Earlier this month, I had a reader send me the following questions:
1. How much were you giving when you still had a mortgage?
2. Is your 1/3 to savings 1/3 to live 1/3 to giving Net income or Gross? I'm assuming 1/3 is actually taxes?
These are a couple of interesting questions and instead of just emailing her back, I decided to answer them here. Just to note, I'll be dealing with GROSS income percentages in the numbers below (i.e. if I say we spent 5% on food then that would be 5% of our gross income was spent on food.)
We'll start with question #1 and a few points of clarification:
- I've already detailed how we paid off our mortgage. Read that post if you want some background.
- One correction to that post -- we actually paid off our mortgage in 1998, not 1997. 1997 was the last year we had a debt balance of any sort at the end of the year. Everything was paid off in 1998 and we ended that year with $0 owed.
- Given the above, we're now in our 12th debt-free year. Yes, it's as nice as it sounds.
The years we had our last mortgage were 1995 to 1998 (we had moved from another area of the country and used the proceeds from a home sale there plus some savings to make about a 30% downpayment.) During those years, we tithed (10%) as well as gave offerings above the tithe to make our total giving the following:
- 1995 -- 13.7%
- 1996 -- 18.3%
- 1997 -- 16.4%
- 1998 -- 21.1%
A few notes on these results:
- Yes, we gave AND paid off debt AND saved for retirement, etc. How did we do this -- like everyone does it, we made the gap between income and expenses as large as possible.
- The percentage given dropped in 1997, but the absolute amount was about the same as in 1996. It's just that our income was higher in 1997 and the increase went to pay off debt.
- Once our debts were all gone, our giving levels jumped.
Now to the second question.
I'll start by saying the following:
- The 1/3, 1/3, 1/3 budget that I've talked about now and then is a ROUGH estimation of what I was spending. The numbers below are the exact amounts.
- The giving numbers only reflect cash gifts. We give away physical items each year as well (in 2004 we gave away two cars, but they won't be in these numbers.)
I looked at Quicken to find the splits for giving, spending, and saving for the past five years, and here's what I found:
- 2005 -- 58.0% giving; 33.4% spending; 8.7% saving
- 2006 -- 38.9% giving; 28.3% spending; 32.8% saving
- 2007 -- 31.8% giving; 27.0% spending; 41.2% saving
- 2008 -- 25.7% giving; 29.2% spending; 45.1% saving
- 2009 -- 26.3% giving; 33.7% spending; 40.0% saving
- Total for five-year period: 35.0% giving; 30.2% spending; 34.9% saving
Some comments:
- In 2005 and 2006 we gave more to one special charity that we made an over-and-above commitment to. We actually paid it off early, but as such had lower saving levels.
- Spending is relatively consistent, though is up in 2009 due to some home purchases (TV, furnace and AC, furniture, etc.) we made.
- Saving is very strong. I hope to keep it up.
The emailer asked about taxes, and after giving, taxes are my biggest expense. They averaged 18.9% of gross income (so my actual living expenses, after taxes, are 11% or so of gross income). Two thoughts here:
1. Most of you know this, but people don't pay taxes on gross income, they pay it on taxable income (gross income less a whole bundle of deductions that the government allows. I have a bundle of deductions.)
2. It's still a HUGE amount of money. If I had my taxes back from just the past five years, my net worth would be 20% higher!
So there you have it. It was an interesting exercise for me to go through Quicken and dig out these numbers. I hope you found it insightful as well.
Wow...impressive.
This is a little kick in the booty to find a better paying job since we couldn't possibly live off of 11% of our gross income ($8580)...we thought we were doing really well just by living on about 50%. :-)
Congrats FMF!
Posted by: Crystal | January 25, 2010 at 11:07 AM
Maybe I'm being a pest, but based on other posts (e.g. credit card rewards etc), if actual living expenses are in the neighborhood of 11 percent of gross, there's a whole lot of gross income going on.
Posted by: Terry | January 25, 2010 at 11:20 AM
Terry --
You don't have the full picture. For instance, a good part of my credit card spending is work-related (and thus reimbursed.)
That said, what surprises you? Don't I always talk about increasing income and decreasing expenses? Do you expect me to do something different than what I preach?
Posted by: FMF | January 25, 2010 at 11:23 AM
Maybe you could write a post on the bundle of tax deductions. I know everyone's case is different, and if it gets complicated you can hire an accountant, but maybe just the basics, and how to take advantage of it (i.e. ask for receipts when giving, etc).
Posted by: TR | January 25, 2010 at 11:42 AM
TR --
The biggest is already detailed -- giving. The government allows you to deduct charitable donations. I keep a folder throughout the year that includes all my tax receipts, including donations, so it's easier to summarize my efforts to my CPA at the end of the year.
Posted by: FMF | January 25, 2010 at 11:44 AM
Your generousity is admirable and a goal for all. Kudos to you.
Posted by: BillV | January 25, 2010 at 05:20 PM
Thanks for answering my questions so thoroughly. We want to be more generous but we're always concerned if we're saving enough, or giving our kids enough. I think we can actually afford to give more. We're going to join the Haiti challenge where you give the rest of this months grocery budget to the cause on top of what we already donated.
Posted by: Marie | January 25, 2010 at 11:00 PM
FMF,
Your giving levels are off the charts! You've managed to keep your tax burden down pretty nicely. For me, my breakdown in 2009 looks like the following, based on gross income:
Taxes- 30% - unfortunately I don't many breaks on non-taxable items in Thailand, that kind of sucks.
Charitable giving (in spite of my post griping about this I still give cash)- 9.5%
Living expenses & spending- 12%
Savings: 48.5%
If I gave more my savings levels would go down. If I could lower my taxes then I'd give more to top up the taxes + giving to equal 50%. That seems reasonable.
I find it amazing you extended yourself so much in 2005 to give away HUGE amounts of your gross at the expense of your savings.
-Mike
Posted by: Mike Hunt | January 26, 2010 at 01:31 AM
One more thing FMF, are the giving levels listed in addition to the money given to charity from this blog?
If so then you are truly a giving machine!
Posted by: Mike Hunt | January 26, 2010 at 01:33 AM
Mike --
I wish! ;-)
Both the income and the giving from this blog are in the numbers above.
Posted by: FMF | January 26, 2010 at 07:41 AM
FMF,
Nevertheless, that's quite impressive.
So that also means that you are including the revenue in the total gross income? Then maybe your living expenses as a % of total are pegged too low- to be conservative maybe you should look at this as a % of your gross salary?
-Mike
Posted by: Mike Hunt | January 26, 2010 at 09:02 PM
Mike --
I could, but the amounts for the blog aren't that great the past couple of years -- so the impact would be minimal.
Posted by: FMF | January 27, 2010 at 07:53 AM
FMF,
So, if I read you correctly, your giving doesn't include taxes? Wow, that is some H U G E giving! Yes, you practice what you preach :-)
Alos, 11% living expenses is VERY low but I suppose a paid off house helps a great deal here.
My figures are 40% taxes, 30% living expenses, 30% savings, giving neglegible for now.
Posted by: Concojones | May 13, 2010 at 02:30 PM
Concojones --
You are correct -- I include taxes in the "spending" numbers, not in the "giving" ones.
Yes, I practice what I preach. Would anyone read this blog if I didn't? ;-)
You're doing great on the savings front, BTW.
Posted by: FMF | May 13, 2010 at 03:27 PM