Friday, January 22, 2010

Seven Years of Earning and Spending

In the comments on my December 2009 net worth post, someone asked about the change in my net worth since 2003 and whether I'd gotten a higher paying job or had changed any of my spending habits to enable my net worth to grow as it did. It prompted me to tackle a project I'd been thinking about for a while: a long-term analysis of my income vs. expenses.

2003 is the first year for which I have full data in Quicken so I looked at that seven year window, and the results were quite interesting! First, let's just look at after-tax income vs. expenses (click on image for larger view):

I thought it would be easiest to take taxes totally out of the picture, so my income is net after all those deductions, and the taxes paid are also taken out of my expenses. (I also backed out my tax refunds from the previous year's taxes paid.) Income includes salary, bonus, gifts received and interest earned on bank accounts. It does not include dividends and investment gains as those are reinvested into my investment accounts.
As the graph shows, my income has been gradually increasing, and my expenses have been much more flat, and tending to increase in proportion to my income-- just what I wanted to see!

So what made up my expenses? First of all, let me explain the category definitions here, as I've grouped things slightly differently than in previous expense breakdowns.

  • Household: mostly laundry and drycleaning but also includes some minor decorative stuff like curtains (not new furniture, as noted below)
  • Education and Information: this is a new one, which I thought made a good catch-all for newspapers, magazines, books, music, French lessons, internet access and other miscellaneous entertainment. (I actually meant to name the category "Entertainment and Information")
  • Travel and Vacation includes commuting, family visits and trips for fun.
  • Food & Liquor includes restaurant meals, take-out, and groceries for home cooking
  • Miscellaneous includes haircuts and other random "stuff" like art supplies and electronic gadgetry, etc.
  • Housing includes mortgage payments (to interest and principal), condo charges, property taxes, homeowner's insurance, and gas and electric bills
  • The rest are pretty self-explanatory.
In the chart below, I'm including taxes again just to get the full picture, though again the refunds have been backed out of the previous year's taxes paid. The next largest expense is housing.

I then did another chart of the expenses without housing or taxes, so you could get a larger view of all the types of expenses that are more variable and controllable. Here, I tried to order the different expense categories so that the bottom of each bar is the stuff that stayed really steady from year to year, with the things that changed the most on the top. It's amazing how consistent some things are!

A few things to note:
  • My pay is part salary, part bonus. I got an unusually large bonus in 2004 that slightly skews the always-up trend of my income.
  • I started this blog in 2005 and my expenses went down noticeably that year: did the self-scrutiny make me more frugal? Probably!
  • I moved at the end of 2006 so I've had higher housing costs since then. For the purposes of this exercise, I did not include some large one-time expenses relating to my condo purchase and moving (like closing costs, moving & storage charges, and new furniture, all totaling almost $30,000 over 2 years) but I did include minor stuff like hardware store items and lots of cleaning supplies under "Household"
  • I bought a new laptop in 2008, which is why miscellaneous expenses spiked.
  • My "Gifts Given" expenses were high in some years because I bought my mother plane tickets at a point when she was separated from my father and having a hard time making ends meet.
  • I took a big vacation in 2008, and another significant trip in 2004. My travel budget was also affected by the end of an international long-distance relationship in 2007.
  • In 2008 I started spending more and more time with a new, local sweetie. We tend to alternate paying for things kind of haphazardly, which has blurred the line between grocery and restaurant expenses and some household stuff, even though we don't live together.
  • My medical expenses have increased gradually over the 7 years, mainly due to higher health insurance costs for what's not covered by my employer.
But here's the best part: the bottom line. That differential between income and expenses is all savings that went into my 401k and other savings and investments accounts (and this time I DID include all the the one-time condo purchase expenses, including about $75,000 that went into home equity, so I still "have" some of that money in a different way).
It's great to be able to say that I saved more in 2009 than I ever have before:

2003 $27,558
2004 $34,664
2005 $5,210
2006 $-13,429
2007 $29,699
2008 $35,559
2009 $43,214

I'm sure I'll keep staring at all this data and digging into individual years and categories to see more detail-- it is weirdly fascinating! The whole thing was fun to pull together and I highly recommend that you try it for yourself!


Crystal said...

Impressive! I only have our data for the last 3 years and not in this much rock!

MtnMama said...

I'm impressed by your discipline and yet oddly relieved to see that your income isn't crazily higher than I could ever hope to achieve... It gives me hope.

Elizabeth said...

Fascinating and inspiring. I'm about a decade behind you, and I love being able to see such a concrete, detailed picture of where I could be in a few years as long as I up my frugal habits. It's also nice to see I'm not nuts for saving 40-50% of what I earn while maintaining a nice lifestyle!

Ruthanna said...

Very interesting! I wish I had all that data to draw conclusions with, I'm sure I'd be horrified at my own spending.

I notice that you are not much of a 'charitable giver' in terms of dollars. Do you volunteer or something to offset that? Givers are happier and it exercises a muscle within.

Thanks for a great blog.

frugal zeitgeist said...

Excellent analysis - thank you for sharing it!

Anonymous said...

Wow-Nice summary. I wish I could be that detailed, but I'll leave that up to you.


mOOm said...

I'm supposing that the answer to the reader's question is that you were in net debt at some point not long before you started posting net worth. So your initial net worth posted was low but grew rapidly. I suppose they are wondering how come your net worth grew so fast but was so low at the beginning and that's why they asked if you got a higher paid job.

Anonymous said...

Nice job detailing every category with colors. You really have all your finances under control which is very inspiring to know.

Anonymous said...

I calculate your average annual return rate to be 6.475%, based on a starting point of 135000 for seven years, and adding each of your cash savings in your last table on June 30 of that year. By comparison the S&P 500 ARR was 3.86%, plus 1.8% dividend yield for 5.66% average annual returns. So you beat the S&P by almost a full point per year. Nice job!

alster said...

Excellent analysis,nice review. - thanks. sports picks

Mike said...

Excellent post

"In 2008 I started spending more and more time with a new, local sweetie. We tend to alternate paying for things kind of haphazardly"

Dating is someone is really expensive. I can totally relate. Now, only if I can convince my half to alternate paying with me. You've inspired me. Haha.

Madame X said...

@ moom-- nope, I did not start with any debt. I have been debt free (except for a mortgage) since paying off my student loans in 1997. In the earlier years I just wasn't making much money and couldn't save a lot. I wish I had kept better records back then to track my net worth further back.

@ruthanna, I do also donate the net proceeds of this blog, which has gotten up to over $1000 a year. I've been in the habit of just keeping it separate and not reporting it in detail here because it violated the Adsense terms to reveal earnings. But I'm also not at a point in my life where I'm ready to donate a huge percentage to charity. I do give to causes I care about and always support friends who ask for donations, but I think I'll end up donating more later in life, or even in my will. I'm conscious of wanting charitable giving to be part of my budget because I think it's the right thing to do, but I don't think there's any "right" amount that has to be given.

@anon 8:17-- thanks for that calculation, you just saved me the trouble!

Paragon2Pieces said...

this is very inspiring! thanks for sharing.

Single Guy Money said...

Wow - saving over $43k in one year, that's awesome!!

free consumer debt counseling services said...

Thanks for sharing your 7-year record of expenses and income. This helps analyze your earnings and how you can improve your income.

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Online Degrees said...

Excellent analysis - thank you for sharing it!

Anonymous said...

think it is a very good thing. I am trying to make same kind of work because it is very helpful for the budget!
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Ruthanna said...

Madame X-
Thanks for the response. I felt like an ass for asking and I was pleased that you took the time to answer. I'll check this blog more often knowing that you donate all the proceeds! :)

Tiffany said...

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Eero said...

I love this post! Your graphs are downright SEXY! I am a very accurate record keeper, as well, and have just started playing with Quicken, so your representations of what that program can do are inspiring.

Rachel Cotterill said...

Very interesting. I spent about six months keeping a record of almost every penny spent, and it was a fascinating exercise. I wouldn't have the dedication to keep it up for years.

Dave ( said...

Wow...I love the eye candy that your bar graphs provide. It was very interesting to see the income increasing at a steady pace while expenses fluctuating throughout the 7 years. Makes me want to pick up a copy of Quicken =]

Custom Essay said...

I'm impressed by your discipline and yet oddly relieved to see that your income isn't crazily higher than I could ever hope to achieve... It gives me hope.

Anonymous said...

Nice job. The y axis of the expense charts are not to scale.

Joey Gray said...

Nice data! I am glad that you know how to manage your finances well.:)