Where Did Our Money Go?

As I continue to review our finance, where I have covered trading, passive income, and net worth so far, the next item on my list is to examine our spending last year. The reason I want to check where our money went is the increase of our cash in 2008. Though the gain of nearly 38% year-over-year is quite nice, I feel we could do better than that. Before I can see where to save, or to cut, I need to have an idea how we spent our money.

Even though I don’t keep a record of our spending, it’s not difficult to gather the information I need because, as you know, I charge credit cards with almost everything. And for those I can’t pay with a credit card, such as child care, I pay with checks. Once in a while, I did make cash purchases, but the amount is every small (usually less than $5).

So I extracted data from three credit cards that I use for everyday purchases, Chase Freedom at grocery stores and gas stations, AMEX TrueEarnings card at Costco, and Fidelity 529 College Rewards card for everything else, for November and December and used the average of the past two months for monthly discretionary spending. Adding some fixed expenses every month, I draw the following pie chart which illustrates roughly where our money went each month.

The top three categories, Investments, Child care, and Mortgage, count nearly three quarters of our total monthly spending, of which Investments is the largest piece of the pie at 31.66%. As I mentioned early, our monthly investments include taxable investments in stocks, mutual funds and bonds, IRAs, and 529 plans. All these investments were made every month through automatic investment plans without our intervention. In addition, I also automatically transfer a certain amount from checking account to online savings account (currently at Dollar Savings Direct) to make saving easier. Putting savings and investing on autopilot allows us to contribute $2,435 to our savings accounts every month.

The second largest monthly expense is on Child care at 21.46%, which now totals $1,650 for our two kids, all used to pay tuition and day care, even though we paid $5,000 from our pre-tax child care reimbursement account.  This part will likely to increase this year as we started to take the kids to some weekend classes. Before the kids go to public schools, the cost for child care will remain high and continue to be a big part of our monthly expense.

The third largest is Mortgage which includes both the mortgage and the monthly association fee, currently at $1,460, nearly 18.99% of the total expense.  If we buy a bigger house this or next year (Is it a good time to buy now?), this part will sure to increase.

The reset of the monthly spending goes to groceries (grocery stores and Costco), gas, utilities (water, electricity, oil, phone, cable, internet), estimated taxes, and miscellaneous which includes entertainment, eating out, clothes, and any that doesn’t fit into other categories. Relatively speaking these are small parts of our monthly spending and it’s where cuts will come from (the groceries and miscellaneous spending are higher in the past two months because of the holidays). Now the next question is figure out what to cut and how much we can save, which is much more difficult than knowing where the money went

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