As part of my tax preparation practice in Lake Nona, a community within Orlando, FL "the City Beautiful", I write a lot about taxes. However, I really enjoy personal finances and write quite a bit about that subject as well.
Every January 1st I look forward to sitting down and looking at our personal budget. I have an excel file with 8+ years of data in graphs to identify trends and compare the last year to the previous year. It's not something everyone does, but I think it provides some valuable information.
If you prefer to watch the video:
It’s always wise to review the past in order to make necessary adjustments as you move forward. However, the main purpose of budgeting is not to look back, but to help you make decisions in the moment and to look forward. Your money will always go somewhere, it’s better if you tell it where to go. Telling it where to go ahead of time is always more valuable than looking at where it went after the fact. Our family uses You Need a Budget (YNAB) to manage our family finances.
With that said, here are some reflections on our spending last year.
1) 2020 was quite the anomaly (but 2019 was too actually). For the below observations I normalized the expenses year over year by subtracting out unusual income or expenses. For example, we sold a duplex we owned in NC and used some of the money to pay extra principal on our home mortgage.
2) Housing: Our housing costs went up about 6%. This was driven by our continuously increasing HOA fees and increases in insurance, electricity, and water.
3) Groceries increased 13% year over year! However, our eating out cost was only 83 cents different from 2019. That's pretty crazy! I continue to be proud of our eating out costs ($22 per person per month). I don’t think there’s much we could do to get groceries down… 3 growing boys = lots of $$$ for food… and yet $180 per person per month isn’t too bad I don’t think.
Advice: 10 out of 10 people spend more eating out than they think they do. In my experience, this is the main category people could cut in order to save money. Buying groceries is cheaper and usually healthier than eating out too.
4) Vehicle expenses (gas, tolls, insurance, repairs) dropped significantly. Thanks Covid! Gas was down 40%, tolls were down 40%, and even insurance went down 9%.
Advice: Buy used cars, not new. Let someone else take that depreciation hit… if you do want a new car, hang on to it for 10+ years and you’ll probably be alright. Never borrow money. Check out this blog post or this video to learn how to avoid car debt.
5) Personal care, cleaning, toiletries were down about 15%. Overall this is a small dollar category, but some of this decrease may account for some of the increase in groceries... i.e. a little laziness on splitting the transaction in the budget software since both are usually purchased together.
6) Overall spending was down in 2020 vs 2019. Again, this makes sense due to Covid limiting our travel and transportation costs as well as the fact that I was newly self-employed, made less money in 2020, and kept a tighter watch over expenses.
-Brad
I enjoy helping individuals with tax preparation and tax planning as well as offering tax help to individuals dealing with tax debt, IRS liens, IRS levies, Wage Garnishments, etc. I also service businesses (including nonprofits and churches) by providing tax preparation and tax planning as well as consulting for accounting, bookkeeping, and other finance related questions. I live in Orlando, FL, but I serve clients all across the country. Schedule an appointment if you need assistance and take a look at the resource page.
6900 Tavistock Lakes Blvd Ste 400
Orlando, FL 32827
(407) 243-8678
Serving clients in Orlando, Lake Nona, Altamonte Springs, Apopka, Azalea Park, Celebration, Hunters Creek, Lake Buena Vista, Lake Hart, St Cloud, Winter Garden, Winter Park and via the latest technology remotely around the country.
*The blog posts (as well as the YouTube channel) are my personal opinions and thoughts about a wide range of topics. They are not meant to apply to individuals specifically and should never be relied on as tax or investment advice. You should contact a professional for specific advice before taking action.