December 2014 Financial Update
We closed out the year with a financially busy month. With income exceeding $17,000 in December, we way more than covered our abnormally large expenses of about $10,000. We finished the year on a strong financial note and wrapped up a major home renovation project during the month. And booked another Caribbean cruise.
As expected, our investments paid out massive dividends in December. Many of the mutual funds and ETF’s we own pay dividends once per year in December, so we always receive a lot of investment income in December. At $13,807 for December, investment income made up the majority of our total income for the month. For all of 2014, we received $29,383 in dividends, which is up significantly from the $22,300 of dividend income during 2013.
Blog income, shown as “other income” in the chart, was up significantly compared to November at $1,587. Freelance writing (“consulting” income in the chart) was $125. I expect to make around $600-800 over the long term from blogging and freelance writing, and December was well above my expectation. That’s partly because I received two months worth of advertising revenue from an affiliate advertiser (Personal Capital). If you are a blogger and want to add Personal Capital to your affiliate advertising, they are offering a direct relationship now (click here to sign up!). Visitor stats at Root of Good have been solid throughout the normally slow Christmas season, so I expect January blog revenue to be above average.
The $30 in “restaurant income” represents the Small Business Saturday American Express promotion. Each year, Amex offers some cash back on the Saturday in November after Black Friday. This year’s offer was $10 back if you spend $10 or more at a local business (up to three times). Thanks for $30 of free food at our neighborhood Chinese restaurant, Amex!
Although not shown in the income chart, I earned $400 from Craigslist sales in December on top of the $80 earned in November. I tracked my time to determine whether putting things on Craigslist is an efficient use of time or whether I should just toss stuff out or put it on the curb for free. Right now I have invested 14 hours into photographing, researching prices, and listing around 25 different items, plus emailing or talking on the phone with a number of buyers. That $480 equates to an hourly earning rate of $34 (tax free)! So far this experiment has worked out well. We got rid of two queen mattresses, a queen and a king box spring, four tables, a fondue pot, a baby crib, a baby mattress with sheet sets, two portable baby cribs, a telescope, five “laptop” bags (the dude that bought those has a serious computer hoarding problem), and a decorative wreath.
If you’re local to Raleigh, NC and want crappy old luggage, a broken 16″ bike, or a large painting of Angkor Wat (only $40 now!), get in touch with me and let’s make a deal.
If you’re interested in tracking your income and expenses like I do, then check out Personal Capital (it’s free!). All of our savings and spending accounts (including checking, money market, and five credit cards) are all linked and updated in real time through Personal Capital. We have accounts all over the place, and Personal Capital makes it really easy to check on everything at one time.
Personal Capital is also a solid tool for investment management. Keeping track of our entire investment portfolio takes two clicks. If you haven’t signed up for the free Personal Capital service, check it out today (review here).
Now let’s look at December expenses:
We spent over $10,000 in December, which is way more than our budgeted $2,667 monthly spending. That’s a shockingly large number to me. However, there are many families in higher cost of living areas of the United States that routinely spend $10,000 or more every month. I can’t say any of them will be retiring early but some probably will as long as their incomes are huge.
The abnormally large month of spending is really due to four areas where we experienced “lumpy” expenses: home maintenance, travel, groceries, and electronics.
The largest lumpy expense was the exterior renovation project on our house. We spent around $7,000 in December for new windows, new siding, and a major roof repair. Add that to the $1,682 renovation expense from November and we spent about $8,700 total on this project.
The project was very expensive relative to our normal $32,000 per year budget, but fairly modest in the grand scheme of home ownership. Since we budget an average of $1,500 per year for major home-related capital improvements, the cost of new siding and windows represents about six years’ budget for major home improvements (on top of ordinary repair and maintenance expenses). I can’t imagine spending big bucks in the next six years for much of anything, and most likely if we do have any lumpy expenses it will be an appliance replacement ($300-600) or major HVAC work (the current HVAC unit is 11 years old).
The second lumpy expense in December was $1,134 for a five day cruise to the Bahamas for our family. We spent a little extra and reserved two cabins for the five of us over the MLK weekend so that the kids only miss two days of school. We booked a last minute special rate and will be driving to Jacksonville, Florida next week to catch the boat. We’ll have another $500 in cruise-related expenses in January to cover on-board gratuities, gas for the drive down, and parking. I don’t know whether to count the $1,134 as a 2014 or 2015 vacation expense, but I’m sticking it in the December 2014 expense report for now.
The third lumpy expense for last month was our grocery spending. At $899 for the month, it looks like we have almost doubled our normal average grocery bill. We actually spent $200 to refill the kids’ online lunch money account for the next 2.5 months of school. We also spent $300 on Visa gift cards at the grocery store to qualify for a promotional $30 of free groceries. Most of that $300 will be spent at Aldi on groceries in January and February and will make our January and February grocery spending lower than normal. So our core grocery expenses were closer to $400-450 for December alone.
The last big lumpy expense was my totally sweet new computer that I’m using right now to compose this blog post. I’m a big Dell fan, and decided on this Dell 660 desktop computer with a 1 TB hard drive, 8 GB RAM, and the latest 4th generation Intel Core i3 processor. Even though the on board graphics can handle most daily tasks, I decided to upgrade to a dedicated graphics card (in case I want to play some games, or edit graphics or videos, or play games). The dedicated graphics card also permits dual monitors which is pretty great if you spend much time on a computer.
Graphics card technology has advanced to the point that you can buy a powerful graphics card for about $100 (like the EVGA GeForce GTX 750 Superclocked that I bought) that runs off of the stock power supply in a mass market budget PC like my Dell. I just popped the graphics card into the PCI-E slot and it works. All together, my computer build was $418 before receiving a $25 rebate on the graphics card. Yes, it’s now possible to build a decent gaming or graphics budget PC for under $400. Maybe now I’ll finally get around to doing some Root of Good videos on Youtube.
We spent a bit more than normal at restaurants, however almost $100 of that spending was on gift cards and a Groupon for a neighborhood pizza restaurant. That amount of money should keep us fully pizza-ed well into 2015. They had a deal where you buy a $25 gift card and get a free large 1 topping carry out pizza. I bought 3 gift cards. Since we get pizza from this place all the time, we will basically get three free large pizzas for spending money we already spend. I’m a sucker for promotions, as long as it doesn’t lead to additional spending that I wouldn’t otherwise have.
Other spending included some dental care ($90) and $62 for spark plugs, wires, and a distributor cap for my wonderful 2000 Honda Civic. A friend helped me change the plugs which turned out to be a very straight forward maintenance task that I usually take care of at the auto shop. My little 1.6 liter green machine is about to bust through 100,000 miles so I have to baby it a bit if I want it to run for the next 15 years.
Total Spending for 2014
We budgeted $32,000 per year for retirement while we spent a total of $34,352 in 2014. Although we blew the budget by almost $2,500 for the year, we also took care of $8,700 of major home repairs during the year and managed to come in under budget in most categories. Our totally discretionary vacation spending was slightly over the $5,300 we planned to spend and included around five weeks of travel. If our portfolio ever takes a big hit in the markets, we can always postpone a major home renovation or cut back on vacation spending temporarily. Overall I think we did a good job during 2014 of prudently managing our expenses without going into extreme frugality mode.
We’ll plan on spending more in 2015. If we give ourselves an inflationary raise of roughly 1.3% (the November 2013 to November 2014 inflation rate), then we can spend $32,416 in 2015. I’m looking at some variable spending models that suggest we can spend way more than that in good times and still spend close to $32,000 per year in bad times, so we might raise the 2015 budget even higher. Whether we spend the full amount we budget is another story.
Looking ahead to January, property taxes ($1,550) and auto insurance ($300) are due early in the month. That plus whatever extra we spend on the cruise later in the month means we’ll probably have a slightly above average month of spending in January. However, February through May are relatively devoid of any big lumpy expenses, so we will probably be running under budget for most of the first half of the year. I mentioned a few crazy things we might do this summer in an earlier post, like big, long, and possibly expensive vacations in the US or abroad. Or maybe we’ll downshift and enjoy some quiet and relatively inexpensive times in and around Raleigh during the summer.
Net Worth: $1,437,000 (-$14,000)
December’s slight (if you want to call losing $14,000 slight) drop in net worth is mostly due to spending $10,000 during the month. In reality, the $8,700 we spent on home renovations probably increased our house value by $5,000 to $10,000, but I haven’t reflected any increase in the net worth tally. Valuing a house is fickle, and I like to stay conservative on the estimate. So maybe our net worth didn’t drop much after all.
I took a look at my 11 tips to finish the year strong, and decided to contribute $10,000 to my solo 401k to offset most income earned from Root of Good and freelance writing. I still plan to put in the maximum contributions to our IRAs ($5,500 each) before April 15, 2015.
A while ago I described how we earned $150,000 yet paid only $150 in federal income taxes. The solo 401k and IRA contributions are continued efforts to dodge the tax man even as our earned income dwindles. We also want to keep our 2014 AGI relatively low (around $40,000) to keep our ACA health insurance subsidies very high once we get on an Exchange plan later in 2015.
As for the stock market in 2014, I’m feeling good overall. Our heavy international allocation meant our performance was much worse than the US equities sector. But a lot of the differential performance in the international sector was due to foreign exchange fluctuations which can (and will) swing back and forth in the future. Our dividend payments remained strong in 2014, and we managed to stick to our investment plan in the face of a wavering stock market during October. That’s a good year in my book.
How did you close out 2014? Any big changes coming up in 2015?