Andy Hough

May Savings Rate – 13.67%

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May was not a very good month on my progress towards financial independence.  I was hoping that I could still decrease my safe withdrawal rate slightly every month even without my tax job income, but my SWR actually got worse, it went up to 55.15% from 49.50% the month before.  The high expenses for May sent my average monthly expenses quite a bit higher and thus made my SWR worse.  The small amount of savings I managed for the month wasn’t nearly enough to offset the increase in my average monthly expenses.  I’m determining my SWR by tracking my trailing 12 months of expenses divided by the amount of my investments.  Since I don’t think the preceding 12 months accurately reflect my expenses going forward I am using my monthly expenses starting in November 2012 to set the average so having a high expense month makes a big change in the average right now.  Unfortunately, June will also increase my average monthly expenses.  Starting in July I should start knocking the expenses back down again.

My goal is to save 50% of my income each month and I didn’t come close to meeting that goal in May. I made $1462.34 and managed to save $200. That amounted to a 13.67% savings rate.  My May expenses were actually higher than my May income so managing to save any money was good. The only reason I was able to save a little was because I had extra money from the month before that had not yet been allocated to savings. Unless I get an unexpected windfall I won’t be saving any money this month since I had another large car repair and will only make a small income.

The 4% SWR translates into having 25x your annual expenses in savings or 300 months of expenses in savings. I have 21.75 months of living expenses saved now. It was a little over 24 months of expenses the month before.   I don’t like going backwards on this goal but I will most likely go backwards on this goal again in June.  I should start making a little forward progress in July.  I won’t be able to make substantial progress though, until I return from my hike and find a new job.

May Income – $1462.34

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Here is a breakdown of my income for May.

Online Income

 $223.74

Interest

$2.00

Dividends

$18.86

Cash Back

$38.43

Sell Stuff

$2.40

Jobs

$1176.91

Total

$1462.34

My May income was not good. Since my tax job ended in April I knew my income would be going down but I was hoping it would be a little better than this.  My income was actually less than my expenses which is not sustainable for long.  The job income was about what I figured it would be.  Even though I got full time hours at my part time job for a couple weeks the job pays so little that the additional hours didn’t help much.  That job is ending this month.  I do like that job but since it pays so little it shouldn’t be hard to find another job that pays more when I get back from hiking.

My online income was a little better than it appears.  The total was reduced quite a bit to pay for moving Bank Bonuses to the BankBonuses.com site.  I’m hoping that move will make me money in the long run but it is costing me money right now.  Overall, my sources of passive and/or alternative income didn’t amount to much.

My income prospects for this month are not very good. I need to sell a lot of stuff before I move out of my apartment.  That should result in me making quite a bit more in the selling stuff category.  Unfortunately, the job income will be down and the other categories will be about the same.  When I get back from hiking increasing my income will be my first priority.

 

May Expenses – $1658.21

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Here is a breakdown of my expenses for May.

 Household $392.05
Entertainment

$62.21

Transportation

 $743.46

Food

$112.31
Debt $5.00
Phone

$26.81
Health

$120.97
Electric

$19.64
Internet

$15.96
Travel

$159.80

Total

 $1658.21

My May expenses were much higher than I’d prefer. I missed my goal of keeping my monthly expenses under the minimum wage level of $1274 a month  for the first time this year.

My food bill was almost down to my $100 goal. Since I’m moving at the end of this month I plan to eat all of the food in my apartment. I’m also planning on doing quite a few restaurant mystery shops so my food total should be below $100 for this month.

My transportation expense were the budget buster. I spent a little over $600 in repairs.  The bad news is that my catalytic converter is going out so I will have another big repair bill soon. My usual repair shop quoted just over $1000 to replace the catalytic converter. I’m going to shop around to see if I can’t get a better price.  The replacement of the catalytic converter probably won’t be done until after I’m back from my hike. The good news is that my gas bill was under $100 even with a trip to SW Missouri. I’ve done pretty well on cutting back on the unnecessary driving.

I also spent $159 on a plane ticket to Harrisburg, PA to start my hike. Even with that expense I would have been close to my $1000 goal if I hadn’t had all the car repairs.  All other expenses should be about the same this month. If I don’t go ahead an replace the catalytic converter I should get back under the $1000 mark again.

How to Stretch your 5% cash back

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These days it is possible to get 5% cash back on a lot of your purchases. One of the ways I get 5% cashback on my purchases is by buying things in the rotating 5% cash back categories offered by my Chase Freedom and Discover it® card. Right now the Discover it® card is offering 5% cashback on home improvement purchases and the Chase Freedom card is offering 5% cash on restaurants, movies, and Lowes until the end of June. Both of them have a $1500 limit on purchases that will earn the cash back but since I’m not a big spender that is more than I would normally spend. It is still possible to get the full advantage of the 5% cash back offered though.

The methods to stretch your available cash back are fairly obvious but they didn’t actually occur to me until I read about them in a forum. The first method to stretch your cash back is to buy a gift card at a store in the current 5% cash back category. For example, since restaurants are in the 5% cash back category I could buy some $50 gift cards at McDonalds, Burger King, etc. for however much I think I’d spend at restaurants in the next few months. I’d want to make sure I didn’t spend over $1500 so I’d get the 5% on all my purchases. I don’t spend nearly that much at restaurants in a year so I wouldn’t have a problem with staying under the $1500 amount. I do use this strategy, but I usually just pick up a couple of gift cards before the end of the quarter and don’t worry about getting the absolute maximum amount of cash back.

Another method also involves buying gift cards. The difference here is that you are buying gift cards for stores that are outside the current category. For example, the Discover it® card is currently offering 5% cashback at home improvement stores. This isn’t beneficial to me since I don’t own a home and don’t really need anything from a home improvement store. To still earn a little cash back I’ve been buying $50 gas cards at Lowes. Even though I’m buying a gas card the purchase is still categorized as a home improvement purchase I still earn the bonus cash back. I’m only saving $2.50 with each purchase but it only takes 5 minutes and Lowes is on my way home from work so I think it is a good use of my time.

If you are shopping online you should go through a online cash back shopping portal like Mr. Rebates. Depending on the merchant you can earn even more than 5% cash back.

These are only some of the strategies to stretch your 5% cash back. These are the simplest strategies but if people are interested in reading about more strategies I will write about them.

 

I’m Still in the 46%

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It seemed like I paid taxes since I had to debit $1500 for taxes from my checking account. I’m actually still in the approximately 46% of Americans that did not pay federal income tax last year though. My tax bill was $1300 for self-employment tax and $200 for state income tax but $0 for federal income tax so I’m still in the 46%.

I would have owed federal income tax but I contributed over $4000 to a deductible traditional IRA, took the student loan interest deduction, and the saver’s credit. I plan to take similar deductions and credits on my federal income taxes next year. I don’t feel bad about taking deductions and credits to reduce my federal income tax owed to $0. The following Learned Hand quote pretty much sums up my feelings on the subject.

“Anyone may arrange his affairs so that his taxes shall be as low as possible; he is not bound to choose that pattern which best pays the treasury. There is not even a patriotic duty to increase one’s taxes. Over and over again the Courts have said that there is nothing sinister in so arranging affairs as to keep taxes as low as possible. Everyone does it, rich and poor alike and all do right, for nobody owes any public duty to pay more than the law demands.”