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:
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 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: 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
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:
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?