The RootofGood household spends less than $2,000 per month on core living expenses! This number may seem amazingly low, and it is for a family of five. Before anyone thinks I’m starving my kids or have magical powers of cost avoidance, let me define “core expenses”.
Core expenses include all expenses that will continue into retirement. I have excluded some major expenses that most people bear at some point in their lives such as childcare, mortgage payments, and student loan payments. Ideally these expenses will end by the time one enters early retirement.
In our situation, our mortgage has about 3.5 years remaining and the interest rate is 1.99%. We aren’t in a hurry to pay off the mortgage while Mrs. RootofGood continues working, as it is a relatively small payment easily covered by her take home pay. It will be paid in full within 3.5 years at the current monthly payment. We can pay it off in full with liquid cash or investments on hand if we need to. For us, keeping the mortgage is merely an asset allocation choice.
Childcare costs are gone. I’m the childcare now that I’m retired! We will continue paying for summer camp for the kids (as long as they want to attend camp). I always called that an entertainment expense instead of childcare.
Student loan payments are now under $2,000 per year and will go away completely once Mrs. RootofGood retires. We participate in the Income Based Repayment plan for our student loans, and the payment amount is tied to your Adjusted Gross Income (AGI). Since I’m no longer employed, our AGI dropped and our payments were cut in half. When Mrs. RootofGood quits, the payments will be extremely tiny or zero.
RootofGood Household Expenses – 2010 to 2012
Here is a summary of the RootofGood household’s expenses for the years 2010, 2011, and 2012. There are year to year variations in individual categories, so I averaged out the spending over the three years to give a more accurate picture of our expenses. I used a spreadsheet to manually keep track of spending, and have recently switched to Personal Capital so I can automatically see all spending, income, and investments in one place.
I’m showing the average annual and average monthly spending in this chart:
Our total core expenses were $1,973 per month, or $23,694 per year. Personal expenses and housing (excluding mortgage) were more than half of our expenses at $702 and $455 per month, respectively. “Fun” expenses and auto expenses also took up a smaller, but still significant part of our budget at $319/month and $291/month.
The non-core expenses that I’m calling “temporary” expenses were almost equal to our core expenses at $23,704 per year. That figure does include additional mortgage principal payments during some years. The temporary expenses have already dropped significantly since child care is no longer needed, and student loan payments were cut in half upon my retirement. The mortgage will be gone in 3.5 years or sooner. Since these expenses will be gone soon, I separate them out from our core expenses. I don’t need to generate an income stream to permanently fund expenses that will go away in the short term.
Spending in Retirement
Financial experts often say you can expect to spend 80% of your pre-retirement income during retirement. The “80% rule of thumb” may work for a very select few, but it is nonsensical for so many reasons. Your taxes during retirement will go down and your work related costs will go to zero. Lunches out at work, commuting costs (gas, tolls, auto maintenance), parking, business attire, and unreimbursed professional fees will be greatly reduced or eliminated. In our case, childcare fees also went away. If you plan for it, mortgages can be paid off by the time you reach retirement.
In our situation, our core expenses that will continue indefinitely during retirement represent about half of our total expenses from the last 3 years. We will have additional expenses that add to our historical core expenses:
- Health insurance
- Dental insurance
- More vacations
- Increased kid-related expenses
- Eventual car replacements
- Large home repairs
To counter those additions to our expenses, we expect to lower expenses in some categories:
- No commute = less gas and tolls
- Possible reduction in lunch costs for the kids (if income is low enough)
- More free time = focusing on reducing expenses in more areas or spending less just for convenience
Here is a detailed explanation of our full retirement budget that is based on our historical budget outlined in this post.
Detailed RootofGood Household Budget
Here is a more detailed peek into our expenditures:
Some areas where we spend surprisingly little are dining out, home furnishings, and communications.
We cook at home for most meals, and are lucky to have inexpensive restaurants in our neighborhood or close by. The grocery budget is probably higher, but we can make high quality meals at home for less than the going price at restaurants, even if we used coupons while dining out.
The bulk of the home furnishings over the last 3 years was the purchase of a treadmill. Otherwise most of our “stuff” comes cheap or free from craigslist or family and friends getting rid of unwanted stuff. I suppose some could criticize our decor as dorm room chic, but it is comfortable and we don’t waste a lot of time on “stuff acquisition” (you might call it recreational shopping).
Our communications budget includes home phone, cell phones, and internet. Internet is the most expensive. Home phone was under $20/month when we paid for Vonage VOIP service. Now it is zero since we switched to Google Voice and Obihai (updated 12/23/2013: Google Voice is possibly planning to tweak their free services by May 15th, 2014 which may not allow using the Obihai device with free Google Voice. I’ll update as the date approaches and figure out a free or cheap workaround).
Cell expenses included Mrs. RootofGood’s T-Mobile phone that runs under a buck a month ($10/yr) after an initial year at $100 (hint: T-Mobile Gold Rewards plan). My cell was paid for by my employer, but no more! It runs around $22/month on Virgin Mobile, and in the next 2 months I’ll be deciding whether to reduce that expense or get rid of the phone altogether (the horrors!).
Overall, we spend relatively little for a family of five. It is the result of careful, intentional spending in areas that bring us the most value. The benefit of keeping expenses low is the ability to save more each year and bring about financial independence and retirement much sooner.
How much do you spend each month? Check out Personal Capital if you have no idea!
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Wow, you’ve been prolific lately! I haven’t even had time to read all your awesome stuff.
Your perspective and budget are VERY similar to ours. I wrote a piece once noting how many people I knew whose “core” (non-mortgage) expenses were around the magical $2,000. The only things keeping them slaving away were their mortgages and the mindless spending.
Once I stopped working I also was very amazed how much I saved by not working. There are tons of hidden expenses there!
Our decision to make our starter home our permanent home was a pretty wise one in hindsight. We still spend $5500 per year (or about 25%) of our core budget on house related ongoing expenses like utilities, taxes, insurance, and maintenance.
If we had decided to move to a “reasonable” (given our income levels) larger house in a nicer neighborhood, we would probably be paying double or triple that $5500 per year.
I’m looking forward to the work related expenses going away. I was lucky to have a very short ~4 mile commute and $10 parking. I rarely dined out at lunch, and wore business casual from Target/Walmart. Childcare is probably the biggest cost avoided for me so far.
When Mrs. RootofGood calls it quits and eliminates her 50 mile round trip commute and the tolls on her route, we will see a big savings – we can probably cut the $3500 per year auto expense in half. Possibly even go to 1 car since so much here is walkable.
Our “core” expense is less than $2,000/month as well. Our mortgage is going to take another 10 years to pay off though.
$2000 seems to be the magic number. I’m pretty lucky to live in a relatively low cost area where decent houses are still under $200,000. Makes paying the mortgage off quickly a lot easier!
Our overall expenses are around $100-1500/month (we don’t live in the US, so for our country it’s actually pretty steep). We do cover here everything: groceries, car fuel/insurance, clothing, business expenses/taxes, health expenses, savings etc. We’re debt free, so nothing in this area, and we’re also cooking at home and being frugal in some aspects.
You have a pretty well thought budget, especially for a bigger family. Well done.
Sorry .. make that 1000-1500/month.
At first I was like “Wow, $100 some months?!?!”. I’m still wowed at $1000 some months. Good job! That would be pretty hard for us and require downsizing our house and making sacrifices all around.
I have looked at overseas living, but the cost savings might be washed out for us if we made a trip or two back stateside each year (with 5 plane tickets per trip).
In my country the ‘regular’ wages are around $300-600, so we’re earning more and also spending more. Plane tickets from here are not as expensive as the round trip from the US here. We paid 1200-1300 for our return tickets (Budapest – NYC – 2 tickets) 3 years in a row. Sure, you need to avoid the ‘season’ since the prices increase more.
Sounds pretty ideal – make decent money for the US and have low living expenses overseas. FYI, I sent you an email about overseas living a day or two ago. Just wanted to check and see if you spam filter caught it or you received it.
its amazing that you can live so cheaply
Our household expenses run to $1600 without buying food! or paying off any card debts etc.
Add all that in and its nearly $3,000
We spend quite a bit more that that; around $4,500 per month. We still manage to put quite a bit to the side (save/invest) and some of this is mortgage.
Your expenses are super low….Go, you!
We’re still paying for daycare and I cannot wait until that expense is gone (But I don’t want my kids to grow up!!!!)
Daycare is tough. We were lucky to have a grandma nearby to help out at below market rates. And it is comforting knowing family is watching your kids too. Just think, once the daycare expense goes away, you’ll free up a stream of money that can be put towards saving, investing, or (dare I say it?) spending!
Family of 4 – core expenses (not included luxuries, travel, or sports costs for the kids) are $3,000/month. My health costs are about double yours, interesting since I have almost full family coverage at my job. But the area of most frustration is groceries. Most months we’ve been spending about $1000 on groceries not included eating out our household purchases. This month we’re working as a family to “just” spend $800. Readers, what are you feeding your families?!
Our healthcare costs even include most of the expense of having a baby (still about $700 left on that bill)! The year the baby was born we did opt for the slightly more expensive platinum plated diamond health insurance with $0 deductible. Baby was still around $3000-ish all in I recall. So of the $1400/yr in med/dental, close to $1000/yr of that was for Mr. RootofGood Jr.
For food, we eat like royalty (on the cheap).
For example, in the freezer right now:
Chili Verde – a green pork chili with braised pork loin, tomatillos, poblano peppers, and beans (among other things)
What I call Argentinian Pasta Sauce (we had something similar while there) – Stewed pork loin, carrots, onions, and sausage in a tomato based sauce
Masaman curry dish (potatoes, pork, carrots, celery, onions, peas and a little coconut milk)
Guacamole – made fresh from avocados on sale at $0.50. Frozen in ice cube size portions so I can defrost 1-2 for a solo meal
Roasted chili pepper and garlic salsa – ice cube sized portions for single servings
tons of meat bought on sale or clearance – ground beef and pork, sausages, chicken thighs, breasts, london broil, pork chops, ribs, pork loin
Taco meat and Empanada/tamale filling – I usually keep 2-3 kinds of taco meat frozen so I can nuke a chunk and make quick tacos. Or if I want to make empanadas or tamales, I have the beef and the pork fillings already made (they also double as taco meat).
Marinated pork strips (raw) – thaw out, toss in oven at 475, pop rice in rice cooker – voila instameal
Soup – scrap turkey bones and ham bones with a little meat, drip poached egg, and a bunch of vegs (mirepoix)
5-6 small bags (~0.75 lb) of pre-sliced “stir-fry” meat – chicken and pork. Frozen flat so it can thaw quickly or I can dump the whole frozen slab into a quick soup, curry or pasta sauce
In the fridge (all homemade):
marinated pork ribs
stir fry
white/brown mixed rice
pad thai
fresh home grown watermelon
store bought fresh pineapple
None of these are really that expensive to make. Definitely cheaper than take out or buying prepared foods.
My $519/month is probably closer to $400-425 for actual groceries, and the other ~$100 is for paper products, cleaning supplies, soap/shampoo, toiletries, medicine, etc. It just all gets lumped in to “Groceries/Household” in my expense tracking. And I can put a serious dent in some food, so we aren’t eating like little birdies!
Thanks for your reply! Clearly, I need to do more bulk cooking, always a challenge for a Soccer Mom who works fulltime. A follow-up question: Do you have a separate freezer or can you squeeze all those meals in your ‘fridge’s freezer?
All of that fits in my regular freezer (on top of my fridge). Freezer compartment is 5 cu ft I believe. Nothing huge. I figure a deep freezer would lead to wasted freezerburnt food, so I have foregone the deep freezer.
Oh my god so much meat!
Well, I m a vegetarian and I think everyone can eat as he or she likes, but I would really love it if everyone just ate vegetarian one day every week. That would be great.
That said, I live in Europe, we are a family of four (I m the only vegetarian around here) and we spend around 1600 euro’s every month. This includes 600 euro mortgage for our house, food, clothes, insurance, health, car, phone, school costs…everything except travel.
I think we do pretty well. I hope to be able to quit my parttime job and retire early in a few years time.
Great blog, keep up the good work
Those expenses aren’t bad! About what we spend without the mortgage (which would be probably 600 USD at today’s rates).
We eat meat with most lunches and dinners, but not always a lot. Veggies and grains make frequent appearances.
And meat here in the US is incredibly inexpensive compared to some places in the world. I rarely pay more than $2/lb (3.40 euros per kg) for lean boneless pork or chicken and $3/lb (5 euros per kg) for lean beef or ground (minced) beef. And no more than $1/pound (1.7 euros per kg) for bone in pork or chicken. Fresh vegetables aren’t a lot cheaper sometimes!
Shopping smart for groceries is way cheaper than eating at restaurants all the time.
Good luck on your retirement!
Excellent information, please add me to your future posts.
Hey John. I subscribed you to my email distribution list. You may get an email that asks you to confirm you want to subscribe. Anyone else who wants to make sure they get new posts can subscribe on the right hand side of the page. I don’t spam – only new posts from Root of Good!
One comment about your housing expenses: If your current mortgage rolls in homeowner’s insurance and real estate taxes, then those will be core expenses once you pay your mortgage off.
I don’t see taxes and insurance in your core, which I’m guessing run you about $300 per month.
Our mortgage is just the mortgage – we pay taxes and insurance in a lump sum once per year straight to the county and insurance company. Taxes and insurance are included in the second line on the second chart in this article. $1973 per year. We definitely included those in our recurring expenses that we carried into our full retirement budget.
I have a question about the student loan payments you mentioned. You stated that when you retired, payments cut in half because of income based requirements. When the Mrs. retires, they will drop again because of the drop of income, again.
My question is this- when she retires, are y’all paying those loans off in full, or are you going to just make next to nothing payments that will never actually pay off the debt y’all took out?
What we repay is really based on our incomes. Under the “worst case” scenario of the stock market not doing well, our incomes won’t be very high and the loan payments will be small most years while our kids are in the house. When the kids are no longer dependents (for tax purposes), the student loan repayment formula means our payments go up a lot. That’s okay – like you suggest, we owe the debt and have no problem repaying per the terms of the program.
Under another more rosy scenario, our investments do really well, generate lots of income, and we make a little money on the side from hobbies. Our loan payments go up even more. That’s okay too, because the increase in our incomes will way more than offset any increases in student loan payments.
Will we ever repay the debt in full? It really depends on our incomes. I’m pretty sure on the low side what our incomes will be, but not very sure how high our incomes might potentially be decades from now. But for reference, even when we were working full-time making a combined $150,000 per year, the federal income based repayment formula kept payments so low that we never would have repaid the loans in full.
As it stands right now, any amounts left on the loan at the end of our 25 year repayment period will be forgiven. But any amounts forgiven will be treated as income. We might owe thousands or tens of thousands in additional tax if the amount forgiven is large!
To summarize, the government will get back some or all of what we borrowed, but it really depends on our incomes.
I realize the student loan system seems unfair in the sense that they give you money and they don’t expect you to repay it in full unless you make a really high income. But that’s the system we have today to fund higher education. Over some of our working years, we certainly paid ample taxes to fund this system. And later in life, if our investments do well, we might once again pay a lot of taxes.
Nicely done! May I suggest more detailed tracking in groceries. My suggested categories would be — real food, alcohol, beverages, paper, house cleaners, personal care his/hers, pet food.
I thought about it but it’s a lot of hassle to separate a receipt. I try to keep my expense tracking simple enough so that I stick with it. I did track all of our grocery expenses for a whole month in great detail, and I figure I might do that occasionally to keep an eye on the grocery break out. About 80% of “groceries” is food or alcohol, and the other 20% household products.
Just started reading your blog….i really enjoy it!
Hope to be in 1 million Net Worth in few years….Definitely gave me more motivations reaching our goal!!!
Good luck! Even if you don’t hit your goal, you won’t regret saving the hundreds of thousands that you will have if you save diligently.
You mentioned reduction in lunch cost for kids if income is low enough. Was your income low enough and if so how do they handle investment income? Do they just count your investment capital gains/dividends as income?
Yes, our income was below the $55000/yr or whatever threshold they use for reduced price meals. They count income from all sources (W2, 1099/self employment, investment income, etc).
Fellow engineer here in Charleston, SC and new to your blog, but I like it a lot so far!! Question is why you consider your mortgage as temporary and not core? If you have already answered this, my apologies but was just curious. Thanks!!
In my case, I knew I would pay off the mortgage very soon! I did in fact pay it off not long after the article was written. But in general you can just carve out the mortgage payment (principal and interest, not the taxes, insurance, HOA etc if escrow is included in your mortgage pmnt) from your regular spending. Then add a lump sum to what you need to save up to cover the remaining mortgage debt (plus a bit to cover interest too if you plan on carrying it long term and want to be very safe).