Last January I gave some insights into my finances. I thought I'd add on to those thoughts with a review of 2010's financial highlights (FYI, I'll do a net worth update later in the month, this one deals mostly with income and spending.) The summary:
- 2010 was my second-highest earning year ever. 2009 was #1 due to great year at work (and corresponding bonus.)
- 86% of my income came from my job. The rest came from FMF and some investment dividends/capital gains.
- Here's what I did with my income:
- 45.4% was saved (401k, 529's, SEP IRA, etc.)
- 23.6% was given away
- 30.9% was spent (spending is all cash outflows less giving)
- Of the spending, here are my biggest expenses and the percentage they were of spending (which does not include giving):
- Taxes -- 63.1%
- Food -- 5.4%
- Utilities -- 4.7%
- Misc -- 4.6%
- Home repair -- 3.6%
- Gas -- 2.9%
- Vacation -- 1.9%
- School -- 1.7%
- Car insurance -- 1.6%
- Car repairs -- 1.5%
FYI, I expect to get a good amount back on my tax return this year since a big part of this year's bonus was taken out for taxes. Of course I'd rather have had the money upfront, but there's no way to predict bonus amounts and they take out what they take out.
An interesting fact: if you take out taxes, I actually "lived" on 11.4% of my income. Of course, you can never "take out" taxes completely, but even so, if my income was reduced dramatically, taxes would go down significantly. So I could live on a fraction of my income -- perhaps 20% or so.
So, how does this relate to past years' results? I usually shoot for a 1/3, 1/3, 1/3 split between saving, giving, and spending. I was close on the spending category, but increased savings at the expense of giving. That said, giving was still a good amount and was my biggest "expense" (even bigger than taxes) for the year.
What spending category is that new car in? :)
Posted by: Roy | January 17, 2011 at 07:12 AM
Roy --
Out of savings.
It's not really "spending" (at least how I account for it) since it's the transfer of one asset (cash) for another (a car) with no net expense or change in net worth. The expense comes as I depreciate the car over the course of a few years (as well as car repairs, insurance, etc.)
Posted by: FMF | January 17, 2011 at 08:12 AM
We pay less taxes but we make a lot less too. Congrats on another high giving year!
Posted by: Crystal@BFS | January 17, 2011 at 09:44 AM
Gotta love the tax man! Let's make it a goal to reduce them taxes this year! Even California 10%, + 35% Federal only equals 45%!
Posted by: Financial Samurai | January 17, 2011 at 10:10 AM
Financial Samurai: His taxes weren't 63% of his total income -- it was 63% of just the 30.9% he considers spent money. That would be an outrageous rate!
Posted by: Lynn | January 17, 2011 at 11:05 AM
Effective tax rate is about 18.9%
Thats a pretty good tax rate for FMF's income level. Of course he does give away the 23% which is deductible and most of his savings looks tax sheltered.
Posted by: jim | January 17, 2011 at 12:45 PM
Seems like you spend quite a bit on gasoline. Do you and your wife drive a lot? I don't recall if you've ever said how far your commute to work is.
Posted by: jim | January 17, 2011 at 12:47 PM
I would say this is probably the best budget I've ever seen. I don't know anyone who hits >40% savings and >20% giving. Bravo.
Posted by: jim | January 17, 2011 at 12:48 PM
Jim --
I drive about 18,000 miles a year which includes work, 3 or 4 long trips to see family, and 2 or three long trips for work (I get reimbursed for the work trips.) My wife drives another 7,000 miles or so.
Posted by: FMF | January 17, 2011 at 12:52 PM
So for 2010 alone you saved 4 years worth of living expenses, and have consistantly done than for at least 5 years. Please tell me this means you've already surpassed the "retirement number" you've spoken of (if not, I may just give up.... ;-)
Posted by: Strick | January 17, 2011 at 03:04 PM
Strick --
Yes, I could probably retire very soon, but I like to be very conservative, so I'll keep at it at least a few more years.
Posted by: FMF | January 17, 2011 at 03:18 PM
Amazing job, FMF! (Are the living expenses only for you, or for your entire family?)
After taxes and giving, you roughly spent 25% and saved 75%. That is a real accomplishment.
Also, I think it would be a real eye opener for a lot of people if they converted the percentages in the post to dollar amounts. No need to even use FMF's salary, people. Just use a ballpark salary for a typical senior manager.
Posted by: Concojones | January 17, 2011 at 09:08 PM
correction: I should have said 20% and 80%
My own breakdown for 2010 is: 18% tax, 59% spent, 23% saved. I didn't save much in dollar terms because I only worked half of the year. My nest egg on the other hand, grew more than handsomely, thanks to respectable savings in the past few years, and being in the right investments.
Posted by: Concojones | January 17, 2011 at 09:36 PM
Wow! What an impressive money management. How do you keep your tax that low, FMF, especially with your high income? For us, our tax -federal, CA state, property tax, took a lot of chunks from our income. Aside from giving, is there any other way to minimize taxes?
Posted by: Maria | January 18, 2011 at 12:01 AM
Maria --
Giving is the big one for us (as a tax deduction.)
The most effective way to minimize taxes is to earn less. ;-)
Concojones --
The expenses are for the whole family.
Posted by: FMF | January 18, 2011 at 08:09 AM
I have the same ratio 1/3, 1/3, 1/3, but mine are for saving, spending (including giving) and taxes. Yay for saving! Of course if I were smart like FMF and bought a house and paid it off, my expenses would go down a lot. A lot of the 1/3 spending was for rent. But I like my apartment and it is relatively cheap.
Posted by: Brooklyn Money | January 18, 2011 at 02:14 PM
Very well done, FMF. This is a great model to follow in terms of your income minus expense gap.
Posted by: Squirrelers | January 18, 2011 at 03:12 PM
>The most effective way to minimize taxes is to earn less. ;-)
He.he.he... not something that we'd like to experience.
Thanks for the input FMF, I'm going to see how we can approach your saving percentage. :)
Posted by: Maria | January 18, 2011 at 04:02 PM
A little late commenting on this post, but can you please explain, how do you keep track of the expenses per category basis?
Posted by: Viral Desai | April 23, 2011 at 03:16 PM
Viral --
I use Quicken...
Posted by: FMF | April 26, 2011 at 08:25 AM