Hi, and welcome to my April 2019 expense report. Here you’ll find a transparent look into my monthly spending and saving.
Here’s a visual breakdown of my April expenses:
Instead of a green tower of savings this month, we have a red ditch of doom. Red alert: we’re cash flow negative!
April as a whole was an incredible exception to my general spending habits. My spending skyrocketed to levels way beyond what is appropriate at my income level, because…
I Bought a Car
A used car nonetheless, but a new used car. I had originally planned on buying a car in the range of 10 years old, but ended up splurging on a 2018 Toyota Corolla hatchback, with only 4000 miles on it.
The down payment of $3000 ended up being 83% of my monthly take home. Combined with rent, insurance costs, gas, and all of my normal monthly spending, this purchase led to an abysmally negative savings rate for the month of April.
Bringing a car into the equation decreases my ability to save outright. In my case, I voluntarily made a down payment on my vehicle, to lessen interest paid in the long run on monthly car payments. In addition to paying for the car itself, there are monthly insurance costs, fuel costs, and maintenance costs. Cars are expensive, resource intensive, giant boxes of metal. I will still be biking as much as possible, but having a car makes it possible for me to drive 40 minutes or so to visit my brother each week (and generally perform our classic barbecue and bowling combo), and 4 hours or so to visit home every month or two.
As for getting a loan? Many financial gurus and financial independence folks like Mr. Money Mustache are firmly against getting loans to purchase vehicles (and for good reason). The concept of paying interest on a purchase is foreign to him. To be fair, I didn’t take this loan out because buying a vehicle was something I could not afford. I could have sold stock and paid for this vehicle in cash.
I applied for a loan through my credit union, and was incredibly surprised by the interest rate they offered me (3.25%), as a 22 year old with a sparse credit history. To be fair, I’ve been banking with my credit union for 6 years, so we have an established relationship. But with that low of an interest rate, it was hard to justify selling stock and paying in full, rather than leaving my capital invested in the market, which has historically averaged 9% returns annually.
Inflation has been a healthy and relatively consistent 2% for the past few decades. Accounting for inflation on the interest rate of my loan, my rate becomes a meager 1.25%, and the return of investing in the market is historically about 7% annually.
So, by subtracting the inflation adjusted historical stock market returns by the inflation adjusted interest rate on my car loan, we get a difference of 5.75%. So by taking out a loan instead of paying in cash, and investing my additional available capital into the stock market, I have an expected annual return of 5.75% per year!
Of course, by investing into the stock market instead of paying off my car loan I am increasing my risk substantially. Markets are volatile, and that money I invest could end up losing 20, 30, 40% of its value in a year, rather than increasing in value. I’m happy to take on that additional risk, because historically, the math is on my side.
Over the course of the 4-year loan, I’ll end up paying about $1000 in interest. About $384 of that $1000 will be pure, raw interest, whereas the remaining $616 should theoretically be covered by inflation. By having access to this low interest rate loan, I have inflation on my side. Investing the additional capital available to me due to taking out this loan should, on average end up yielding three times the interest rate on the loan. Key words: should and on average
Soon after purchasing my car, I made a weekend trek home to visit my parents, a 4 hour drive one way. That’s a significant chunk of driving and fuel costs, but with my efficient driving style I averaged about 40 mpg for the trip.
So buying a car was the main event, especially expense wise, for me in April.
Other significant April expenses included rent, auto insurance, internet, and some bonus fees my telecom company charged me for internet installation. Plenty of entertainment expenses this month as well.
Trip to Denver
Early in April, I took a trip out to Denver from the east coast to visit some friends, and to take the fundamentals of engineering exam! I ended up renting a car for the day, and had to pay for parking at the university where I took the exam. The cost of taking the exam was $250 or so. Luckily, I paid for it about a year ago, so it’s not included in this month’s expense report. With that price tag, it was good to find out that I passed the test. I’m officially an engineer intern, or engineer in training!
Next step… working and getting enough experience as a junior engineer so I can take the P.E. exam and become a professional engineer in about 4 years or so!
After taking the exam, I spent a ton of time with old college friends for the first time in months. We drank, ate out, went and watched the Rockies. And I even snuck in a day of skiing!
My good buddy gave me his ski boots, his skis, his ski pants, his ski pass, his car, and had myself a fantastic solo spring ski day. Had I made the trip skiing on my own accord, it would have costed me at least $300. Having good, generous friends is priceless. (Though I did Venmo him a hearty $69 to cover the cost of fuel and depreciation on his car, at the very least. In reality, 140 miles of driving should have yielded about $81, based on the IRS reimbursement rate of $0.58/mile).
Basically, during this weekend in Denver, I was making as many excuses as possible to spend as much money as possible, and I still ended up spending relatively little. It was good to splurge, and see all my friends again for the first time in far too long.
A whole pile of additional factors led to further increased spending this month. I prepaid $100 onto my metro/transit card in order to hit a minimum spend requirement for credit card rewards. I spent far too much on alcohol during my Denver trip. I paid an exorbitant rate of $25 for three hours of parking at the Rockies game I went to. I spent $79 for a hotel the night before taking the FE exam. I spent $65 paying fricken TurboTax instead of filing my tax forms manually. URGH!
Pro-tip: Don’t use Turbotax. Here are many other options from the IRS that provide the same, or better service than Turbotax for a fraction of the price (some are free):
Why can’t we be like every other first world country on earth and cut out the profit taking middleman in our tax system?
I spent hundreds more on entertainment in April compared to March. A lot of things added up this month. Many things necessary, like tax filing, a hotel to sleep in before my exam. There was also a ton of fat, much of it associated with my luxurious weekend in Denver, catching up with some of the most important people in the world to me! Easily worth it.
I think some of the increased spending is psychological too. By purchasing a car, and putting $3000 down (on top of paying $1087/month in rent), I was in the red for the month by default. I was spending more than I could possibly save for the month. Without the incentive of being able to achieve a reasonable savings rate, perhaps I let my expenses run wild because I was already so negative on the month.
Still, I think I did an okay job this month. If we imagine the $3000 down payment for my car never happened, I’d be at a 43% savings rate. Not bad at all!
Having a car, a monthly payment, and monthly car insurance premiums will lower my savings rate by default going forward. but I bet we can continue to chip away and make improvements elsewhere.
Home/Rent – $1216
No more half off rent, we’re paying full price. Additionally, I got to pay my first internet, water, and electricity bills.
Auto – $3303
Down payment – $3000
Auto insurance – $109
Gasoline/Fuel – $65
Parking/Fines – $75 (got caught by a camera speed trap)
Rental car – $55
Transit/Travel – $189
Flights – $10 (I spent $5 each way on an express check-in with Spirit Airlines that was completely unnecessary)
Metro/Bus – $110 ($100 metro/subway card fill up, and $10 round trip bus ticket to and from the airport)
Other Transit – $69 (I accounted for renting my friend’s car and ski equipment in this category for some reason)
Health/Wellness – $6
One trip to the pharmacy
Sustenance – $243
I spent a meager $80 on groceries, $81 on Chipotle, $10 on eating out with coworkers, $48 on restaurants/eating out alone, and $24 on fast food. If you’re not aware, I have an addiction to Chipotle which I rationalize by calling it an “economical’ addiction.
Additionally, I spent $76 on alcohol this month, almost taking 1st place in my ‘sustenance’ category.
Adding that all up, I spent $243 on food this month, $319 if we need alcohol. A major reduction in food spending compared to March
Daily Living – $48
$48 in Amazon purchases this month. Meal prep containers and a bike multi tool.
$48 in daily living spending was quite the decrease compared to last month’s $322.
Entertainment – $455
My entertainment category totaled in at $455 for the month.
I bought a bowling ball, and got it custom drilled for my exact hand size. This ended up being about half of the spending in this category for the month. Additional entertainment spending included bowling, alcohol, and MLB tickets. Also, my hotel before taking the fundamentals of engineering exam was $79, and is included in this category.
Misc Expenses – $68
I spent $65 on tax prep software (I vow to never use TurboTax again). I also received a $1000+ tax refund this year, which I counted as income for the month. This kept my savings rate from going too far into the negatives
Additionally, I set up a recurring $3 monthly donation to an interesting political candidate!
Total Monthly Deficit – $1057
A saving grace for this month’s unusually large expenses was a large tax refund. Even with this ‘bonus’ income, I ended up more than a thousand dollars in the red.
As for my total savings rate (% of income not spent), we finished the month at -24%. As predicted, it was a rocky month because I ended up splurging on a car and making a down payment.
Ignoring my $3000 down payment, we’d be at a healthy 43% monthly savings rate. Awesome!
April purchase of the month:
The “name your own price” rental of a car, ski equipment, and a ski pass from a good friend of mine. $69! ($499 value!!)
The rental bundle included:
-One day luxury car rental, a manual hatchback with a ski rack on top, gas included!
-Skis, boots, and poles
Estimated value: $499
Having good friends is more important than just about every physical purchase. Good friends, and the community they create and generosity they foster are far more valuable than anything else in this world. We are social beings. Community and friendship are what life’s all about. My friend insisted that I pay nothing, but I did a quick calculation on the approximately 140 miles driven, and the $0.58/mile IRS reimbursement rate to come to a nice, round, $69 to cover the depreciation I put on the vehicle. Next time I see him I’ll have to pay it forward!