Expense/Income Tracking

My December 2012 safe withdrawal rate was 104.5%. That is obviously not a safe withdrawal rate at all and is quite a bit worse than my SWR in November of 86.22%. There were two reasons for SWR being much worse for December.

The first reason is that my expenses in December were too high at $1580.99 for the month. In order to reduce my SWR I need to reduce my living expenses. The way I am determining my SWR is by tracking my trailing 12 months 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 just using November and December’s expenses to determine my average monthly expenses for now. With only two months making the average, one bad month throws off the average quite a bit. January should be a low expense month and skew the average downward.

The other reason my SWR is worse is because I saved very little money in December. I managed to put $65 into my IRA. In order to reduce my SWR I need to increase the amount I put in my investments. Starting this month I have a goal of saving 50% of my income. It looks like I will achieve that goal this month and that will help lower my SWR.

The common rule is that you need to get your safe withdrawal rate down to 4% in order to be able to safely retire. I am setting that as my goal. I have a long way to go, but starting this month I expect to see significant progress in reducing my safe withdrawal rate.

Here is a breakdown of my income for December.

My income was down quite a bit in December.  This wasn’t surprising since I no longer had income from my attorney job and my new job didn’t start until this month.  My income was at least slightly larger than my expenses.  My income should increase this month since I have started my new, better-paying job.  I’m not sure how the paydays will fall for the new job, but I think I will only get one check and that it will be for less than a full pay period.  February will be the first month that I will have two paychecks from new job reflected in monthly income statement.  That will allow me to start the year with a growing income trend at least.

I was hoping to start working another new job at a CPA firm this month.  Unfortunately, since the job I just started and the other job I was going to start are both in the tax preparation field I will not be allowed to take the CPA firm job.  I will still be working 65 1/4 hours a week between the two jobs I do have.  Perhaps, the third job would have been too much.

My sources of passive and alternative income didn’t add up to much, but every little bit helps.  I  managed to get a total of $97.57 in cash back this month.  Most of that was from buying my new car with my credit card.  I did get a little bit from Mr. Rebates as well.  I’ll be getting more from Mr. Rebates next month since my referrals did more shopping than usual in December.  I’m hoping to max my cash back this year.  If you sign up for Mr. Rebates it can help max your cash back also.

Here is a breakdown of my expenses for December.

My December expenses were quite a bit higher than my November expenses. Ideally, I would keep my monthly expenses below $1000. I came close to that level in November with expenses coming in at $1113.82. My December expenses came in at $1580.99. The high amount was mostly from my transportation expenses. I paid sales tax and licensing on my new car and six months insurance for both my van and car in December. Some of the insurance money will eventually be refunded once I’m able to sell the van. My gas expense for the month was $208.96 compared to $571.96 in November. That is a significant improvement, but I would like to do better. I had three trips from KC to SW Missouri in December and shouldn’t have any this month. That alone should result in a significant drop in my gasoline expense.

My food expense was also higher than I would prefer. One reason it was high was from eating fast food too often. The other reason was that I bought a lot of groceries when I moved into my apartment. I’ve barely made a dent in my groceries so I should have a much lower food bill this month.

The household bill will be a little larger since I will be paying a full month’s rent. I will also have to pay my first electric bill. I expect it will be about $25-$30 since I haven’t been using much electricity.

In order to meet my goal of living on minimum wage, I will need to keep my expenses below $1274 a month. I shouldn’t have any large expenses this month so I should easily keep my expenses below that level and perhaps I might get them below $1000 for the month.

If you have been reading the blog for a while you may remember that I used to track my monthly investment income. The idea was that once I got my monthly investment income to $1000 a month I would have enough money to be financially independent. This was hypothetical investment income and I decided the numbers didn’t accurately reflect how close I was to being financially independent so I discontinued tracking my monthly investment income. If I had continued tracking I would have seen my income go way down due to various factors that resulted in me withdrawing money from my investments.

I’m now at a point where I am able to contribute to my investments. For now, my investments consist of the dividend stocks in my broker account and my Roth IRA which is currently invested in a TIPS fund. I have decided on a new way to track my progress towards financial independence. I will be tracking my safe withdrawal rate. The way I will be doing this is by tracking my trailing 12 months expenses divided by the amount of my investments.* For this first calculation I am going to take last months expenses time 12 to determine my trailing 12 months expenses. This is because I don’t think my expenses in the previous months accurately reflect my current spending since my living situation has changed dramatically this year. Eventually, the 12 months trailing expenses will be based on my actual expenses.

The generally accepted rule is that you need to get your safe withdrawal rate down to 4% in order to be able to safely retire. I am setting that as my goal. In order to reduce my safe withdrawal rate I can increase the amount I put in my investments and/or reduce my living expenses. The return on my investments will also be a factor, but if I am contributing 50% or more of my income each month it should not be that much of a factor.

My November 2012 safe withdrawal rate is 86.22%. That is obviously not a safe withdrawal rate at all. On the plus side, starting with such a big number should allow me to see measurable progress quickly.

*I’m not 100% sure this is the correct way to determine my safe withdrawal rate. If the calculation should be different, please let me know.

Here is a breakdown of my income for November.

My income was up slightly in November. My job income went up quite a bit due to it being a three paycheck month at my attorney job and my online income went down quite a bit resulting in a very small increase in overall income.

The amount of money I’m making from my jobs doesn’t seem like enough compared to how much I’m working.  When the online income was going good, I was making a lot more money from a lot less work.  I guess that couldn’t last forever.  Since I’m mostly sleeping at the part-time job, I can’t really complain about how little it pays.  I have taken some action that will increase my overall income and am looking for ways to increase it even more.

My sources of passive and alternative income didn’t add up to much, but every little bit helps. I got a nice bonus of $150 for signing up for a new cash back credit card. I got $34.04 from Mr. Rebates which was almost all from my referrals’ purchases. It is nice to have the residual income coming in without any more effort needed on my part.

I will likely have a significant decrease in income this month.  This is because I quit my attorney job so I could move to Kansas City.  I’ve already got a new job with higher pay at a local CPA firm.  It doesn’t start until January though, and it is only for the tax season.  For now, I am picking up extra shifts at my part-time job and might have a possible 1-2 week temporary job starting next week. Once I start working at the new job my income should be even higher than it has been the last couple of months.