Income/Expenses For October 2014

budgetI’ve been tracking my income and expenses online since I initiated this blog back in early 2011. I do this for a few reasons.

First, I want to prove to the world that it’s possible to become financially independent at a relatively young age even if you don’t make a lot of money. I don’t make a six-figure income. I never have and I probably never will. But it’s not necessary. Oftentimes, people focus on income too much. Expenses are just as important, because if you make $200,000 per year, but spend $190,000 of it, you’ll never become financially independent. Conversely, bringing home $40,000, and learning to get by on half of it means you’ll likely be able to retire if you want to within 15 years or so. Making less means you have less to save, but spending less means you need less to retire off of.

The second reason I do this is because I want this to be a live look at one man’s journey. You can find countless books by financially successful people, but often it’s long after they’ve completed their trek to significant wealth that they’re then telling you how they did it. It’s easy to postulate. It’s much more difficult to actually show the whole process in action, for better or worse.

And finally, knowing that every dollar I spend is going to be published for the world to see serves as reinforcement to stay frugal. There’s been more than one occasion where I decided against a particular expense after realizing I might be a bit embarrassed to write about it.

So each month I will post my income and expenses for the previous month. I track every dollar in and out, so what you see is exactly what I earned and spent (rounded to the nearest dollar).

Income From October 2014:
Online Income$3,943
Dividend Income$383
Other Income$39
Total Income$4,363
Expenses From October 2014:
Rent & Utilities$530
Auto$300
Student Loans$224
Engagement Ring$200
Restaurants$176
Hosting$153
Groceries$145
Pharmacy$68
Auto Insurance$65
Gifts $44
Fast Food/Takeout$43
Fuel$36
Cable/Internet$27
Amusement$24
Everything Else*$7
Total Expenses$2,038

Income

I’m now four full months into writing full-time for a living, and it’s truly been an amazing experience thus far. I can say I have no regrets, and it’s been one of the best decisions I’ve ever made. I was absolutely burned out working in the auto industry; the hours, clientele, technicians, management, meetings, and CSI scores were just weighing me down. But this has been a great transition. I’m more motivated than ever to continue saving and investing my way to financial independence, as my energy levels have never been higher. It seems like every month is a new record for online income, and this month was no different. This is by far the most I’ve ever earned from various online endeavors, and I hope to keep this rolling. Thank you all for your continued support in this department!

I also received a solid month of dividend income, as I just recently discussed. Growing cash flow that I don’t have to work for is an easy sell for me! I continue to be amazed by the progress here, and October was just another step in the right direction. You can see that this income covered just over 20% of my personal expenses (not counting business expenditures). I’m rather proud of that, especially since I’m still working through some rather large, temporary expenses. Not to mention that October isn’t even a particularly strong month for me in regards to dividend income.

The other income was related to cash back rewards. Although I don’t spend much money, I’m a huge fan of credit card rewards. And you’ll see that even though I’m fairly frugal, this income shows up fairly regularly. I look at it almost like another dividend payment.

Expenses

*The Everything Else category includes expenses I don’t have a regular budget for. For this month, I spent just under $7 for a new beach chair. Claudia and I enjoy occasional late afternoons out at Siesta Key Beach, watching sunset. We’ve never really had any good beach chairs, so our beach visits typically involved plopping down on a towel. Pretty frugal, but I guess we’re getting old. I now prefer a nice chair, and $7 isn’t bad. We each bought one, and they’re those camping chairs that you get in a bag. Works well enough.

Rent is obviously normalized once again. This includes my half of rent for our two bedroom condo, along with electricity and water.

Food expenses were fairly high this month. That’s due to a combination of the fact that I’m now spending a bit more on groceries since Claudia and I now cook and eat together (I’m not eating as many sandwiches these days), and also due to the fact that we went out to eat twice in one day for our five-year anniversary celebration. That one day alone accounted for about 80% of the restaurant spending you see above.

You’ll see a new budget category, titled “Engagement Ring”. As previously discussed, I’m amortizing the cost of the engagement ring I purchased for Claudia at a $200 per month rate. The ring cost $1,487, so I’ll be done accounting for this expense by next summer.

All other expenses were largely in line. I spent very little in fuel as I didn’t drive much this month. You’ll notice that I didn’t spend anything on health insurance this month. Apparently, there was a gap in coverage that I wasn’t aware of. So when I signed up for Florida health insurance on the national exchange back in late September, my coverage wasn’t designed to start until early November. So I had no charges for this month. I also had no mobile phone expenses again, as I still have some referral credits on my Aio Wireless plan.

Savings

I managed to save 53.3% of my net income this month, which is actually one of my better monthly results in what has been an expensive and eventful year. Quitting my job in the auto industry to pursue writing has certainly led to a drop in income for much of the summer, while I’ve also been amortizing the cash purchase of my Toyota Corolla at the same time. Add in the engagement ring now and saving a high percentage of my net income has been and continues to be challenging. However, while this may be my least impressive year in regards to savings, it has been by far my best year in regards to quality of life. I wasn’t sure how my savings rate would be impacted after moving away from my full-time job, but I’m incredibly pleased with still being able to save a substantial portion of my net income while pursuing a true passion of mine.

One of my goals is to save 50% of my net income throughout 2014, averaged monthly. So far, I’ve hit rates of:

[show-rjqc id=”12″]

I’m now at an average of 46% for the year. A solid result, but well behind my goal. It’s now painfully clear that I won’t hit the goal this year, which will be the first time in four years I won’t manage to save at least 50% of my net income for an entire year. But I’m excited and anxious to finish out the year as strong as possible while still enjoying life along the way. If I can come within a couple of percentage points of my lofty goal even after all that’s happened over the last six months or so I’ll be pretty happy.

I expect November to look a lot like this month. I expect expenses to probably be slightly higher as I’ll have the health insurance to contend with, but I’m hoping that income will be even higher. I’m optimistic that I can cross over the 50% mark again.

How did October treat you? Meet your savings target? Any unforeseen expenses? 

Thanks for reading.

Photo Credit: Stuart Miles/FreeDigitalPhotos.net

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141 Comments

  1. Hi DM. When you calculate % of income saved, what about income taxes? I assume you are not paying that currently on the online income?

  2. > 50% savings rate, pretty sweet. Also i’m in awe of your online income figures. That’s an awesome level to be at having only started full-timing it recently. How do you get your groceries bill so low??

  3. Once married, will you get on your wife’s insurance, assuming she is offered that through her employer?

  4. Oh dividend leader,

    *falls at feet*

    I feel you are what our kids need if America is to survive the next generation. There is no hope for our government to change their ways but there might be hope if a generation grows up knowing the value of what they pay for and living below their means. I feel you will be a great inspiration for a lot of kids to learn personal finance and since this is a topic you enjoy, I feel you being open to volunteering will get you out there and put you on the map for some professional gigs. Just a thought that crossed my mind.

    Your minion

    Dividend Income Project

  5. Pretty spectacular, especially on the income side of the ledger. Pretty amazing how your online income has really grown over the last few months. It is the product of hard work and more time to complete said work, that’s for sure. Keep on cranking and while you might view the 50% miss a disappointment, 2014 will go down as one of the least disappointing years of your life.

  6. Your thoughts on QCOM? Strong fundamentals and consistent dividend raises for the past 10 years. Really taking a hit right now because of their recent earnings report, but I see no way this stays low like this.

  7. I wouldn’t worry about the savings rate too much as your are enjoying your life and you are able to still grow your investments. With a lifestyle that you can maintain for basically forever, you probably don’t need to be saving 50% of your income! Not to say that you wouldn’t want to change paths in the future, that is why savings is still necessary.

    Question, do you plan to combine everything when you are married or keep things separate?

  8. I thought the same thing. . . self employed in Florida have to account for full FICA and Medicare taxes, which are about 15% of income (and dividends in your bracket would be 15% as well). It would be very wise to automatically take 15% of your income and put it into a high yield online MMA to keep a set aside for this next April. Rough calculations extrapolating from your monthly income updates would lead me to believe you would have a tax liability of around $8000 next year. Some of this can be taken out with deductions, but better safe than sorry when the tax man comes. Wouldn’t want to have to liquidate your dividend accumulating holdings at an inopportune time because you didn’t have enough set aside ahead of time!

  9. Wow nice job on the online income. That makes your career change that much better. I just got approved for adsense today and maybe I will make a dollar or two on my blog officially. Still havent left blogger format yet but will reanalyze in the future.

    Your expense are quite low, You dont spend much money above your fixed expenses. Your food expenses are still pretty low and also your entertainment non existent. Treat yourself to a movie or a ticket to the county fair or something lol!

  10. Actually, to clarify, I just looked it up and FICA is 15.3%, not subject to deductions, and completely separate from your income tax gross that includes dividends. FICA taxes alone from online income would be $7,344, assuming approximately $48,000 gross from this online business. Income taxes would be calculated separately from this, including gross income from your business and dividends, capital gains/losses received, other income considerations (such as rent received, etc) and subject to deductions. So total tax liability is probably a lot higher than $8,000, and percentage set aside should be higher than 15% accordingly, depending on your other income tax calculation.

  11. Your online-income is spectacular.

    I have good new for you Jason. You are already a Millionaire.

    Lets suppose your Website generates 4,000$ a month, that is 48,000$ in one year, right? Exactly the amount that a 96,000$ portfolio yields by 5% a year.

    Take care and please don’t sell your blog ;=)
    Tim

  12. Jason,

    glad to see you above the 50% mark again. Congratulations!
    Another great month for online income and nice dividends as well.

    You continue to do a great job and get rewarded for it.
    Well deserved.

  13. I wish I would have known more about investing during my high school years. I would now be swimming in a vault full of coins like Scrooge McDuck…

  14. Awesome job with your online income! And 50%+ savings with all the moving and buying you had is great as well! The nice thing about amortizing expenses is that even though it hurts the monthly result, your actual cash flow is still free to buy more quality stocks to increase your income. I’m still considering whether to amortize my upcoming trip or to just kill a months ‘savings rate’.

  15. Great online income! Nice to know that you’re really enjoying the new lifestyle of writing and enjoying what you do. 50% saving rate is very good. Keep it up!

  16. FFdividend,

    Thanks! The online income is definitely coming along now, and much faster than I anticipated. Obviously, that’s a wonderful surprise. But it’s now approaching what I used to make in the auto industry.

    Appreciate you stopping by.

    Cheers!

  17. GM,

    Well, I pay quarterly estimated taxes. I discussed that here:

    https://www.dividendmantra.com/2014/03/the-joys-of-quarterly-estimated-taxes/

    So what you see above is net of the quarterly taxes. However, I estimated my taxes for the year back in January, before I was making as much as I am now. So I’m sure there will be a shortfall and I’ll owe. And that will simply then adjust net income for February (when I do my taxes) downward. That’s why you see such a steep drop for net savings in February of this year. Whenever I owe, that reduces gross income by the corresponding amount. So the yearly average is still correct, as it’s all net income. I hope to have a smoother result next year and owe less in 2016 now that I have a clearer picture of my earnings capability with my writing.

    Best regards!

  18. ERG,

    Thanks. I’m extremely grateful with the way things are panning out thus far. The visibility isn’t quite what you have with a traditional job, but I have no regrets.

    I actually thought the grocery bill was a bit high. At least, that’s high based on what I’m used to spending. I’m used to eating a lot of sandwiches and spending quite a bit less. But I’m now cooking/eating with my significant other now that my schedule has opened up quite a bit, which is really nice. That amount represents my half of all groceries for the household, including me, my significant other, and her son. So I’m actually paying for three people, divided in half. But we usually eat stir fry at least twice a week, sometimes up to four times per week. So that’s just a little chicken, some veggies, sauce, and some rice. Then we mix it up with whatever – fish and rice, Italian sausage, pasta. We keep our portions fairly small and rarely buy snacks.

    But I’m still finding inefficiencies in the grocery budget, so I hope to get this lower moving forward. And I also doubt I’ll be spending as much on restaurants again for a while.

    Best wishes!

  19. E-Man,

    Great question.

    Her employer actually doesn’t offer health insurance. So she has a Florida Blue plan through the exchange, like myself. So that probably won’t change much.

    Health insurance is killing me. The idea of living somewhere abroad becomes more and more enticing… 🙂

    Cheers!

  20. DIP,

    Thanks for the very kind words there. I’m definitely doing my best to lead by example and provide inspiration for a better way of life. This lifestyle isn’t for everyone, and that’s fine. But I also believe there are a lot of people out there unhappy with their current situations, and are looking for a better way. And that’s what I offer.

    But the blog continues to grow and I continue to reach new audiences, which is wonderful. And I hope that continues.

    I definitely wouldn’t mind doing some different projects years from now, perhaps once I’m already financially independent. Anything to get the word out and provide a new perspective! 🙂

    Thanks for the support.

    Best regards.

  21. W2R,

    Thanks for the support. I agree completely. I’m never happy to miss a goal, but if it comes at the expense of improving my life markedly then so be it. 🙂

    The online income has definitely been the product of a lot of hard work and more time. No doubt about it. Of course, while it’s increased exponentially over the last few months, it took a long time to get to this point. I made basically nothing for years. So it’s just like one of those exponential charts, where you see it really start to take off after a while, and that’s kind of where I’m at right now. There’s a limit to it, as there are only so many hours in the day for me to write. But being able to sustain myself on writing alone is really a dream come true. I’m incredibly happy.

    Looking forward to seeing where the next year takes us. I know you’ve been hinting at putting away some serious capital, so I’m excited to see your passive income ramp up fairly quickly.

    Thanks for stopping by.

    Best wishes.

  22. Truly impressive Jason and that online income is absolutely killer. I could only dream of being able to make that much, although I’d be happy if I could gross $500 per month. Still a long ways away from that. 50%+ savings rate is awesome. Keep up the good work!

  23. Great month of online income! That’s about what you averaged at your past day job, right? I’m glad to see it working out so well for you. It’s working out for those of us who enjoy your writing as well!

    I’m not sure I understand amortizing the expenses of the wedding ring and car. You paid cash for them, so are you using those amounts in your budget to replenish an account the funds came out of or is it just for your own accounting purposes? I don’t really keep a formal budget or even track expenses closely so I was just curious if this is something that individuals do often and how it helps you to do it that way.

  24. Stugats,

    I’m probably the wrong person to ask on that. QCOM sports some excellent fundamentals, and it’s the only tech stock on my watch list (besides IBM, which I own). I haven’t bought any yet, though, because I’m just averse to the entire tech space. Is there any way to know with any kind of assurance that QCOM will still be a leading chip maker 10 years from now? Will technology change in some way that creates some sort of obsolescence in CDMA? I just don’t know. So I have 51 stocks right now, and only one pure tech play. And I can think of 15-20 high-quality companies that I’d love to own, and none of them are in the tech space. So I guess I ask myself why would I stretch and expose myself to tech when I don’t really have to?

    Again, the fundamentals are fantastic. So I’m probably way off there. But I’m just not a big fan of tech companies in general. I may change my mind and buy QCOM in the future, but I’d have to see a fantastic deal on shares to do so. The big drop today certainly increases the appeal, but I don’t see a need to rush out and buy shares.

    Best wishes.

  25. Kipp,

    Exactly. The necessity of the high savings rate has been diminished somewhat, seeing as how I’m currently living a lifestyle very similar to what I’d design even if passive income covered all of my expenses. That being said, life can change, and I want the flexibility of being able to do whatever, whenever. And so I still need to continue saving and investing my way to FI.

    I plan to write an article about it in the future, but we plan to keep things separate. It’s worked for five years, so I don’t see any need to change things now.

    Take care!

  26. I assumed you would probably have been on top of it, being that you budget for everything. Main difference is FICA for being fully self employed – a lot of times people don’t even think about that when they make the jump and just assume their previous wages reported on W2 is comparable to your gross earnings from personal business. This can make for a big surprise when your self employment makes your tax liability $15,000 for the year instead of the old $8,000 you expected from your day job. My sister went from being a paid on-staff speech pathologist at a clinic to an “independent contractor” one year and didn’t realize the difference in FICA obligations and owed over $10 grand more than she expected. . . wasn’t pretty.

  27. Daniel,

    I pay quarterly estimated taxes to account for the dividend income and online income, though I ran the calculations at the beginning of the year when I wasn’t making nearly as much. So I’ll likely owe a fair sum in February. If it’s a sizable amount then I’ll probably just have to cash flow that expense rather than purchase stocks for that particular month. Since my cash flow is usually positive by at least a couple thousand and I usually have around $5k in cash at any time I doubt I’ll have to sell any stocks. But I might have to miss a month of buying stocks, which is really a first world problem. 🙂

    Cheers!

  28. A-G,

    It’s been a great decision to leave the auto field. One of the best decisions of my life. Wasn’t sure how the income would work out, but I knew that I really needed very little to get by, and my worst-case scenario was just going back to what I was doing. Very little risk with a lot of potential reward. That’s a bet I’ll take any day of the week. 🙂

    That’s funny about the expenses. I actually want for nothing. Movies are rarely worth the $25 it costs to get in, although I do plan on seeing “Interstellar” this weekend. I’m a huge Christopher Nolan fan, so I hope it’s worth the price. And we are actually planning on going to a local renaissance festival next weekend. So we have a good time, but it just so happens that many of the things we enjoy are low in cost or free. Being alive and present is a gift in itself.

    Thanks for dropping by. Best of luck with the AdSense. I hope that provides a few bucks your way!

    Cheers.

  29. Daniel,

    Yeah, I’ll have to increase my quarterly estimated taxes substantially next year. I didn’t start making really serious online income until about halfway through the year, so I’m hoping I’m not hit too hard in February. But we’ll see.

    But I’ll have to set aside FICA and federal income tax. I’ll have to rerun the calculations in January to anticipate what I’ll make for the year. That’s really the difficult part – guessing what you’ll make for the year.

    Best regards.

  30. Mike A.,

    The tax questions were answered above.

    I’m not quite sure I understand your question on the ring. The ring cost me almost $1,500. I’m costing it out at $200 per month until the expense is fully realized. That’ll take almost eight months, which is into next summer. Once the expense is fully accounted for, it’ll drop off the budget.

    I hope that helps!

    Take care.

  31. Stef,

    Thank you! I appreciate it. 🙂

    I work really hard at this stuff, so it’s wonderful to be rewarded. I’m incredibly grateful with the success so far. I dreamed a dream, and I’m living it.

    Hard work, patience, consistency, persistence, and perseverance. Add in a dash of luck. All the ingredients to success.

    Thanks for dropping by!

    Best regards.

  32. Joel,

    Well, taking into account that I spend probably 40 hours per week with writing and I’m now making a sizable income, I’d consider this my “job”.

    But, no, I don’t plan on getting a conventional job. I could easily go back to the auto industry and make more money and be miserable. But this journey isn’t about buying the most stocks or making the most money. It’s about attaining happiness and balance in your life. And I’m there now. 🙂

    Thanks for stopping by!

    Take care.

  33. Tim,

    Haha. I definitely have no plans to sell the blog. 🙂

    I wish it was actually worth that much. Of course, a sizable portion of my online income comes from freelance writing. So it’s not worth $1 million. But I have heard that when blogs are purchased, it’s generally for an amount based on monthly revenue.

    But the blog is really invaluable. I have a great time writing, inspiring, learning, and sharing. Can’t put a price on that!

    Thanks for the support.

    Best wishes.

  34. DW,

    Thanks! I consider it a victory, after accounting for everything that’s been going on. I probably could have hit 50% this year if I wouldn’t have attempted to move back home, but live and learn. 🙂

    The cash flow is obviously better than it appears because of the amortization. Good point. So about $500 of the expenses listed up there aren’t actually hurting my cash flow now. However, they did at one point. The $5,400 I spent on the Corolla last year really impacted my ability to buy stocks for a bit there. Same goes for the ring. I would have invested the $1,500 had I not bought the ring. So it’s still money spent, but the amortization smooths out the budget. Sames goes if you were to buy something on credit. You’re simply smoothing your cash flow for a cost. Luckily, many of us don’t need to finance frilly objects!

    Cheers.

  35. Tawcan,

    Thanks for the support. Things are definitely rocking along. I’m hopeful I can keep the budget above 50% for the rest of the year and come pretty close to my goal. I won’t make it, but I don’t think I’ll fall too short either.

    Best regards!

  36. JC,

    Thanks. Appreciate the kind words very much. I’m in a really good spot right now. I could be offered $100,000 per year to go back to the auto industry and I doubt I’d take it. Life is about time, not money. And I’m enjoying living on my terms.

    You’re doing great over there as well. You may not make as much online, but I bet you’d be surprised what you could do if you had the time for it. Meanwhile, you’re killing it with the income you make from your day job. It’s all good! 🙂

    Cheers.

  37. Hi Jason

    Wow, you quit your day job, and then you get to the point where you are earning a sum that is equivalent to a lot of salaries, the main difference being that you have control over your life instead of the wage slave paymasters.

    On this basis you are living the dream, you have control over when and how much you work, and still manage to live below your income and save more than 50% of that income. I would love to be there.

    Best Wishes
    FI UK

  38. Chris,

    Thanks! I’m pretty close to replacing my old day job income with writing. It’s hard to say with 100% certainty it will keep up like this, but I’m doing all I can to stay busy. 🙂

    The amortization just smooths out the budgets. For instance, I paid $5,400 cash for my car last year. I didn’t want to expense out $5,400 on one month’s budget to show a negative savings rate for that particular month. It would be like if you financed a $5,400 car. You wouldn’t count the $5,400 on one month’s budget. You would account for the monthly payments. So I paid $5,400 on all in one lump sum, but I’m accounting for the purchase in these budgets slowly so as to smooth out the effect over time. Thus, my cash flow is better than it looks now, but was worse than it looked on the particular month I paid for the car. In the end, it evens out.

    Best regards!

  39. Daniel,

    Yeah, that can make for a nasty surprise. Unfortunately, being self-employed means you cover both the employer side and the employee side of FICA. I find the extra tax worth the freedom, but it still sucks.

    Best regards.

  40. FI UK,

    It’s a dream come true. I’m incredibly grateful for my hard work rewarding me in this way. I spent years writing away and basically made nothing. So it takes a lot of hard work and patience to get to this point. But the rewards are worth it.

    Thanks for dropping by. Sounds like you’re just a couple years away from true freedom, though. You’re in a pretty good spot! 🙂

    Cheers.

  41. Great job, yet again! Your online income is awesome 🙂 I can’t wait until one day I can say the same. And I think that your savings rate is good – you seem to manage well on your income so maybe high savings rates aren’t as important as they once were?

    Here’s to November being just as good to you.

    Nicola

  42. Nicola,

    Thank you very much. It’s been a long road, but I’m just as energized as ever. 🙂

    The high savings rate probably isn’t quite as necessary as it once was, but I’m still chasing after financial independence with the same ferocity. And that’s because I want to be in a position where every day is however I want it to be. I love writing right now, but there’s always a chance that maybe I might not enjoy it as much 10 years down the road. Or maybe there’s other projects I’ll want to take on. The key is to be flexible. And financial freedom allows you to customize your entire life to your desires.

    I’m confident you could make much more online as well. But it takes a lot of time. And hard work. It’s not easy, as I wrote for years for basically nothing. But if you want it, you’ll get there.

    Best wishes!

  43. LOL….and I am not quite sure I understand your response. Are you paying $200 per month to the vendor? Or did you pay the $1500 last month? If so, isn’t the whole $1500 an expense in the month it occurred?

  44. Mike A.,

    It sounds like you need to read the articles. I already stated that I paid for the ring in full and that I’d be amortizing the cost of the ring out:

    https://www.dividendmantra.com/2014/10/she-said-yes/

    “Anyway, the ring cost me $1,487. I’m going to amortize the cost of the ring out at $200 per month until it’s completely accounted for. This new temporary expense almost assuredly means I won’t meet my 50% savings goal for the year, but if anything could possibly be worth missing that goal it’s this.”

    The answers are in the content.

    Edit to add: You can find the answer to the Corolla purchase in the corresponding article as well:

    https://www.dividendmantra.com/2013/12/macd/

    “Much like when I was setting aside money for a car before I made a purchase, I’ll be including the costs associated with the purchase of this car in monthly increments, as I “make payments” on this car. Even though I paid cash I’m going to amortize the transaction out over the course of the next few months or so to smooth out any unfair disruptions to my budget due to such a large one-time expense. It should also be noted that this transaction tapped out most of my available capital, so my stock purchases for the foreseeable future might be a bit light until I can replenish the capital reserves.”

    Cheers!

  45. I read it Jason, I just don’t understand the amortization of a full expense, or why you would do that? To me its pretty clear you did not have a 53% saving rate with the ring purchase. If I go buy a nice new laptop–which I did in Feb–its a real expense for Feb. Debiting the expense ledger a little or time to keep a some sort of artificial saving rate is strange and a little disingenuous don’t you think?

    I read the original article but it didn’t click until I saw you do it. I find it confusing to see those congratulating you on a +50% savings rate when that is not what happened. Seems like your cooking the books at little and I can’t figure out why? Why are amortizing over time? Just to make the saving rate goal?

    Come on, let keep it real. Mike

  46. Very nice! One aspect interests me, how do you feel regarding the aspect that such a great dividend portfolio covers ‘only’ 20% of your expenses? Of course this is great. Do you think you could have lived more frugal when your online income would not be a 10fold of your div income?

  47. Mike,

    So if I buy a house this month, do I count the entire house purchase as a monthly expense for this month? Or do you amortize that out over 30 years? Is the all-cash buyer different from someone who has to take out a mortgage? The “expense” occurred in the same month in both circumstances. Do you own a house? Did you count the house as a purchase in one particular month? What if I would have taken out a loan for the Corolla? Do I still count the expense in the month that it occurred? Or amortize it like the payments?

    I’m not sure if you’re being obtuse or serious?

    I could run expenses in the month they actually occurred, but that’s not how large one-time expenses are generally accounted for for anyone. Furthermore, if I wanted to run it that way I could count all my student loan expenses as a past expense and basically zero them out now. Since I took the loans out years ago and already “spent” the money, that’s not a current expense. That would actually inflate my savings rate quite a bit over the last few years. So I’m definitely “keeping it real”.

    You’re free to run your budget however you want. But to infer that large, one-time expenses should always be counted in the month they occur is just silly.

    Cheers!

  48. Curious why you have non-cash expenses in your budget? Are you attempting to smooth out the savings rates?

    Another way you could do that would be to track monthly rates as well as YTD cumulative rates to help reduce the “noise” created by large outflows (or even inflows). After all, for a full year what you are trying to get is cumulative savings of half your net income.

    In any case, it’s a small difference either way. Amortizing just complicates things when you’re trying to pick meanings out. I do forecasting and budgeting for work, and the first thing stripped out are amortized costs (among other things). I’m probably reading into it a bit much…

  49. I am being quite serious. Your examples are not apples to apples Jason. I actually own two houses and of course I do not count the total mortgages as a “monthly” expense. My monthly expense is the monthly house loan payment. I also have a student loan and of course the total amount of the loan is not a “monthly” expense, but my monthly loan payment is a monthly expense.

    What you did is quite different. You used cash to pay for a large item and you are amortizing it monthly. That is not the same. That is clearly a monthly expense. Again, why not just call it what it is and be done with it? Its a one time expense.

    These total would all go on a balance sheet, but a monthly budget contains all income and all expenses for that month. I am not going to get into too much more of this but in your thinking I can go spend $12,000 and go on vacation and then expense it $1,000 a month and I will be fine. I would not be fine, I would be fooling myself, or trying to anyway.

    Enough out of me on that.

  50. Ravi,

    “Curious why you have non-cash expenses in your budget? Are you attempting to smooth out the savings rates?”

    What non-cash expenses are you referring to? Every expense I have listed is something I spent cash on.

    Best regards.

  51. Mike A.,

    Oh, but it is apples to apples.

    You didn’t answer any of my questions. You own two houses. What if you would have paid cash for the houses? They count as a one-time expense in the month in which you paid for them?

    Let’s get to the bottom of this. 🙂

    Cheers!

  52. Mike A.,

    “I actually own two houses and of course I do not count the total mortgages as a “monthly” expense. My monthly expense is the monthly house loan payment.”

    Soooooo you count the monthly house payment as a monthly expense. But you don’t count the mortgage as a monthly expense. Isn’t the mortgage just a loan that allows you to make monthly payments on a large, one-time expense?

    I feel like we’re going in circles here.

    Cheers!

  53. Correct, a mortgage or loan balance is a liability for which there is a monthly commitment (payment). These liabilities are a balance sheet item. The payments are an income statement item, or budget. Yes, any cash outlay no matter how large gets recorded in the month it occurs. If you bought a house for cash, that would be a monthly expense in the budget (income statement) and an asset on the balance sheet. I have never heard of anyone doing it the way you are doing it.

    Its your budget so I won’t argue longer, but it is not the proper way to budget or list something on a personal income statement.

  54. I have to agree with Mike here. It’s not too complicated. If a person has $5000 in the bank and spends $5000 on a car but “amortizes” it equally over the next 10 months, that would make it a monthly $500 spread out over the next 10 months.

    Based on this logic, he has $4500 in the bank to spend in the first month and $4000 to spend in the second month but we know this isn’t true. He would get a bounced check and have to pay a $30 fine… but though he told himself he just spent $500 and has $4500 left in the bank, he won’t be able to pay that $30 either.

    I think you’re pushing yourself too hard to achieve a noble goal but in the process, you are fudging the numbers to smoothen it out. Again, that’s your call.

    I think if you want to make it look like a loan, just say you took a 0% loan from yourself and you will be paying back yourself in the next couple of months…. so that loan would go to the liabilities side.

  55. Mike A.,

    So if I go and buy a house next month all-cash I can list my savings rate as -2000% and then go right back to listing my savings rate as normal, or I could take a loan out and amortize it? The person who pays cash cannot amortize it out themselves? Only the bank is allowed to do that for you?

    I don’t think there’s a right or wrong way to do it, but I definitely don’t appreciate someone inferring that I’m somehow trying to deceive others when I’m recognizing all my expenses on an ongoing basis.

    I’ll let you know if I decide to switch things up to the “Mike Approved” budget.

    Cheers!

  56. I think there is a lack of understanding about accural accounting here from Mike A. The ring is an asset that provides benefits in the future. Probably not as clearly as a house does. There is some judgement involved but an amortisation period of about 7 months is pretty much nothing in the whole scheme of things.

  57. Arvind,

    “I think if you want to make it look like a loan, just say you took a 0% loan from yourself and you will be paying back yourself in the next couple of months…. so that loan would go to the liabilities side.”

    That’s exactly what I did and what I inferred I was doing. I paid cash for a car and I’m “paying myself back” until it’s all accounted for. The expense is still being recognized. That’s why I said I was “making payments”.

    I’m not “pushing too hard” or “fudging numbers” to reach a goal, and I don’t appreciate the insinuation. If I would have recognized the entire expense last year then I’d be over the 50% savings rate this year. The expense doesn’t go anywhere. This way just smooths the budget out.

    You can run your budget how you want. You can recognize your big expenses all in one shot. I choose to amortize them to smooth the budget. There’s no right or wrong way to do that. But to come over here and insist that your way of running the budget is the only way to do it is offensive, in my view.

    Cheers!

  58. >>”I think there is a lack of understanding about accural accounting here from Mike A. The ring is an asset that provides benefits in the future. Probably not as clearly as a house does. There is some judgement involved but an amortisation period of about 7 months is pretty much nothing in the whole scheme of things.”

    ABCD, That’s not true in the case of expenses….

    If you use the accrual accounting method over cash accounting method, the expense is realized the moment you get the bill. For eg, if I get a bill for $1500, under cash method, the moment I pay the bill, it is entered into the books. Under the accrual method, the moment you get the bill, it is entered as an expense.

    http://www.investopedia.com/ask/answers/09/accrual-accounting.asp

  59. It’s hard not to like your writing. Every post has some surprise.
    This one knocked me out: “Claudia and I enjoy occasional late afternoons out at Siesta Key Beach, watching sunset”
    Wow… Thats quality time!

  60. Rijke,

    I’m not quite sure I understand your question. I’m actually incredibly pleased with my progress thus far. My goal is to become financially independent by 40 and I’m on track for that. So I have no regrets. 🙂

    Thanks for stopping by!

    Best regards.

  61. Given all you’ve gone through recently it’s amazing that you’ve managed to save 53% of your income, that’s a kick ass performance any day. The same can be said of your overall savings rate this year.

    Spoongirl and I had to go through quite a bit of trouble this month to avoid a gap in coverage. It’s very tricky when you go from one state to another because there’s all kinds of deadlines you have to watch out for.

  62. Nuno,

    We’re really glad to live so close to such a wonderful beach. They say the best things in life are free, and a beautiful sunset on the horizon is one of those things. Doesn’t take much money for us to have a great time. 🙂

    Thanks for dropping by.

    Best wishes!

  63. Spoonman,

    Thanks. It’s been tough, as I’m sure you’re familiar with. I’m sure the move caused some fluctuations to your budget. But it sounds like you guys are all settled in and enjoying the new area. Enjoyed your post on your new food. The picture of ON whey protein reminded me of my bodybuilding days. I used to choke down about five or so of those shakes every day!

    Yeah, I didn’t even know I had a gap in coverage. Although, I’m certainly glad it occurred. I saved over $200. A blessing in disguise. 🙂

    Keep on enjoying that freedom over there!

    Best regards.

  64. Josh,

    Thank you. I couldn’t do it without the support of you readers, though. I’m doing my best to prove that this whole concept really works in real life. No academia, no studies, just real numbers. So I’m just as excited as anyone else to see how it turns out. While I wouldn’t be dedicating more than 12 years of my life to the experiment if I didn’t think it would work out, anything can happen. So we’ll see how it goes. 🙂

    Thanks again!

    Cheers.

  65. I don’t think Mike A intended to offend you. He was asking a question that I also had in mind. I think we can all have a friendly discussion about something. No offense intended.

    Now the way I would count buying a house would be to include it in the monthly expenses as an expense. But, you would also receive the loan money and that would count as a sort of positive expense.

    -$200000 – House
    +$180000 – Mortgage

    And then from there you would have another account representing the loan that would be negative 180000 and you’d have a recurring monthly expense of the mortgage payment.

  66. blahblah903,

    “But, you would also receive the loan money and that would count as a sort of positive expense.”

    I don’t understand that. You can’t have a positive expense. You can count the asset on the balance sheet, but the expense is still a hit against your income/cash flow for the month. So a $180,000 expense all incurred in one month would cause a pretty large negative savings rate for that particular month…which would also cause issues with really tracking it on a yearly basis as well.

    I think part of the confusion here is that I just assumed people understood I was taking out a 0% loan against myself. Maybe I should have been more clear on that, but I guess I thought people could read between the lines. And I don’t track any balance sheet/net worth information here because my net worth is pretty simple and it’s inconsequential to my overarching goal of reaching FI by 40 by being able to live off of my dividend income. So there are no assets/liabilities to compare against the income statement.

    But I also think people are confusing tax law and accounting measures with a personal budget. I don’t have to follow tax laws or GAAP here. I’m simply amortizing out expenses so as to limit fluctuations in the monthly budget. And that’s precisely because I show my budgets on a monthly basis. If I just updated my income and expenses on a yearly basis then I probably wouldn’t have to amortize anything at all. However, I would still choose to amortize out a house over a long period of time, if I were to purchase one in cash. To show some ridiculous negative number for one year would really cloud your overall success, and make it so that someone taking out a loan actually shows “better” cash flow numbers. In the end, you have to account for your income and expenses down to the penny. Whether or not you split some larger expenses up over a few months is, in my view, really just making a lot of nothing.

    However, I still don’t appreciate people inferring that I’m not “keeping things real” or “fudging numbers” That’s where I get upset. Especially when it’s people that stop by here once to drop a comment like that. Of course, I suppose you should expect that when you reach a large audience.

    Best wishes!

  67. Dividend Mantra,

    Have you talked to an accounting and lawyer about setting up a entity LLC, S-Corp, C-Corp or Limited Partnership? I am not an accountant, but I believe an LLC can give you the asset protection of corporation and you can be taxed as an sole prop. , partnership, s- corp or C-Corp. They say the quickest way to increase wealth is reduce your taxes. I think within a couple of years you will be asked to speak at events about personal finance and wealth building.

    Great job on the online income.. If you annualize that out it would be more than I make at my job.

  68. Wow! again, your online income is very impressive. You do everything right to be a successful blogger.

  69. IP,

    That’s a good question.

    I actually did look into a bit. I didn’t talk to a lawyer, but I spent a number of hours doing some research on it a while back. From what I was able to read, the taxation for an LLC wasn’t particularly beneficial. The income and expenses would still be reported on my personal income taxes.

    The asset protection was less clear. It would probably depend on why I was in legal trouble in the first place. But since I’m the sole employee, I’d probably still be held responsible for copyright issues or libel. I looked into that quite a bit, and it’s tough to say for sure. I found liability insurance to probably be just as effective, and probably necessary either way.

    But if someone has more information on this, I’d love to hear it. I’m certainly no expert in that kind of legal liability.

    As far as the speaking event go, I may actually have some exciting news on that at some point in the next few months. I’ll very likely be discussing that a bit more down the road. 🙂

    Best wishes!

  70. I get what you’re saying but you still do receive the cash from the bank for the house no? That’s why I count that as a positive expense as it certainly isn’t income.

    The person selling the house gets the money all at once, so it has to come from somewhere. The bank gives it to you, who gives it to the seller (and brokers, lawyers, etc.).

  71. Jason, blablabla was correct. I wasn’t trying to offend you at all. The fact of the matter is you didn’t buy a house. You bought a ring for $1500. So your expenses in Oct were about 80% of your income so your savings rate was about 20%. It would not have gone into a large negative number or made your budget appear odd. It would have simply expressed your real expenses for the month. A graph of the monthly percentage at the end of year would just indicate a lower rate and you would know the reason.

    As I mentioned once to you before I believe you have a very thin skin. I mentioned that when you also seemed to get really angry at someone else that disagreed with you. I maintain this.

    My comment of “keeping it real” was made because I know your savings rate was not 53%, and I know your expenses were more than you state in this post. I know this because you have outlined it in other posts and I questioned it here and you explained what you are doing. I am not claiming your are not being open, I just watch all these comments like “congrats, wow 53%” great job!” and I think to myself are these people even reading the post?

    While I would never keep a budget like this, and I suspect not many would, you are entitled to do it however it suits you. As others have pointed out, in the end, its such a small amount it wouldn’t make a difference in the end, which I contend is all the more reason to just book the whole expense and be done with it.

    As you state, as your readership grows you are going to come across more and more folks. Your readership is growing beyond the circle of dividend bloggers you started with. I have been reading your blog for a year but I have been participating in the comments for only a very short time. You have to be able have a rational discussion even if in the end there is an agreement to disagree.

    I find the site to be mostly inspirational but I will never just sit by and RAH RAH something I don’t believe is right. I will do my best to explain my thoughts but its all in the interest of a good discussion.

    If anything I have said offended you, I apologize and will check myself and language more next time.

  72. blahblah903,

    You would receive cash when selling it. Right. I wasn’t discussing selling it, and neither were we with the earlier discussions. Although, that’s all the more reason to amortize out large swings like that. If you buy a house all-cash one month and then sell it the following month your savings rate is going to go -2,000% or whatever the one month and then +2,000% the following month. That’s why I do what I do, but you’re obviously free to account for large, one-time expenses as you see fit.

    Again, I think this is missing the forest for the trees. 🙂

    Best regards.

  73. Mike A.,

    I don’t mind disagreements at all. If you feel I have thin skin, then I don’t know why you’d choose to engage me, comment, or stop by. I disagree with that assessment, but you’re free to also disagree as well.

    I have over 12,000 comments across this blog. You have 11. I point this out because your interactions with me are pretty small in scale compared to my readership in aggregate. And, frankly, I think you make your “thin skin” comment because for the very few comments you’ve made, a good portion of them have been to disagree somehow or passively aggressively point out errors in my logic or history (I haven’t forgotten about our previous conversation on valuations). So I have over 12,000 comments. Do you not think quite a few have involved disagreements of some nature? I don’t mind disagreements. I mind when people stop by here and infer that I’m somehow deceiving people. I’ve tracked every penny I’ve earned and spent for the last 4 1/2 years, every investment made, every dividend received, and every personal success and/or setback along the way. So I’m not deceiving anyone. That’s “keeping it real”.

    Again, I have no thin skin. But I take a lot of pride in my content and my honesty. So I don’t take it lightly when someone comes by and infers that I’m somehow not accurately showing how things really are.

    I do, however, purposely try to avoid conflict because I think it often provides little value. So that may be what you perceive as thin skin. I simply try to maximize value. This whole conversation has really been a waste of time, if I’m being honest. It’s totally missing the forest for the trees. Because whether I account for a $5,400 expense or a $1,500 expense in one month or over the course of a few months changes nothing. I prefer to smooth things out for reasons I’ve already discussed. You’re free to disagree and run your budget in a way that you think is more accurate for your purposes.

    But I’m keeping things very real, which is the whole purpose of this.

    Best regards.

  74. IP,

    This article states that an LLC doesn’t protect you from your own conduct. This kind of agrees with what I remember reading a while back:

    http://www.litigationandtrial.com/2009/05/articles/attorney/automobile-accidents/can-i-set-up-an-llc-to-avoid-personal-liability-in-a-lawsuit/

    But maybe someone else can shed some light. I’m no expert.

    I am actively looking into insurance, though. If anyone has any tips on this as well, I’d appreciate it!

    Best regards.

  75. Dividend Mantra,

    If you travel to any speaking events to speak for cash, all expenses related to it should be tax deductable such as air travel, meals, taxis, fuel, rent a car, hotels etc. This should apply to a sole proprietor as well.

  76. Young,

    Thank you! It’s been a long road full of hard work to get here, as I didn’t really make much money at all for the first couple of years. Like investing, however, persistence and patience pays off in the long run. 🙂

    Appreciate the support. I wouldn’t be here without readers like yourself.

    Best wishes.

  77. IP,

    Definitely. I’ll have to add up any expenses related to the blog and everything at the end of the year and see if it exceeds the standard deduction. It definitely won’t be sizable enough this year, but it’s possible that next year will be enough to make the case for itemizing. That would be a good problem to have. 🙂

    Best regards.

  78. Wow, amazing online income! You basically replaced your old job. Quick question, is your majority of your income from this blog or from your freelance writing? Keep up the good work, cheers!

  79. Henry,

    Yeah, I’m really happy with the way things have progressed as far as writing. I’m incredibly grateful. 🙂

    The majority of the income came from freelance writing. The blog income continues to improve every month, but I still generate a significant portion of income from writing.

    Thanks for dropping by!

    Cheers.

  80. I meant the car payment and engagement ring expenses, unless those are actual payments?

    I thought I remembered you saying those were amortized, or maybe I’m mistaken?

  81. Ah never mind. Just saw the above clarification.

    Didn’t see it was being divided over a period of months. Got it!

  82. Dan,

    I wish I had one! 🙂

    Just years and years of consistent writing, hard work, and persistence. Hard work is usually the “secret sauce”, but it’s not very sexy. Of course, I’ve also been lucky along the way as well. I’ll never pass up luck if I can get it.

    Thanks for dropping by!

    Best regards.

  83. Looks like you had a great month! I think we have those exact same camping-chairs-in-bags :). We got ours for about $7 at Home Depot (of all places) last year. We love ’em! Agree on getting older and preferring a chair occasionally over the ground.

  84. Incredible how much your online income has increased. I’m assuming that’s after your estimated taxes? Even better!

    I’m sure by next year, you’ll be very close to what you earned through your old day job. That’s true freedom! I’m still working at my day job now, but probably spend at least an hour or two each day browsing financial news, reading blogs, etc. Hoping to learn as much as I can from every place I can and pick the best of all the different views. My goal is to substantially replicate total returns of the lower of Dow/Nasdaq/S&P while getting a higher yield by making opportunistic purchases in individual stocks.

    We’ll see how it goes. I suppose the most important thing is to live with reasonable expenses and invest the rest. Unless we pick complete duds, the hard part is already done by spending responsibly and simply putting capital to work. Hope you’re enjoying Florida! You sure did luck out by missing the Michigan winter.

  85. The Beauty of saving aggressively when you first began your journey is really starting to show! Though you are still able to continue to save you are able to let loose and start to reap the fruits of your labor. It just goes to show the power of your snowball growing by itself. Congratulations Jason on a solid month of not only dividends but online income, nice to see you are breaking new records on a consistent basis.
    Keep on living the dream my friend!

    Ace

  86. Look people, I totally understand why DM is getting upset over false accusations of not keeping it real. Its like you are being willfully obtuse over the issue. An expense is only incurred if DM has actually lost asset value. In the case of the ring if it hasn’t gone down then he hasnt lost any income and therefore has no expense. If he had spent 1500 on gold coin no one would be nagging him about amortizing. So he is actually making his life harder by amortizing this as an expense when I am not sure it even fully counts.

    Also there seems to be this focus on on month where accounting makes his savings rate higher and not all the months where it pushes down his savings rate.

  87. Jason—I don’t see a reply button on our original thread so I am just going to the bottom (sorry–if I am doing this wrong)

    Just because I only have 11 posts (out of your 12,000) doesn’t mean I haven’t been reading you for a while, or I am a second class citizen in the community for just getting started commenting. At least I hope not. I hope to think you welcome alt views.

    I have told you on a few occasions that I have followed you for a long time— but only posted recently.

    We agree to disagree on the budget point (amortizing an expense in a budget) but as I look back –you maybe right, we might not agree on much. As I have said a few times, your blog is primarily an inspiration to me. Your message/strategy is what I love. Your tactics I have questioned and you have not liked that. I will move along soon.
    Mike

  88. Ravi,

    Thanks! It’s been a great ride thus far. 🙂

    The income is net of quarterly estimated taxes, but as I stated earlier I’m probably underpaying that by a good margin. Nothing I can do about that, because I estimated payments back in January based on much lower earnings. But it’ll adjust next February and I’ll obviously reassess quarterly estimated taxes in January for the 2015 tax year. I suspect the first couple of months of 2015 will be expensive in regards to taxes due to paying more for quarterly estimated taxes and also probably owing a chunk of change when I do my taxes in February. But I’d rather have a tax problem than a revenue problem.

    That’s fantastic you get to read financial news at work. I never really had a chance to do anything like that. It was pretty much full on from the moment I walked in the door until the minute I left. I guess that’s why I got burned out.

    But I’d use that time to your advantage. Nothing like getting paid to do research on stocks that will pay you even more. 🙂

    Best regards.

  89. Ace,

    Thanks, bud. I’m truly living a dream come true right now. I’m so excited to be able to sit down and write about financial independence, dividends, investing, living frugally, and freedom. These concepts are truly life-changing, and I’m blessed to be in a position to inspire others to chase after their dreams. 🙂

    Appreciate all the support. You’re doing great as well. Keep it up!

    Best wishes.

  90. PIM,

    No qualms at all! I felt like the risk was low, as I could always go back to working at a dealership. But the potential rewards were huge. I’m incredibly grateful it’s worked out so well. 🙂

    Thanks for stopping by.

    Cheers!

  91. RW,

    Right. I could actually just account for depreciation and interest expenses on some of these budget items, like student loans and the car. I remember having a lengthy conversation over at another blog a while back where the author just counts interest expenses and depreciation for certain items, rather than everything that actually hits the cash flow. I’m actually providing a full and complete view of anything that reduces my cash flow. The ring has resale value, but I don’t really count that. Not only would I never plan on selling it, but if I ever were to then I would simply count the capital from the sale as income. Just like if I were to sell a piece of furniture on craigslist or something. It would just be “other income”. Same goes for the car. I could have paid cash, counted it as an asset, and then depreciated it as the expense, assuming resale value down the road. Of course, since I got such a great deal, most of the depreciation is already built in. So I’d have a “free” car by running my expenses like that. But I show everyone every dime that comes in and every dime that goes out, which is a true picture of cash flow and how much I have available to invest.

    But to come over here and nitpick about the fact that I spread some expenses out over a few months is just incredibly shortsighted, in my opinion. And then to take that opinion and infer that I’m somehow tricking people or something else is just incredible. Every dime I’ve earned and spent over the years since I started tracking it all online is fully accounted for. It just doesn’t get any more “real” than that.

    Thanks for the support!

    Best regards.

  92. Mike,

    I never inferred that you were a second class citizen. I was simply pointing out that over the course of more than 12,000 comments I’ve had plenty of disagreements, and I don’t mind any of them. I mind when people question my credibility, as you have a few times now over the course of just a few comments. That irks me because I’ve been nothing if not completely honest, helpful, and forthright since I started the blog.

    Hate to see you move on, but I understand your reasoning. It’s been “real”.

    Cheers!

  93. Well, I was trying to make my way down to the bottom to leave a comment when I realized there was a giant thread of comments about amortization in the way, haha.

    Just wanted to throw it out there that if Jason wanted to cook the books, there are easier ways of doing it than by amortizing a large purchase, y’know.

    Anyways – Jason, that is some serious online income. Doesn’t hurt that you also had an excellent month of dividends. Really great month, and thank you for sharing it with us.

  94. Hey Jason,

    Nice work and congrats on getting married.
    In regards to this depreciation debate, perhaps write a post about it so you can refer people to it in the future.
    I think the only true cost in all of that might be opportunity cost, as like you said you might have to hold off on buying some stock for a single month.

    Last month I had an 80% savingsrate (it’s one of those rare months with 3 paychecks instead of 2), but then a couple of months ago I had a month with only a 10% savingsrate because I bought a plane ticket and a laptop in the same month. ‘Normal’ months are around 60% for me.

    I’ve only started tracking every penny since the summer months and I’m planning to average it all out over a year, that should give me the same kind of smoothing you are doing.

    In terms of opportunity cost, I went a little bit on margin last month when the market pulled back and I’m paying that off these coming months. (Only 5% of my portfolio as I would never go super high on margin with the markets this high.). It’s a bit of an experiment as I definitely want to avoid paying that margin interest for very long, but even if I do nothing, eventually my dividends would pay it off for me.

    All the best, you are an inspiration!

  95. Hi DM

    Wow that was some serioua discussion there between you and Mike. I am an accountant by profession so I get all what you guys are talking about.

    But hey, this is a personal finance blog, not an accounting accrual lessons, who cares how you did it. At the end of the day your cashflow remains your cashflow and you yourself would be impacted by it yourself so you account for how you would want to present. Period.

    Time is running short so you are probably going to fall of the savings rate by this year but again you are who you are not because of your savings rate but because of your motivation and inspiration to the others.

    You might not know this but in singapore you are probably second in popularity to mr moustache. You should definitely address your readers shoyld you visit Singapore one day 🙂

    Keep it up man!!!

    B
    http://Www.foreverfinancialfreedom.blogspot.com

  96. For me, big items are accounted on the actual month. However, if you average out over a period of time – eg end of year, the percentages are similar. Therefore, we’re spinning our wheels for no reasons here.
    cc

  97. Hey Jason,

    Consider putting up a message board/forum. It’s probably a more appropriate place for continuing “debates” like the amortization conversation above. I bet it’d get a lot of activity – and pageviews (and ad views 😉

  98. AlphaTarget,

    Wow. Congrats on the 80% savings rate! I never was able to hit an 80% savings rate in one month. I know I’ve been able to get pretty close on a few occasions, but just never eclipsed that mark. Nice job! 🙂

    I could write a post about spreading out costs, but there really isn’t much to say, to be honest. I’m simply breaking up large purchases over a few months to smooth out the effects. There really isn’t an “opportunity cost” to doing that. The opportunity cost is in the initial purchase. So I paid $5,400 for my Corolla. The opportunity cost is in the fact that I could have invested the $5,400 elsewhere, but there’s no opportunity cost in breaking up the amount in the reporting here on the blog. The cash flow was hurt the moment the purchase was made, not during subsequent months. However, the Corolla’s book value was worth about twice what I paid, so it would almost be akin to buying a stock at a P/B of 0.5. Obviously not quite the same, but you get the gist. However, not everything can be thought of in regards to opportunity cost. It’s not like you eat dinner and think of of the opportunity cost of not investing that money. You have to eat. Now, if you’re eating steak every night that’s another story.

    Best of luck with the margin experiment. I’ve never done that. Once I pay off my student loans I hope to never owe anyone anything ever again. But if you play the margin right and stay conservative with it I’m willing to bet you’ll come out ahead. 🙂

    Thanks for stopping by!

    Best wishes.

  99. Seraph,

    Thanks for the support! 🙂

    I’m pretty happy with the way October turned out. Great month of online income, a savings rate above 50%, and a solid dividend income total. It could be a lot worse!

    You’re doing great as well over there. Keep it up!

    Best regards.

  100. B,

    Thanks for dropping by!

    I wasn’t aware of the popularity in Singapore. That’s really amazing. I’ve never been, but definitely wouldn’t mind visiting sometime. I hear it’s a great city. Really clean, low crime, great quality of life, and excellent weather. I think the only drawback is the cost of living, correct? It’s rather expensive to live there, no? But there’s a price to pay for living in a great city like that. True for every great city out there.

    Yeah, it looks like I’ll fall short of the 50% mark this year. It’s a tough pill to swallow, but I’m more than pleased with my decision to quit my position in the auto industry to pursue my true passion. And a slight reduction of overall savings is a rather small price to pay, and one I’m more than willing to. Life is all about trade-offs, and the trade-off of doing what I love for less money is one I’ll make any day of the week. 🙂

    Appreciate the note in regards to the accounting. I’m honestly surprised that some people would question my integrity because I’m spreading out the costs of large purchases over a few months or so. And you’re right. This isn’t an exercise in accounting. It’s simply recognizing cash in and cash out.

    Looks like you have a pretty large portfolio over there. You started out with $100k and add $60k per year? That’s some serious capital, my friend. Keep up the great job!

    Cheers.

  101. cc,

    Actually, someone pointed out to me a while ago that if I were to just take the total income against my total expenses for the year my savings rate would be higher. I choose to average out the monthly figures out of pure laziness, however. But it looks like that actually makes my savings rate look lower than it really is. So I’m certainly not out to deceive anyone or make myself look better. Easier ways of getting that done.

    I like smoothing out the large purchases monthly because I’m reporting monthly. Wouldn’t matter as much if I were just reporting yearly numbers in December.

    But I agree we’re spinning our wheels for no reason, or missing the forest for the trees. 🙂

    Cheers!

  102. Ken,

    I looked into that a while ago, but the logistics of it seemed pretty difficult for the framework I have set up. At least, for putting something together that was robust enough to handle serious traffic. As you probably know, I’m no expert in website design or development. But I might look into that again. I agree it would be great to have something like that on the site, and would probably add a lot of value. I’d have to bring some people on to help moderate it, as I’m already working pretty much full-time here with the site and freelance writing.

    Thanks for the suggestion!

    Best wishes.

  103. Hey Jason,

    I have also been following you and have really been inspired by your story and I love reading your articles. Maybe you could do an article on your definition and examples of amortization? I don’t agree with Mike that you are deceiving others, but possibly just a misunderstanding of the term amortization. I have seen you use that term a few times and I keep wondering if my understanding of the term is off because I’ve had similar questions as Mike about the $200 monthly expense such as “are you depreciating the value of your ring” or “are you taking $200 and putting it back in the reserve you got the original money from”?

    Regardless of if you are able to do an article or not, I love reading your stuff and Mikes crazy for movin on. Really excited for you and your success.

    Wes

  104. Wow, you are kicking it w the writing income! Awesome. I saved 50% but only if you include dividend income. Mentally, I have a hard time including dividend income as it gets automatically reinvested in each stock or mutual fund I own. I could save so, so much more if I didn’t live in DC. We are frugal but rent is high here. On the other hand, this is where I can get a good govt job…anyway, congrats…

  105. Wesley,

    Appreciate the readership. Thanks for following along. 🙂

    Hmm, maybe I should do an article on this. I honestly thought amortization (paying off an expense in installments) was a pretty easy concept to grasp. But I guess I’m wrong.

    Per Investopedia, the definition of amortization:

    “The paying off of debt with a fixed repayment schedule in regular installments over a period of time. Consumers are most likely to encounter amortization with a mortgage or car loan.”

    So basically what I’m doing is lending money to myself at 0% and I’m paying back the full amount in installments, which is amortization. I’m “amortizing” or “spreading out” the costs”. All that does is smooth out the budgets. It doesn’t really change anything. I mean no offense, but I’m honestly surprised that some people are having a hard time with this. So when I originally discussed amortizing out the costs of the car, I said I would be “making payments”, and I put that in quotes after discussing the amortization. I’m not really “making payments” to anyone other than myself, but that’s how it works out.

    “the $200 monthly expense such as “are you depreciating the value of your ring” or “are you taking $200 and putting it back in the reserve you got the original money from”?”

    Again, I described in the last article and in this article exactly what I’m doing. I paid just under $1,500 for the ring. Instead of lumping the entire $1,500 in this month’s budget, since it’s a large, one-time expense, I’m showing the expense in $200 increments until the $1,500 is fully accounted for. So it’ll take a few months for the expense to be accounted for like that. This is the same thing I did with my Toyota Corolla. It’s funny that I never got any questions about this until now, because I’ve done it a few times now.

    But I did describe what I’m doing:

    “You’ll see a new budget category, titled “Engagement Ring”. As previously discussed, I’m amortizing the cost of the engagement ring I purchased for Claudia at a $200 per month rate. The ring cost $1,487, so I’ll be done accounting for this expense by next summer.”

    That pretty much sums it up right there. It’d be just like if you spent $10,000 on something. Instead of showing a negative savings rate for just the one month (since most of us don’t make that much in one month) you amortize it out over a few months, so as to spread the costs out. You don’t have to do that, but it’s just one way to account for expenses. It would be the same as if you put that $10,000 expense on a credit card. The expense only hits your cash flow in spurts as you pay off the credit card. I’m doing the same thing, except I’m not paying any interest.

    Amortization (I’m not discussing deprecation here) is just spreading large costs out. Same with a mortgage or a car loan or anything else. If I would have bought this ring on a credit card, I would then be recognizing the cash flow hit as it happens. Like I did with my student loans. I could have recognized the costs of the loans way back when the expense actually ocurred and not display them here on my budgets, according to Mike and some others because “that’s when the expense occurred”. But that wouldn’t be an accurate display of my cash flows, because I’m still paying off the loans. So I’m choosing not to juice my budget and show something that’s not really true.

    I hope that helps!

    Cheers.

  106. Eric,

    I discussed that in pretty good length with some of the comments above. I’m always happy to help and answer questions, but I’d be repeating myself.

    Check out some of the earlier comments. I discussed that quite a bit earlier. 🙂

    Let me know if you have any other questions on that.

    Best regards!

  107. DD,

    I can imagine it’s tough to save there in D.C. I purposely moved here to Florida for a number of reasons, but mainly because I knew I could save a good portion of my income via no state income taxes, relatively cheap COL, and decent income. Obviously, you can’t do something like that. But your high income makes up for it. Win some, lose some. Either way, you’re doing great with the dividend income. 🙂

    Thanks for stopping by!

    Best regards.

  108. Hey Jason,

    Thanks for replying and I certainly do appreciate the time and effort you put into reading all these comments. If I may continue this conversation, I’d like to explain why I think there are questions surrounding this topic.

    If you read here (http://en.wikipedia.org/wiki/Amortization_%28business%29), there are two processes the term amortization is used for. Initially, I thought you were using it for the second process “intangible assets” which is why I brought up the question about depreciation. However, after your last post I don’t believe that is what you’re attempting to do here so we can rule that one out. The first process is “amortization of loans” which sounds exactly like what you are trying to do.

    The reason I question your method (only to encourage a fun, educational debate) here is because when you pay off a loan from a bank, normally you include the total asset and loan in your balance sheet, but you only include your payments in the income statement (personal budget). The difference here is you aren’t making any payments. You have already paid off the loan and its “fully amortized” according to the wikipedia definition. I do not know of such a process as yours where you have added a $200 expense out of the blue to your monthly budget. The situation you are encountering where you have paid cash for an asset occurs pretty often in the business world and is normally handled by the business accounting for the entire transaction on the income statement in that quarter. Sometimes companies will have negative earnings in a quarter because of “unusual expenses” but they didn’t really have operational negative earnings. They simply had an expense and they have to report it because of double-entry accounting. Normally the only time you can add expenses out of the blue is if you are trying to depreciate an asset, but even that has to come from a deduction in the balance sheet.

    And I may be way off here and not understanding completely what you’re attempting to do and I hope I have not come across as arrogant or obtuse. I mean well, and only want to learn more and hear your opinions on the topic.

    -Wes

  109. Wes,

    No problem. You don’t come across as arrogant or obtuse at all.

    I think you’re confusing accounting rules and the running of a corporation and my personal budget. I mentioned this earlier as a possible source of confusion. It’s not really appropriate to extrapolate out how a corporation works and how someone runs their household budget for a number of reasons, in my view. I’m not running a corporation. I’m simply spreading out the costs of something I paid for in cash to smooth out a budget so as to cause minimal fluctuations.

    If I would have bought the ring or car on a credit card, then I’d be showing the payments on these budgets, just like I show the “payments” for my student loans. That’s effectively what I’m doing.

    I didn’t “add a $200 expense out of the blue”. I only showed part of what I paid for the asset, and I’m going to keep doing that on a monthly basis until the asset is completely “paid off”.

    And you have mentioned “balance sheet” a few times now. There is no balance sheet in discussion here. If we were discussing a balance sheet, I could just count the ring like gold as an investment. I would then just be exchanging one asset (cash) for another (ring). I would then just count the depreciation as my expense. I don’t count my stocks as expenses because they’re investments. If we want to get technical, I could count the ring as an investment as well. Again, I’m not doing that so as to show all cash that comes in and goes out. And I never plan on selling the ring anyway.

    If I ever sell the Corolla I would slowly add the proceeds from the sale back into the budget so as to similarly smooth out the budget.

    Again, you can run your budget however you want. That’s how I run mine. The numbers are accurate, just spread out.

    Edit to add: I think, like with Mike, we’ll have to agree to disagree here. I actually think my first comment back to you already explained this concept about as well as I can possibly explain it. I re-read your second comment and I think we’re coming from totally different perspectives, as you’re discussing corporate accounting practices. You’ve already noted that my definition of amortization is correct as far as what I’m doing, but then you add in your second definition and then extrapolate that out. I’m sticking with the first definition, as I’ve explained on the blog already. And per that definition, I’m correctly amortizing my expenses as a loan to myself. I also find it confounding that people wouldn’t be questioning this at all if I had taken a loan out on the Corolla and recognized the monthly payments to the bank. Yet because I paid cash and I’m “making payments” back to myself there’s a problem there even though it’s really technically the same exact thing. I also want to note that there are blogs out there that don’t actually count the entirety of payments in their public budgets. They only count interest expenses on loans and mortgages, as the principle payback increases net worth. I don’t do that, which, again, is a more accurate picture of the cash flow I have available to invest.

    Second Edit: I don’t mean that comment to come across as harsh. Rather, I just think there’s only so many ways I can type up the same basic response. So I apologize if it at all came across that way. Sometimes I can be rather straightforward, especially if I’m typing something out for the 10th or 11th time in a row. No offense meant.

    Best wishes.

  110. Wesley,

    Here you go, straight from Mr. Money Mustache:

    “I would count student loan principal repayments as savings rather than spending (although the interest portion is a genuine expense).”

    Source: http://www.mrmoneymustache.com/2014/01/12/exposed-the-mmm-familys-2013-spending/

    So I could really actually inflate my savings rate if I wanted to by only including the student loan interest (less than $50/month), rather than the whole shebang (principle and interest). But I’m actually pretty conservative with these numbers and include every dime in and out.

    I’m just pointing out that there’s no “right” way to go about your budget.

    Best wishes.

  111. I hear ya man, I certainly agree with you there is no right way, and honestly, I really like the way you have chosen. I think my only concern was I would normally call that depreciating instead of amortizing, but I’m going to leave you alone about this. Can’t wait for your next article! Thanks for entertaining my questions.

  112. Great progress on your online income – very impressive. You’ve developed quite a following that you’ve been able to translate into additional writing gigs. Don’t sweat the questioning of your “accounting” methods. What you’re doing all evens out in the long run. If others want to be more “cash flow by month” precise, let them report their own. You’re putting it out there and even disclosing your amortization methodology. In any case, doing more than most folks. Keep up the good work and I’ll keep following along!

  113. Chris,

    Thanks for the support. Much appreciated! 🙂

    The writing has really taken off. I’m incredibly grateful for that. I didn’t know how this would go, but I was confident that I could make something out of it if I had all of my time available to me. It’s been tremendously successful thus far. I truly couldn’t be happier.

    I appreciate you following along. I’ve got a great article all ready to go for Sunday and then I’ve got some drafts for later in the week. Looking forward to putting some great content together.

    Have a great weekend!

    Best regards.

  114. Yes, all of those standard expenses can be deducted on a Schedule C for a sole proprietor. I’ve been deducting my side business items for 17 years. Mileage is one of the BEST deductions out there.

    Check with your local state regarding minimum tax payments for an LLC. In California it’s $700 a year minimum tax payments.

  115. Having gone through a recent job loss and a period of time before I found new employment, one of the ways my wife and I significantly decreased our monthly grocery budget was to plan our meals for the week on Sunday when the store coupons came out in the paper. The buy one get one free items really help as well. We also found a lot of the store brand or generic items really tasted as good or better than name brands (just without the fancy packaging).

    The grocery store we shop also provides an in-store discount card which provided us even more discounts on weekly items and a discount on gasoline with an affiliated gas station. We just finished shopping today , our monthly food bills have been cut in half since we adopted this strategy and I filled the tank in the car receiving 60 cents off a gal. Though I am now gainfully employed again. We have stuck with the shop by meal approach because it was so successful. (we also use a crock pot a lot).

  116. DH,

    Thanks for the information there.

    Are you saying you can take the itemized deductions on the Schedule C and also take the standard deduction at the same time?

    I was mentioning above the only reason I haven’t itemized yet is because I just don’t have enough to itemize. Are you saying you do both, or am I misreading your comment?

    I plan on itemizing once I have a sizable base of expenses, but right now I’m looking at well under $2,000 for this year.

    Best wishes!

  117. Scooter,

    That’s good stuff there. Planning out your meals and buying only what you need eliminates a lot of wasteful shopping/spending.

    We also plan our meals every Sunday. We generally eat a lot of stir fry, which is quick, easy, and fairly cheap. But the crock pot is also a great tool in the arsenal! 🙂

    Thanks for sharing.

    Best wishes!

  118. I’m with you on the amortization issue DM, not sure why some people are making such a big deal about it. Regardless if you’re doing it the “right” way or not, you’re fully disclosing everything involved and over the course of a year, it doesn’t even matter. The internet police are everywhere…

    Also great going on the online income, always good to see good things happen (actually earned through hard work and dedication) to good people.

  119. Amazing savings rate there Jason! i’m pushing my savings to the limit but I am only able to reach about 44% (October update). I think that when I get some more Income my savingsrate will rise as I would definately like to build my snowball faster!

  120. Sundeep,

    Haha. “The Internet Police”. I forgot all about that term. I think MMM called that group the “Internet Retirement Police”, or IRP. Gotta love the IRP! 🙂

    Appreciate the support very much. I’m definitely trying to work hard over here every single day and stay busy. I’m living out my dream, being in this position to write about stocks, retirement, financial independence, dividends, etc. So I’m not taking any of it for granted.

    Thanks for stopping by. Hope you had a great weekend!

    Best regards.

  121. DDI,

    44% definitely isn’t a bad savings rate at all. That’s still somewhere probably around 10 times the national average here in the US. I’m not sure about the average savings rate in Holland, but I’m quite confident you’re far, far above average. And it won’t take much to get you over 50%, which puts you on pace for a very early retirement, especially considering your age. Keep it up!

    Thanks for stopping by.

    Best regards.

  122. Jason – It has been a while since I’ve commented on your income/expense report but nice to see my prediction has come true. Great to see your online income has taken off as I had predicted. I’m very happy for you. Glad you have found success doing something you love and also very good at. 🙂

    Thanks for your ongoing contribution to this community of dividend investors. Best wishes my friend. AFFJ

  123. AFFJ,

    Thanks so much! Appreciate the support.

    It’s been a long journey, but incredibly rewarding. I’m so grateful to be able to write for a living right now. It’s like a dream come true. 🙂

    But I couldn’t do it without the support of the community, so it’s my pleasure to give back in the form of the best content I can possibly provide.

    I hope all is well with the journey your family is on. 🙂

    Cheers!

  124. I think this is a funny thread. Its a personal budget, not an accounting SEC 10K! Do it however you like!

  125. Yes, ofcourse you can do it however you like but doesn’t mean that no one will notice how the savings rate is made to look good by pushing over *paid expenses* to the next month. Facts are facts you knows. Just push expenses paid to the next month in order to make the savings rate look good. Why, when you reach December, move some paid expenses over to January and then you get an awesome annual savings rate. It’s a personal budget not an account SEC 10K…we can do it however we like!

  126. envisionhappy,

    Thanks. I agree. I didn’t know I was running a corporation over here. 🙂

    At any rate, every penny in and out is accounted for. And that’s what really matters.

    Appreciate the support!

    Best regards.

  127. Tim,

    I’m not doing anything to “make my savings rate look good”. If I wanted to, I could have counted the entire car expense last year to bring that year’s savings rate down, but this year I would have been over 50%. By doing it how I did it, I actually failed to reach my savings rate this year. So it’s not meant to trick the numbers, because it all comes out even in the end anyway. I already stated that it was to smooth out the budgets.

    I also noticed this IP address matches another person’s in this same thread who was using a different name at the time. That’s an awfully strange coincidence.

    Cheers.

  128. First time here!
    I agree with Mike A. I don’t think he meant to offend you. Differences of opinion is all.
    To me, the ring was paid in full, it should be expensed in full in that month.

  129. Dee,

    Thanks for dropping by! 🙂

    Again, I don’t think there’s a right or wrong way to run your own personal budget. I run mine as I’ve laid out, but you’re free to run your personal budget as you see fit. Some will amortize large expenses, some won’t. Some will include only interest expenses for large purchases on credit, some won’t (like me).

    You have to find what works for you, as long as it’s accurate.

    Best wishes!

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