go down, but not drastically.
  • I increased “Travel” slightly. If we stay in our house, we’ll still be limited in our travel to the school schedule of the kids. If we choose to do extended travel, we’ll move costs from other categories (ie: telecommunications, utilities, transportation) to cover those costs because we won’t be here to use those things as much.
  • I kept $200 in the house updates fund. That’s probably low on all housing costs, but we can always wiggle around a bit. If our furnace dies, we can do a cheaper, local vacation that year.
  • Medical Expenses become the total wildcard. Looking at Obamacare plans, the cheapest silver plan for our family in Alaska is $2200/month. In Oregon, it’s only $900/month. So, I went with Oregon’s rates and hope with subsidies, it will end up being a safe estimate no matter where we plan to live.
  • I kept Kid Education costs at about $1500 because as they get older, they won’t be in preschool, but they will have a number of extra-curricular activity choices. I don’t plan to let them do all of them, but I would like to budget for them for all three kids.

Total Ideal Annual Expenses: $51,280 (we’ll call it $51,300)

Now let’s take a look at how we expect our expenses to change after our kids leave:

After Kid Expenses

Things that will change:

  • Food and household expenses will decrease
  • Our term life insurance will end and with no dependent children, we won’t need it anymore.
  • Travel will be just two of us, but I kept the number the same so we can travel more or more abundantly.
  • Medical costs will change but I kept them the same because the two of us will be older and our utilization may increase as we stop paying for our kids’ coverage.
  • Kid Education costs are zero because we plan to set up medium-sized accounts for them before they leave then not pay for the kids in our more advanced years.

Total Estimated After-Kid Expenses: $46,980 (We’ll call it $47,000)

Hopefully, after shining a light on our finances and weighing our spending choices more closely, all of these expenses will go down. That would be the ideal scenario. And if we manage to maintain sustained decreases in our expenses for the next two years, I will recalculate again (I already can’t wait!). But, for now, these are the numbers we will use in our safe calculations.

We don’t claim to be super frugal. We spend money. And we’re alright with that. We also live in Alaska where some things cost significantly more than other areas. Even with those caveats, there is room for improvement. And we’ll work on that.

On Wednesday we’ll look at the research/history around the three tricky numbers of retirement: inflation rate, market return rate, and safe withdrawal rate. Then on Friday, we’ll bring the two posts together for some new numbers associated with a NEW PLAN! Are you as excited as I am?

Disclaimer: This post may contain affiliate links which, at no cost to you, helps support Northern Expenditure and keeps our heat on in the winter. Thanks!

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29 Comments

  1. Great article! I was just posting about whether or not to put my numbers on my site. And this is a great reason to do that. It brings us in closer to where you are and where you’re headed.

    You’ve done a nice job mapping this out and showing us the breakdown.

    — Jim

    • MaggieBanks

      Thanks Jim. I think it’s helpful for people in similar financial situations to see real numbers. But it’s also scary to bare all. 🙂

  2. Britt

    Maggie,

    Hi there! I’m a long time reader in the PF blogosphere, and recently stumbled across Northern Expenditure. I AM HOOKED! I love what you have going here. I totally agree with your thoughts about how lot of bloggers are either super high income, or working their way out of a lot of debt – not a ton of people in the middle! My husband and I are just a couple years behind you and Mr T, have a six month old, seem to be in similar earning/spending brackets, and I am so excited to binge on all of your archives. I have already send my husband a couple links to read 🙂

    Thanks for all the time and energy you put into this – it has already encouraged and enriched my personal finance journey!!!

    • MaggieBanks

      Britt – These are the absolute best comments to get! I love connecting with people on similar journeys! Feel free to email anytime!

  3. I AM excited to see how it all comes together on Friday! Your numbers are close enough to our annual number that it will be nice to see your take on the whole deal. 🙂 Like you, we don’t want to cover EVERY activity available for the kids, but we do want to have $$ available if they do sports, music, or some extracurricular activity that they’re interested in, so we’ve built that in to our budget. The same with budgeting for an increase in clothing costs for them when they get to middle school – nothing crazy, but they will need clothes and I don’t want to assume we will be in a spot to have stuff available at a cost effective price so we’ve accounted for that too…
    It’s an interesting process trying to account for everything you may need many years from now when situations will be totally different than they are today, and I’m sure we will have under-prepared on some things and over-prepared on others.

    • MaggieBanks

      I know! This is totally tricky! It’s so hard to tell how much money they will cost us in the future! But, we have to do the best we can to try to guess. In some ways, keeping our “household goods + stuff + experiences” section together, it makes things easier. Clothes will go up and they’ll be more involved in stuff at school, so “Experiences” may go down for a few years, etc. I think we’ve built some flexibility into the projections. Hopefully it’s enough. 🙂

  4. middle_class

    Our yearly expenditures are similar. We live in a high cost of living area, too. However, I suspect your income is higher!

    • MaggieBanks

      Possible, but combined, we make about $75,000 after tax but not counting extra 401k contributions.

  5. You have got my attention here! an new plan is always an good opportunity for others to learn. I am curious to see where all of this will take you, and made me as wel.

  6. I’m relatively newer to the PF blogosphere but would you still cut out life insurance even without dependent children? Based on your life stage, I’m younger than you guys w/o children (yet) but I am still assuming that we will continue to carry term life insurance policies to cover each other in the event that one of us dies. It won’t need to be as high as when we have dependent children, but if something happened to me prematurely, I’d still want my husband and non-dependent children to have a chunk of change should they need some time off to grieve (as I would!)

    • MaggieBanks

      I completely agree, but if we’re financially independent, there’s no need for it any longer because we would not longer be working or have an income to replace. If one of us died, we would still be financially independent with enough money to cover the other indefinitely.

      • I suppose it depends on the role you still play in your family’s life. I would be completely devastated by the loss of my parents (since they’re still young so it would be an utterly tragic shock) and could see me needing some time off to grieve, but I know a lot of people are able to bounce right back.

        If your children have children and you play a regular role in childcare, an unexpected demise may put your children and grandchildren in a bind if your children can’t afford full time childcare. Child care in our area is really expensive – I’m don’t know the exact numbers but I hear the ranges are around the $1,700 mark per child per month in our area. In our culture and/or family, grandparents play a pretty significant role in their grandchildren’s lives.

        Or if you were the one responsible for all the house cleaning and your spouse would be unable to handle it on their own, there may be a need for home cleaning/maintenance services. Just some food for thought to chew on!

        • MaggieBanks

          Excellent thoughts! I love it when people weigh in. It helps me think through things we haven’t.

  7. Thanks for sharing. Can’t believe how much more expensive health care is in Alaska! I look forward to seeing it all come together. Love the analysis, nice to know I’m not the only one 🙂
    I’ve tried to do similar and project expenses especially as the kids get older and it starts to get a bit murky. I’ve used 2.5% as the inflation rate (our central bank’s target) and 3% and 5% and 7% for returns, just to see the difference. And safe withdrawal rate is a bit more complicated for us as we have an investment property and if you want to get your retirement income tax free, you have to take out a minimum of 5% pa (and that increases over time). I suppose you could re-invest but it you can’t do it in the tax-free system. Bummer!

    • MaggieBanks

      I’m talking about inflation, returns, and safe withdrawal rates tomorrow! Planning for kids growing up is rough and I really have no idea how to predict that since I don’t have older kids! I’ve just sort of guessed. 🙂

      • Yes I’ve just guessed too. I’ve pretty much kept the same value of spending on extra curricular activities but presume they will be different eg they will probably stop swimming lessons once they are competent swimmers but will do something else instead.
        Luckily we have interest-free loans for university in Australia (provided by the government) so we don’t have to worry about that although who knows what the cost of a degree will be by then and if that policy will still exist. I’m taking the ‘user-pays’ approach with that one! That’s what my parents did with me and I turned out OK!

        • MaggieBanks

          We plan to help out with college some, but not entirely. So, I’m just planning the “buffer” money in our investments to cover that. I’m sure there’s probably a better way to project all of this, but I haven’t come up with it! 🙂

  8. Yes, I’m very excited to hear of your new plan. It’s great how you highlight the personal nature of your finances. I always hear about “magic” numbers that don’t take into account the priorities or desires of different people. You have to understand your own expenses in order to make a realistic and representative plan.

    • MaggieBanks

      Knowing how much you really spend is definitely the first ingredient in “solid financial plan soup.” I should write a recipe. 🙂

  9. I’m excited to see your NEW PLAN!!! But it’s interesting to see your spending over the years, too. It’s pretty amazing how consistent it has been, especially if you adjust for the rebate you’re getting. It is quite striking, though, how much more you pay to live in Alaska. I know you guys love it there, but do you think you’ll stay forever? It sure seems like you could spend less elsewhere, especially on things like health care, groceries and telecom stuff. Just curious. 🙂

    • MaggieBanks

      No. I absolutely think we would leave eventually. We have no family up here and though we do love it, if Mr. T was no longer working his job, we would probably leave. I don’t know how to budget for leaving though, because I really have no idea how much things would cost or where we would even go!

  10. Oh my gosh, $2200/month for health insurance??? Eeeek! Come to Massachusetts. 🙂

    This is a really cool comparison to do. I keep scrolling up and down because I want to see all the pie charts at once (and it would be creepy to take screenshots of someone else’s pie charts and paste them side by side into a powerpoint document, right?). 🙂

    I’m looking forward to having more data at some point so I can make charts like these too!

    • MaggieBanks

      Yes. Health Insurance premiums and deductibles are not something I look forward to after Mr. T leaves work. His work insurance is amazing. And totally not creepy to click on each of the charts to compare. That’s why they’re there. Financial Voyeurs unite! I was hoping using all my real numbers and getting them totally out there would help someone. Maybe.

  11. What a great way to track all this stuff and look at the progress you’ve made! I think your ideal spending looks really well thought-out – I particularly like the budget for extra-curricular activities in the future.

    • MaggieBanks

      Thanks Jenna! It definitely took some time to think through it all, and I’m sure we’re missing stuff, but we can only do the best we can!

  12. I love seeing housings costs decline dramatically when the mortgage is gone. Mortgages are our largest expenses at the moment. Yuck. Thanks for sharing your figures! It helps to have additional perspectives on the “what ifs” to include in a future budget. Once the big house is off the books, I think I’ll follow your example and write up a similar post.

    • MaggieBanks

      Oh man, I know! But it seems so far away seeing those costs drop! I want less costs NOW! I’m sure it’s a million times more frustrating for you! I hope this big house offer goes smoothly.

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