As I have mentioned before, every New Year I update my (our) net worth, decide how to allocate savings over the year, and also review the spending for the year.
This all gets done only around January 1, give or take a few days, which means that getting the final numbers is big deal here in the PiN household. It is how I track the progress we are making in growing our nest egg, and how I keep track of our yearly spending–which dictates how large a nest egg we will need to retire.
When I ran the numbers for 2020, I found some mixed results. I am still chewing over the numbers and what to do going forward. I hope by writing this out, I may help not only myself, but also others who are trying to figure out how to improve their financial situation.
The good
I’ll start with the good news: thanks mostly to the stock market, my net worth grew in 2020. A lot.
That was nice, and I will get back to that later.
The not so good
Many people were talking about how much less they were spending this year, due to some or all of the following:
- No travel.
- No dining out.
- No going out (to events, or parties).
- Spending less on commuting.
- Spending less on work clothes.
- Way fewer (or no) daycare/camp/after school activities for the kids.
In the PiN household, we eat out seldom (not reasons other than cost), don’t commute far, and have no children who require paid supervision. So I wasn’t sure about saving money here. On the other hand, we most certainly haven’t been traveling, and I expected us to save maybe a little money.
Instead, to my horror, our monthly expenditures increased about 25% this year. Ugh!!!
Looking more closely
After a surprise like this, it was time to look at the changes from last year, to see what drove that large increase in spending.
Some line items went up a little: the water bill, the electric bill, the outlay for my yoga lessons.
Some line items went down a little: our gym fees dropped in half, as they stopped billing in the months when our state mandated gym closures. (Conveniently, the savings here are just a little more than the increased costs of my yoga classes and trainer’s fees.)
Bigger changes include a huge drop in travel costs ($400), increased medical costs ($200), and accounting for property taxes, which had been hidden under the system of prior years ($600).
Then there are the variable categories, which seem to change every year, depending on how we pay for things. Some years Mr. PiN uses cash more often to pay for house hold items; those years we have more ATM withdrawals but fewer purchases with the credit card. Other years, like this year, the trend reverses: we had a large drop in ATM withdrawals, but a much (much) larger increase in grocery spending and “miscellaneous.”
Do we consider it money well spent?
Once I really stopped to consider the question, the answer is yes.
The extra money spent on water for showering after work laundering my scrubs was worth it for peace of mind. Even if the coronavirus doesn’t live long on cloth, it made both of us more comfortable with my going in to see patients.
Though I certainly didn’t want Mr. PiN to need surgery, I would happily pay more in extra medical costs if it kept him healthy.
Similarly, paying our local property taxes isn’t fun, but I think they are worth paying, since the alternative is losing our home.
We purchased a number of electronics (a tablet to allow me to provide telemedicine from home; a new phone to replace Mr. PiN’s 10-year-old iphone3) and some home appliances (a new fridge and a a window air conditioning unit come to mind). We really did need them: except for the air conditioner in winter, we use them all several times a week, if not daily. And since we had money saved for these purchases, I felt we were using the money as intended.
The biggest outlay of all was our grocery bill. At the time, some of the extra costs were thought through carefully: for a few months, we were supplying two other households (parents and child) with groceries. Some weeks we couldn’t find our regular items in stock, so Mr. PiN worked to stock up our pantry against future shortages. When local COVID case counts started rising, I spent more on having groceries delivered. These are all planned reasons behind our increased costs. Mr. PiN also states that prices are going up on the groceries we buy frequently.
What to do going forward
There are really 3 options to deal with this going forward.
One. We could decide to try to winch down our spending to that of prior years. That would ignore the fact that we do have to pay our local tax bills (unless we want to lose the house), and that sometimes we do need expensive things taken care of (I’m looking at the central AC unit here). I think there would be a whole lot of painful budget cuts needed just to make up for these two considerations.
Two. We could say, the heck with it. We thought through most of the spending increases, I make good money, and we were still able to put money aside for retirement and for other savings. There is nothing wrong with spending money you earn.
Three. We could find a middle ground. Yes, we were able to afford the increase in costs this year. No, we can’t just have our expenditures rise every year without consequences (see this post on outspending your income). Personally, I think addressing the grocery bills will be an important part of the process, though they may naturally fall now that we are supporting only one household, and our pantry is amply stocked.
The big picture
Let’s ignore the spending increase for a moment. It’s better for my nerves. Instead, let’s go back to the net worth update.
As I noted previously, the stock market treated us well in 2020. That’s something I can’t control.
We can, however, control our savings. Last year was our first year without a mortgage, which meant that we were able to get ahead on some our savings goals. Despite paying more for groceries, buying a tablet, a phone, and a fridge, at the end of the year I see the following savings goals hit:
- A six month emergency fund (amount increased to reflect our new monthly spending). Fully funded.
- A car fund (to pay for our next car in cash). Fully funded.
- House fund (to pay for home repairs and taxes). Fully funded.
- Vacation/travel fund (though who knows when we will be able to go away). Fully funded.
- 403(b) plan at work. Fully funded to the tax deductible limit.
- Investments. Plan for 2 backdoor Roth IRAs yearly plus reinvestment of dividends from our taxable account. Fully funded.
- A Piano fund. Partially funded this year, for the first time ever.
- An Addition fund (in case we try to make the house accessible for our old age, instead of selling and moving to an apartment/condo). Still empty.
If I can say the same thing next year, with maybe more money in the piano fund, then I think we are getting ahead nicely. Whether or not our yearly spending rises or falls.
If you read this far, you must find this stuff moderately interesting. Do you do something similar with your finances at the turn of the year? How did 2020 treat you financially?