It's the first day of 2018. A great chance to start a new year with a clean slate. The best way I know how is to budget all of our spending for the year.
Let's walk step by step through how this is done.
First, go check out the post on how to spend intentionally (#16). It is incredibly important when budgeting to know what you want to spend on, and what you don't want to spend on.
1. Housing (mortgage, property tax, maintenance, utilities/gas/water/waste, insurance)
2018: $28,000 (+19%, +$4,500)
The easy ones are the mortgage, property tax, and insurance since these are generally all fixed costs throughout the year. 2018 is going to be more expensive since our new mortgage is $240 more every two weeks. Our property tax is also $1,000 more per year with the house than the condo. But that's the cost of gaining 3 times as much space plus a yard.
Leaving condo life, we no longer have a fixed monthly maintenance fee. Being homeowners we now have to manage each maintenance service individually.
Our gas bill has 2 fixed components, the hot water tank rental ($20/month) and the delivery charge ($20/month). In the summer our gas consumption will likely be lower since we probably won't be running the furnace at all, and the amount of hot water we use will likely drop too. Given we spend $100 on gas consumption above the fixed costs, I estimated $50/month on gas consumption throughout the year (i.e. $90/month).
Our utility bill will likely be similar to the condo as we have been tracking to about $70/month.
After downgrading to the small garbage bin, our waste management is only $28 a year.
Finally, there is water. In the condo, we paid a fixed price every year on the water with our property tax, but now our water is metered and charged every two months. We haven't lived here long enough to get an actual water usage bill, so estimated $55 a month based on some statistics we Googled.
Time will tell if this is reasonable.
2018: $11,600 (+3%, +$350)
Ontario minimum wage is getting a big lift in 2018 from $11.60/hr to $14/hr (+21%). It's hard to tell what the impact on our food cost will be, but it's prudent to expect our cost of food to rise a little bit.
Food is important not only to live but for us, eating out is a major component of our entertainment. We often have sushi cravings. Some call it a problem, we call it a lifestyle.
We break food down into 7 categories:
Grocery - 2017: $4,000
A small increase given the minimum wage increase despite the fact that we have actually decreased our grocery spend by 4% each year over the last 5 years. Check out blog post #93 for tips on how to save at the grocery store. $4,100 gives us nearly $80 a week for food.
We are also considering cutting our meat consumption in half to lower our environmental footprint. If we are successful our food bill will drop as well since meat is our largest component of food cost.
Fast food - 2017 = $425
We want to eat less fast food in 2018. Cutting the budget to $15 every two weeks should keep us in a healthier constraint.
Regular restaurants - 2017 = $4,300
Eating out at regular restaurants typically cost us $18.50 per person based on our consumption in 2017. This budget allows us to eat out 10 times per month together. Some weeks we can eat out twice, others we can eat out three times.
High-end restaurants - 2017 = $1,235
High-end restaurants are reserved for special occasions like birthdays and anniversaries. These are restaurants that will cost us about $150+. This budget is particularly high because we have a special dinner planned at a $$$$ steakhouse to celebrate a career achievement for my wife.
Coffee - 2017 = $875
We got an espresso machine in 2017 so I don't expect to reach $900. But the price of coffee tends to rise faster than other things. We have also increased our coffee spend by 7.5% each year for the last 5 years. A slight bump seemed prudent.
Snacks - 2017 = $300
We like to go for walks and have something to snack on, it's never really expensive. Maybe a bubble tea every so often or a small pack of banana chips.
Cake - 2017 = $115
Last year, we celebrated my birthday in Japan, which pushed our cake expense into our travel expenses. Barring a change in birthday plans, I would fully expect this expense to be fulfilled in 2018.
2017 = $11,750
2018 = $10,500
We have already paid for trips to Orlando (Disney World), Vancouver (visit my family), and Taiwan/China (visit my wife's family). That means we only have daily expenses for those trips. We have budgeted $4,500. The remaining $6,000 is a reserve for potential costs of booking 2019 travel. If we choose not to book until 2019 then we have a substantial upside.
These 3 categories make up the majority of our spend, tallying $50,000 in expenses for 2018.
4. Transportation and Telecom (internet, cell phone plans)
2017 = $5,000
2018 = $7,000
Telecom is expected to be the same at $2,000 between the two of us. Transportation is increasing because we now live outside downtown and expect to use a Zipcar at least once a month to make day trips. We are budgeting $1,000 for the Zipcar. We are are also pricing for a few weekend road trips with rental cars at $200 per trip.
5. All other categories (Exercise (tennis), clothes, entertainment, books/education, extended health (massages), donations and other miscellaneous expenses).
2017 = $9,700
2018 = $20,000
The big difference here is we expect to donate more than twice as much this year than last year. Plus we need to replace some long-term daily use items for my wife.
A new smartphone, a new laptop, and a new purse. All of which have been well used and on their last legs.
We had budgeted for these in 2017, but somehow my wife made them last another full year. Her 7-year-old laptop now shuts down on its own with over 40% battery life on the gauge. The leather strap on her purse is starting to crack and lose bits of leather. And her iPhone 6 is slowing down.
This brings our 2018 budget to $77,000. A big increase from the $61,000 we spent in 2017.
With the travel expense potentially $6,000 less, the items for my wife at about $6,500, and the higher mortgage cost, the increase in the budget is reasonable and known.
Knowing exactly why our 2018 is going to cost more is incredibly powerful information
Most people will just spend, spend, spend, and even at the end of the year will not know they have spent more or less than the year before. The only tally they will have is if they still have money in the bank or not.
It's so much more interesting, exciting, and empowering to have information.
You gain control you never had before
My wife learned how to track her expenses as a teenager because her mom forced it on her. Now she can't go back to not knowing.
I used to track my expenses out of my own curiosity, but when I started dating my wife, the extent of my expense tracking levelled up.
It's like playing a game, but instead of building a virtual empire, we're managing our own life. The success of our effort translates into a richer life rather than a higher score on a game.
Save Money Retire Early is written by Jon Lo, a barely 30 something change optimist, and personal finance guy. I believe anyone can be rich or poor, it's what you save that makes the difference.