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If you want to get to know someone, take a look at what they spend their money on. A quick peek at their expenses and their priorities become clear. Even better, turn this exercise back on yourself. There is nothing quite like taking a long hard look in the mirror.
But most of us never will. We will just keep on spending our way through life wondering why we can’t get ahead.
I could argue that tracking expenses should be at the bedrock of any sensible personal finance strategy. At the start, managing expenses is more important than investment choices, expense ratios, and to some extent, even salary. Personal finance is very much behavioral, and spending is the starting point of that behavior. Tracking expenses is just a way to measure it.
And what’s measured matters.
I have always recommended tracking expenses manually in Excel. Automation makes sense at some point, but there is something to be said about doing things manually in the beginning.
I have always dubbed our annual expenses as “a reasonable standard of living”. Frankly, it’s beyond reasonable. I personally think we live it up on about $50,000 per year. But where I see happiness and efficiency, others might see deprivation.
For Max, the value in reviewing these numbers has diminished over the years. That said, I am only providing this information because years ago I found having an online “compare group” beneficial as I firmed up my personal finance strategy. It helped me set baselines.
So, taking the time to download my credit card statement history and pivot it into a nice summary is my way of paying back to others who might be taking that first hard look in the mirror. Now, they might have someone to compare to.
So what’s the damage?
In 2020, the Max Out of Pocket crew spent $46,207. This is exactly $5,229 less than we spent in 2019.
Here is how things looked in 2019:
We dropped another $12,000 on housing in 2020. Plenty of people would tell me I am throwing my money away on rent, but I know it is not that simple. Thankfully, this expense has remained flat for 2018, 2019, and 2020. I am not projecting an increase for 2021 unless we move. We have been renting the same place in northern New England since we sold our house down in North Carolina.
This represents about 26% of our total 2020 expenses. I consider it money well spent since it is meeting one of our basic needs – shelter.
Food, Dining, and Groceries
Speaking of basic needs, food is up next.
In total, we spent $9,723 on food, dining, groceries, and a three-month college meal plan in 2020.
This group includes things like groceries, eating out, and alcohol. For the Max Out of Pocket crew, groceries consist of things beyond food items. Cleaners, paper goods, and personal care items land in our grocery line. A few specific examples are things like shampoo, dishwasher detergent, and toothpaste or toothpicks.
In 2020, Mrs. Max OOP spent 16 weeks studying abroad in Alberta, Canada. She lived right on campus so we dropped $1,885 (USD) on her meal plan which is included in the number above. This made things very convenient and she could focus on her studies and being pregnant.
Max was left to fend for himself. It’s amazing how much food you can buy in exchange for less than an hour of work.
We also somehow spent $1,350 at restaurants and coffee shops. This would include “carry out” after the pandemic hit. Although this total came in higher than expected, it was $1,400 less than in 2019. We probably spent more than $300 eating out at nice restaurants during our visits to Cape Cod over the summer.
One accomplishment from 2020 is we had three solid months where we did not eat out at all. I do not recall this ever happening since I started tracking this type of thing. April, May, and November we did not spend a dime at restaurants and coffee shops.
I also took over a month off drinking alcohol, so we spent $0.00 on the substance in October.
Utilities include things like electricity, oil, internet, cell phones, and our Netflix subscription. Yes, I still call Netflix a utility. I categorized this line as a “utility” years ago and just left it there mostly because it is incurred monthly.
In total, this category came in at $4,883.
Here is a side by side from the prior year. Most of the increase can be attributed to a new cell phone (Pixel) for Mrs. Max OOP. I continue to get nickel and dimed by our internet provider and I am not sure why I don’t just deal with that.
Auto & Transport
Mrs. Max OOP and I both drive aged-out Hondas (07′ Civic / 08′ Odyssey). Over the summer I was seriously considering upgrading one of our vehicles to a newer mid-sized SUV. I was even talking about it with friends and family, which usually is a tell-tale sign that Max is getting serious about something. However, with Mrs. Max OOP in Canada, making a new vehicle purchase really did not make much sense.
We only spent $2,128 in the auto & transportation category.
Almost half of that went to gasoline. I biked to work during the summer for over 6 weeks straight. Another $528 went to our auto insurance. I know some people who spend close to that each month on car insurance in my home state of Michigan.
2020 was a nice year for the “service and parts” category, coming in at only $388. Most of that came late in the year when I was forced to replace my rear brakes during a routine annual inspection. I didn’t include the cost of the Labatt Blue in the repair.
Lastly, we dropped another $250 on property taxes for the vehicles.
My other/miscellaneous category has everything else dumped in it. For 2020, this came in at $16,308. Just like last year, I feel like I have some explaining to do here.
Following an 80/20 rule, my goal is to quickly identify where 80% of this money went.
Here is $13,702, representing 84% of this category.
Mirror on the Wall
- $3,997 on our damn cats. This was mostly for therapeutic treatment for our cat Charlotte, followed by end-of-life care. She was a great cat, but 4k seems steep and represents almost 25% of this category. We will see a nice reduction to this in 2021.
- Mrs. Max OOP dropped $2,262 on tuition for 16 weeks of training on how to become a butcher. This was partially subsidized by the Canadian government because she is a Canadian citizen.
- We spent $1,394 on a two-week hotel stay in downtown Calgary, Alberta. This was during our initial quarantine to get set up for the program.
- I have $1,242 labeled “shoes and clothing”. This seems high again, but I have not drilled too deep into it.
- We spent $753 on a two-week rental car in Calgary, Alberta when moving Mrs. Max OOP out there. This was a bad purchase considering we were in quarantine most of the time, but we felt it was required to keep others safe considering the pandemic.
- Mrs. Max OOP bought a new computer with a touch screen for $702.
- $627 is labeled “gifts” – this includes gifts to family and other donations.
- Spent $550 on firewood. I could make the argument this is technically a utility, but we use it more as a luxury item since the fireplace is not the most efficient way to heat the house in our current setup.
- $536 on other hotels during travel to and from Alberta, including a “park and ride” hotel here in New England.
- $501 on air travel to and from Alberta for butcher training.
- $365 on my gym membership after two months were waived during the March/April shutdown. About $200 of this is now paid back by my employer through healthy benefits, but I consider that income and don’t reduce the expense.
- $191 for a new United States passport for Mrs. Max OOP. We paid for United States citizenship out of 2019’s spending.
- $162 on haircuts, mostly for me; Mrs. Max OOP cuts her own hair.
- I spent $151 on this blog.
- $133 golfing in the mountains.
- We spent $101 on our post office box.
- $35 renting a mountain bike.
So, here is where Max will show you his advanced blogging skills by busting out “gallery mode”. These photos represent discretionary spending at its finest, although Mrs. Max OOP will argue the expensive cat care was not discretionary.
Here is a giant Calgary avocado, meat camp, a $3,000 cat, golfing, and the Bow River. A nice look at 2020.
Since we consider Max Out of Pocket the intersection of healthcare and personal finance, I feel compelled to further break down our healthcare category this year. This section does not include our insurance premiums since my employer heavily subsidized those costs. I don’t think my portion of the premium cost represents much of anything. That said, we did cover my 2020 health insurance in detail earlier this year. It would cover 48.5% of our entire 2020 spending.
We spent $1,146 on healthcare in 2020. This was slightly higher than normal because Mrs. Max OOP is expecting! We paid cash for most of the obstetric services Mrs. Max OOP received during her studies in Canada.
Here is everything:
- $259 on dental work for me
- $231 for doctors’ visits in Alberta with Mrs. Max OOP’s OBGYN
- $83 for our first ultrasound on 9/18/2020
- $154 for a nuchal translucency ultrasound on 10/15/2020
- $108 for lab work in Canada on 10/15/2020
- $172 for a second-trimester ultrasound on 12/3/2020
- $82 for prenatal vitamins
- $46 for a telehealth call while in quarantine in Canada
- $13 for some throat lozenges
Considering we are expecting the baby in April, this year is projected to be an expensive healthcare year. I am sure other things will start hitting soon as well.
Passive Income & Government Tax Credits
I see a lot of other bloggers looking at how much of their “passive income” covers their regular living expenses. So, If I add up all our passive interest and dividend income from all sources including my non-liquid retirement accounts, I come up with about $18,398. This would include passive dividend income from my medical office building portfolio. It does not include capital gains or taxes.
$18,398 covers about 40% of the lifestyle above completely passively. For someone who considers himself a regular Joe Max, I find this pretty impressive.
$18,398 Passive Income / $46,207 Total Expenses = 39.8%
Additionally, our family qualified for both stimulus payments in 2020. In total, we received $3,600 from the federal government. That alone covered almost 8% of our 2020 spending.
At times, I have a hard time reconciling these government payments and think it’s odd that families like us are in receipt of these funds. For me, it is not as simple as “Oh you don’t like it? Just donate it to your favorite charity”. I suppose at the end of the day, it is a refundable tax credit that we qualify for.
Perhaps, I will touch more on that later.
Personal finance and budgeting are very much behavioral. It is one of the reasons I have a hard time providing personal finance advice to friends and family. By extension, I am weighing in on their spending behavior, and I don’t think that is any of my business.
But making the recommendation that someone should track their expenses? That seems like reasonable advice to me. I completed this early this year and it only took me a few hours. Ultimately, I still think it is worth the time.
Once again, the Max Out of Pocket crew lived it up on about $50,000. We do not have reason to spend anything less, but we could if we needed to. Our $100,000 opportunity fund could sustain this level of living for two years without lifting a finger. That’s a great feeling.
Arguably, most if not all of our $16,308 in “miscellaneous” expenses were completely discretionary. If we ever needed to tighten things up, we could. But I don’t expect that ever to be needed. If anything, I am looking to get more liberal with our spending as we move forward with life. We have already put the work in.
How much did you spend in 2020?
I too shake my head on the government payments being handed out so liberally. Because my future children will be paying it back, I figure I’ll take it and put it in their college 529 accounts.
Yes, seems like eventually, something will break here. That baby above is already in debt and his/her future productivity will be used to pay this back. I guess I will save it for now.
Very reasonable spending and It sounds like you could really live it up on $50k! We haven’t followed our spending as closely as you have, but I’ve noticed some expenses that may only be specific to us. We have term life insurance policies and also our own disability policies which cost over $5k per year. I haven’t seen many others mention these two expenses (probably doesn’t apply to them).
Like you, we rent. I consider housing a consumption expense, so whether it’s a mortgage or rent, it’s a large portion of our yearly spending. We’re fortunate enough to help my in-laws financially and include it in our spending.
All included, we are a bit north of your spending. I think retirement (someday) will simplify things for us and we may just be able to dip below the $50k level!
I should probably look into life insurance, all we have is 1-year salary payment from my employer if I ever get clipped. We can afford it, so maybe we should do the math and get something lined up now that we have this kid on the way!
50k seems to be our number. I know plenty of people who live on double that and even half that. Every year I look at one-time expenses (like the $3,000 cat) and say we will be lower next year, but something always comes up and it seems to average out.
I hear retirement does ultimately lower expenses. I think we are realizing some of that with the pandemic (i.e. commuting cost, etc.).
Good writeup. “Damn cats”!!!!!!
I love the transparency and thoughtfulness. I wish more would follow suit.
Happy New Year Max! Thanks for sharing your numbers. We own our house outright yet still spent over $11,000 in 2020 on it, including taxes, insurance, utilities, and maintenance. It feels like a burden to us at times, because we can’t just get up and leave it without selling it or figuring out how to rent it out. So I definitely wouldn’t consider renting a waste!
Happy New Year!
That’s great that you own that house outright but even better that you understand the true cost of homeownership! I do like the flexibility we have right now. I have been considering looking for a salary bump again, and that would require another move. It will be much easier for us without a house to worry about!
Great job guys!
I really liked your opening:
“If you want to get to know someone, take a look at what they spend their money on. A quick peek at their expenses and their priorities become clear. Even better, turn this exercise back on yourself. There is nothing quite like taking a long hard look in the mirror.”
Very solid point.
As to your expenses, seems like you’ve managed the pandemic well. Good work handling the rear brakes yourself—it’s surprisingly not too difficult considering the cost for a mechanic to do it, though anything brake-related is often intimidating for novices.
Sorry to hear about Charlotte.
Perhaps most importantly, congrats on that $154 expenditure! 😉 I hope you share more as that progresses!
Yes, I have never done drum brakes, but disc brakes have always been manageable.
I love the first line of the post! It’s so true. Thanks for sharing your detailed spending report, I always enjoy these kind of posts. It is interesting to see the entire year all at once. Looks like you were able to cut down in 2020. I am also renting at the moment. I agree it’s not as simple as people make it out to be. I think a mortgage is only really cheaper if you can get a lower payment than the rent payment. Most people overextend themselves with the payments, and then they fill the house with new furniture. Combine that with maintenance, property tax, and utilities, it usually causes people to avoid saving altogether. Thanks for sharing all the great photos!
Thank Graham. I keep thinking I will strop tracking spending at some point because I don’t get a much value from it as I once did, but I can’t seem to break the habit. It only takes me a few hours each year so I figure, why not!?
What market are you renting in? We are in a low-cost rural market at the moment.
Hey Max, I’m renting in the Toronto, Canada area, so it’s a fairly expensive market to rent or buy. My partner and I currently pay around $825 each. Before the pandemic, we needed to be close to work. I will wait to see how this plays out over the next few years. Then I might move out to a low-cost rural market as well.