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!
Root of Good Recommends:
- Personal Capital* - It's the best FREE way to track your spending, income, and entire investment portfolio all in one place. Did I mention it's FREE?
- Free Travel* - We score $10,000 worth of free travel every year from credit card sign up bonuses. Get your free travel, too.
- Save more on travel with Airbnb and take $40 off your first stay*. We usually get apartments with 2-3 bedrooms plus a kitchen and living room for less than the price of 1 hotel room. Save even more with weekly and monthly discounts.
- Use a shopping portal like Ebates* and save more on everything you buy online. Get a $10 bonus* when you sign up now.
- Google Fi* - Use the link and save $20 on unlimited calls and texts for US cell service plus 200+ countries of free international coverage. Only $20 per month plus $10 per GB data.