Thursday, September 3, 2009

Where Did All the Money Go

I have been using quicken since about January 1st of this year. At first I was opposed to it and didn’t update it regularly, but now it’s become part of my routine. One of the features of Quicken is that you can track your spending by category. So today I sat down and took a look at where my money has gone over the last 8 months. Here is the breakdown by percentage:

1) Rent, Utilities, Cable, Internet, etc. 29.16%
2) Roth IRA 15.56%
3) Schwab Investment 11.95%
4) 401K 6%
5) Entertainment 4.92%
6) Vacation 4.88%
7) Health and Fitness 4.85%
8) Dining 3.66%
9) Groceries 3.39%
10) Household 3.09%
11) Charity 2.88%
12) Auto 2.63%

I am very pleased with my financial allocation right now. My number 1 cost is rent, utilities, internet, etc. The recommended rate is 30% max of your income for rent alone. Starting in July my rent actually decreased by a small margin so I expect this number to decline slightly over the next four months. My location is really convenient for work and participating in the activities I enjoy; therefore, I have no complaints paying what I do and am content with this allocation.

Items 2-4 are all the money I have currently saved not including a savings account where I currently have saved roughly one months salary. The savings plan isn’t factored in because it’s not considered an allocation of assets by quicken. I didn’t even realize I was saving this much. I am very pleased with the percentage of income I am stowing away. I have some big things coming up later in life such as marriage, children, etc. that I want to save for. Additionally, each dollar represents freedom to me. According to the Bureau of Economic Analysis the average person saves about 5% of their income. So I am well above average in that regard. That said I think I could create slightly more efficiency and add another percentage or two. Additionally, I’m expecting a promotion raise and possible (though very small) bonus which will go straight into savings.

Items five and six are entertainment and vacation at about 5% each. I try to spend money on experiences and really enjoy myself. Most of my vacation costs are buying the plane ticket as and preliminary gear for my Europe trip My next largest expense is Texas A&M season tickets which I wouldn’t trade for the world. Additionally, there are some costs for going to Dallas and Austin a couple of times. I am more than content with this number and 5% is right where I want to be.

Health and fitness is roughly 5% of my income. I take my health very seriously and want to continue to involve myself in activities that make me a healthier individual. Hovering around 5% is just where I would like to be with this cost. The cost is primarily related to cycling, rock climbing, and crossfit. I would be comfortable with this number increasing to as high as 10%. I really would never want to make cuts to save in this area.

Dining is definitely something I could curb. I have been fairly good about bringing my lunch to work, but some weeks I slack off (like this week). If I could I would like to lower my dining down to 2.5 or 3% of my expenses and replace it with more groceries and savings. I wouldn’t give up dinners with friends though because this has benefits that go beyond the meal to me. I believe a 1.5% decrease would only increase my groceries by about .5% or so.

Item 10 is some household costs I have including decorative items I purchased at the beginning of the year, cleaning supplies, laundry detergent etc. This number will continue to go down throughout the year as I don’t foresee any major additional costs.

Item 11 is charity and is the item that I most disappointed with and I expect to change the most. Charity includes tithing as well as donations I have made to causes supported by friends and family. I want this number to be 10% by the end of the year. I am currently doubling my giving rate to even out the discrepancy. If still have not reached my goal by year end then I plan on making a lump donation.

Item 12 is the final expense with my car costs. Ol Dixie (my 2000 CRV) serves me well and has been a great car for me. I have very little maintenance and most of these costs are gas related. I am extremely pleased with this number. This is an area where I will sacrifice for other areas. If I’m going to Australia in a year or two why do I need a new car anyway.

My net worth has increased approximately 128% in the last 9 months due to savings as well as some bonuses I received for work related accomplishments. I can’t complain about that. With the power of compounding my investments should grow substantially over the next 40 years. Getting in as much as you can early is the key to taking care of your future.

This is an example to me of how to prioritize the things that matter. I don’t want a fancy car so I am able to spend a little more in entertainment and dining. I’m able to do things that matter to me (sports, crossfit, rock climbing, Europe, etc.) and still save more than a third of my income. I highly recommend quicken as it allows you to chart your progress as you try and meet your savings goals. If you have any questions post them and I will answer them as best as I can.

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