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Reviewing My Necessary Expenses (October 2011)

October 18, 2011 by Lazy Man 17 Comments

In the past, I used to go through and publicly list my necessary expenses. These are expenses that I consider necessary. There likely is a debate to be had about what qualifies as necessary, but for the most part, I’m including things that are necessary for living and/or protecting my income. This means that an internet connection for me is necessary. However, a Netflix subscription is not.

One thing to note is that these expenses represent my portion of what we pay per month. In cases of shared expenses like rent, groceries, and utilities, that’s half of what both me and my wife use. Why half? The idea is to come up with a number for my expenses and use this to compare to my income. My wife has an income as well. I’m not at liberty to discuss that income. Due to that, isolating the example to myself helps illustrate the value of calculating necessary expenses. So as you read this, pay note that your families costs may be double or more (especially if you have children).

Housing: $1500 – Our rent is nearly $3000 a month. Silicon Valley is very expensive, but my wife’s salary is adjusted for that expense. If it weren’t, we wouldn’t be here.
Transportation: $200 – I pay around $76.41 a month for insurance. Since I work from home, I drive very little, usually just to the dog park about 3 miles away and back. At 6 miles a day, I can get nearly a month on 1 tank of gas, which costs me about $50 (California gas is expensive). My 2001 car has been paid off for 7 years now, so there’s no cost there. What’s the other $75 for? Let’s call it sundry expenses: when I need to drive more, when I need car maintenance, when I take public transportation, etc.Since this is for my car and my wife has her own car this is a personal expense for me and is not divided like some of the other costs.
Groceries: $150 – I had previous had this as $50 for the month back in 2007. At the time, my work was providing me lunch and dinner most of the time. Now that I work from home, I lose that perk. In addition we’ve added on more hungry mouth feed – our 75 pound Huskador (husky – labrador mix).
Internet: $25 – This is simply half of our Comcast bill for the Internet. It is somewhat of an estimation because without cable television it might be more expensive (it wouldn’t be part of a package)
Gas and Electricity: $75 – In Northern California we use a lot less gas and electricity than we did in Boston. That’s what happens when you don’t need AC and only need heat about 3 months of the year. Though this cost varies, the $75 is probably as good an estimaion as any.
Water: $20 – This is a pure guess. My wife actually pays the water bill and she’s not available to ask at the time of this posting.
Cell Phone: $25 – I’m on a grand-fathered Virgin Mobile plan that costs me just $25 for 300 minutes, unlimited data, and text. Since this is my phone and my wife has her own phone this is a personal expense for me and is not divided like some of the other costs.
Home Phone: $3 – I picked up free lifetime Ooma service for $150. What’s the $3 a month for. There’s still some taxes that are necessary (911 service for example). I didn’t even bother dividing this half to represent my half of the taxes.
Property Insurance: $30 – This is just my half of the property insurance. It’s possible that we could potentially save some money on this expense. It’s time to look into what coverage we have here.
Dog Care: $50 – Once again, I’m doing a little guessing. I’ve included his food in the groceries. This would cover vet visits, heart worm pills, flea medication, etc.

You’ll notice more than a few things are estimates. For me, that’s good enough, because in general they are fairly close. It establishes a benchmark for comparison. For example one were to do these expenses a decade ago, they might find that their home phone bill was $45 a month. Some people doing this now will have a cell phone bill over $100.

Some ask why one would want to review their necessary expenses. I have three reasons:

Keep lifestyle inflation in check – There is a temptation to spend more money when you make more money. I don’t want to be caught up in that. I want to keep my necessary expenses down even if it means making some compromises on my cell phone selection.
Gives me a view into how close I am to financial freedom – This blog currently makes more than all these expenses put together. What this means is that in some ways I have a sense of financial freedom by being my own employee – as long as business continues to stay the course. That’s always a question mark.
Prepare for disaster – Most people say that they want to have a 6 month emergency fund, but it’s hard to know how much money that is without knowing what your necessary expenses are. This gives me a very good figure to go on for that.

Final thoughts: When you add it up, I have about $2,078 in necessary expenses each month. The biggest one by far is the rent. I’m sure that’s true of many people. It’s a particularly high number for us, but our plan is to move to an area of lower cost living which would likely reduce the number significantly.

Reviewing my Necessary Expenses

September 23, 2009 by Lazy Man 9 Comments

When I started this blog more than three years, I got in a habit of writing about my net worth. As I mentioned on Monday, I stopped writing about my net worth for a variety of reasons. Along with keeping track of my net worth, I used to periodically review the expenses that I consider necessary. These are typically monthly bills that I have to pay no matter what: house, car (if it protects my income), food, utilities, etc. It doesn’t include things like a Netflix account because, in a hardship, that can be canceled. (Note to self: It would be interesting to post my “unnecessary expenses” at some point.)

I should make a mention that “necessary” is a term that can be debated. As I mentioned above, having a car is necessary if it protects my income – or serves a variety of other uses that can be deemed to making my life “live-able.” If I have to spend 3 hours walking to the store, it’s not cost effective use of my time and thus the car qualifies. As final note, I used to count just “my half” of the numbers since I wasn’t married to my wife at the time, but we split the costs of most of these things. I’ll put my numbers in parenthesis so that you can compare with the link above where I did this two years ago.

Housing – $2900 ($1450) – This went up from the $987 that I paid in the past for my share. Rent is expensive here in Silicon Valley, but the biggest difference is that we moved into a bigger place going from 1200 sq. ft. to around 1600 sq. ft. The addition of a bigger yard for our dog and a garage makes it lot more livable. My wife got a nice promotion recently and I was contracting for pretty good money, making this seem like a good fit.
Transportation – ($250) – I’m just going to give my number here because we still keep our car expenses separate. We each own our cars outright, so the costs are maintenance, gas, and insurance. I’m working from home, which makes my use of gas fairly limited.
Groceries and Health and Beauty – $400 ($200) – I might be over estimating here. Sometimes it’s tricky to know where health and beauty come into play. And as long as we are talking “necessary”, I’m sure I could limit this to less if I wanted to. Also included in here is dog food and money for a new Lobby the Lobster toy as he just ate the last one.
Internet – $60 ($30) – I would still get high-speed Internet in a financial crisis… it’s just too much of my income to penny-pinch on.
Gas and Electricity – $80 ($40) – This is where living in Silicon Valley really starts to pay off. We don’t have air conditioning and use heat only a few months of the year. Though I have a lot of electronic gadgets (side-effect of being a techy), most of them stay unplugged much of the time.
Cell Phone – ($75) – like the costs of cars, this is an expense that my wife and I handle separately. I used to have a great grandfathered plan with Sprint, but for someone reason Sprint makes you switch to new plans if you upgrade hardware. I can’t get back to that plan if I wanted to. Bad Sprint, bad!
Property Insurance – $50 ($25) – This includes insurance for being a landlord as well as renter’s insurance on the place that we have. Neither expense is very big especially when broken down by the month.
Water – $50 ($25) – Not much to say here, I think this might be fairly standard
Home Phone – $15 ($7) – This might not be necessary with our cell phones, but since it’s such a small cost because it’s Vonage, I thought I’d include it.

The total expected necessary expenses for me each month is $2102. In Silicon Valley, things could be a lot worse. My income from blogging and other related online ventures is usually around $1600. So I’m losing $500 a month or so unless I cut back some expenses or grow the online businesses. Fortunately, with a wife earning much more than enough to cover this gap, I can focus on doing just that – growing the online businesses.

At least I now have a very good idea of where I stand and how far I have to go to break even and/or start having a profit.

Alternative Income Streams – May 2009

May 8, 2009 by Lazy Man 5 Comments

I’m a little late with my alternative income for last month. I tell myself it’s because I’ve been busy, but more likely it’s that the numbers are down. After taxes, I cleared $1,411.34. That’s still a good number and pays for a large amount of my necessary expenses (i.e. rent, food, insurance, utilities, etc.), so I’m taking a Stuart Smalley approach. Even though it’s down around $500 from previous months.

It’s not surprising to me that the number is down. I could throw out the easy excuse that it’s the economy… I even believe that to some degree. I’ve been focusing my efforts on my a full-time job (a contract job that pays over six figures) and training a new puppy. I usually hate trading time for money… it doesn’t scale in the way I want it to if I’m going to achieve financial in a few years. However, if I can leverage the money from my full-time job to other profitable enterprises, it’s a move I have to make… especially in this economy where cash is king.

This month isn’t shaping up to be much better, but I’ve made a few connections at Finovate that may pay off down the line.

Our Early Retirement Plan: Where We Are Now (Part 1)

November 1, 2008 by Lazy Man 10 Comments

If you are just starting this, I suggest you start at The Introduction – Part 0

You can’t figure out where you are going if you don’t know where you are…

My wife and I are each 32 years old. To some degree our finances are separate – we never felt the need to combine them other than opening up a join savings account. I have around $200,000 in assets. My wife has about the same. My money is mostly in a retirement accounts (things like 401Ks, IRAs) and equity in my old home (now an investment property that just about breaks even). Her money is invested in much the same way, but more in mutual funds and money markets than equity (though she does have some equity in the property she had before she met me).

Our Current Income

My Wife’s Income – She’s a pharmacist working with the military. She gets a tax-free housing stipend, which for San Francisco is quite healthy.
My Wife’s Extras – She is required to travel from time for work. When she does travel she gets money for meals. Rather than a reimbursement system, they simply just give her the cash. If she’s frugal with her meals that extra money adds up. She also gets the standard 58.5 cents a mile for her driving. For 20 miles, they’ll pay her $11.70. Since that’s about a gallon a gas, it’s $8.70 to cover maintenance costs. I think we make out well with this.
My Income – I make some money from my websites. What I like about this income is that I can do it from anywhere that has an Internet connection. I can also write it at any time. For instance, by the time you read this, it’ll be at least a week since I’ve written it. In addition to this, the start-up business that me and my business partner have is making us each around $2,000 at this point. For a company that’s about 5 months old, we are quite happy with it.

Our Current Necessary Expenses

Home – We rent our current place. It currently doesn’t pay to own in our area. Rents are proportionally cheap. We spend $2075 a month on rent, which may sound like a lot, but it’s San Francisco. For the year that’s roughly $25,000.
Transportation – My wife and I each own our cars outright. My wife gets a free bus pass from her work. I work from home. This makes our gas expenditures extremely cheap. We still have to pay for maintenance and insurance. I would estimate that this is around $5,000 a year, and that might be on the high side.
Food – We save a lot of money shopping at military commissaries. I wish this were an option for everyone but it simply isn’t. I think we typically spend about $125 every two weeks. That rounds up to about $3,500 a year
Utilities – Our Internet and cable prices are pretty standard. We have intro deals with Comcast and save a little money that way. Our cell phone plans are around $40 each for almost everything Sprint has to offer. Our heat and electricity expenses are very minimal – the weather in Silicon Valley is fantastic requiring no air condition and very little heat. Our phone service is a $15 plan with Vonage. Adding all this up, it looks like it’s around $3,500 a year (again rounding up)
Insurance – We have standard insurance – home, rental. We don’t currently pay for any extra life insurance as we don’t have any dependents. However, our insurance company, USAA wins awards each year for it’s great rates and customer services. It’s another military benefit that I wish I could share with the rest of you. The cost for this is insurance is around $2,000 or less for the year. I have to admit that I don’t have the actual numbers on this and I’m too Lazy to look it up.
Additional Stuff – There’s always going to other costs to factor in. I’m probably forgetting more than a few things here already. I’ll build in another $6,000 for these miscellaneous things.

That’s a rough outlook. I intention didn’t want to get too bogged down in the details at this stage. It looks like we spend around $45,000 a year. Our income covers this and leaves us with enough money to build up significant savings.