Saving almost 60% while on a single income

As you already know, I resigned from my job and we are transitioning to a single income.  In order to reassure myself and convince my wife that we can still save a large portion of our income while on her income alone, I detailed our prior years expenditures and created a budgetary guideline for next year on a single income.  We already have a large net worth, but we still want to be able to fund it with new money for the next few years.

I will present figures as a percent of income.  Most likely I will not disclose actual dollars.

You may think our spending is high in some categories.  I completely agree.  We have lived extremely comfortable and spent on ridiculous things like a dog walker and lawn maintenance.  All of these services  were in effort to increase our quality family time.  As we transition to a single income, I will take on many of these activities.

Annual Spending Before Resignation

In the “before % of net income column” is our actual spending rate during the last twelve months.  These percentages are of our net income.  I define our net income as the dollars that actually post to our centralized bank account.  This amount is after we removed our medical deductions, income tax and two fully funded 401k’s at eighteen thousand each.   Since all of those are fully automated at this point, I don’t find it useful to analyze any further.

Planned Spending After Resignation

In the “After % of net income column” is our planned spending rate for the next twelve months.  There will be some changes to our income and saving:

  • We lose my 401k contributions of $25,000 of pretax savings every year.
  • We lose out on my companies ESPP (employee stock purchase program.)  My company allows you to deduct 15% of you salary to purchase company stock at a 15% discount.  Purchases are made on a quarterly basis at the stock price at the end of the quarter.
  • We may choose to slow down on funding our taxable brokerage accounts.
  • My wife was promoted very recently and her income grew significantly.

Mean spending of High Earners

In the “US Mean % of Income after tax,” I  compared our next years budget and last years expenses to other high earners on a percentage of income basis.  Luckily the US Department of Labor collects this data and supplies it to the public.  Even though we do not want to compare our savings rate with the vast majority of the US population, I find it somewhat reassuring to look at how other high earners are spending their money.  Even though the US has low savings rate of less than 6%, these folks are saving a large amount of their earned income every year.  They spent on other categories that we don’t have, like second homes.  I omitted these line items from my analysis.   However the subtotals and totals include these expenditures (if anyone wonders why it doesn’t add up.)

One interesting point about their spending is they spend much less on housing than the rest of the country.  I suspect many of the folks surveyed have paid off their homes.

 Planned Savings and Expenses

You will notice the first category is actually savings not an expense.  I like to automate some savings.  We treat these as monthly expenses.  They automatically get swept up in other investment vehicles only to be touched decades from now.

Expense Category Before, % of Net Income After, % of Net Income US Mean % of Income after tax TPMoney  comments
Mthly ESPP 6.73% 0.00% We treat some automated saving as expense. My ESPP contribution will go away
529 accounts 2.76% 3.26%
Mthly bkrg acc 9.11% 10.74%
Div reinv 4.14% 4.88%
Total Automated Monthly Saving 22.74% 18.88% 0
Housing 9.69% 11.43% 7.21%
House Maint 1.38% 0.81% 2.01% I will take on more of the household maintenance
Electric 0.76% 0.90% 0.94%
Nat gas 0.32% 0.38% 0.37%
water 0.12% 0.15% 0.40%
lawncare 0.81% 0.95% 1.41% I am deathly allergic. I am considering ending this service.
Cleaning 0.81% 0.95% 0.82% I most likely will end this service post retirement
Cell phone 0.00% 0.27% 0.68% My company pays for my phone service. New expense
TV/inter/phone 1.08% 0.73% 0.90% Transitioning from Direct TV, DSL, home phone to Comcast triple play
Total Housing Expense 14.96% 16.57% 14.75%
Total Healthcare Healthcare 2.42% 2.85% 3.51%
Car insurance 0.55% 0.65% 0.65%
Gas 1.24% 0.98% 1.45%
Total Transportation 1.79% 1.63% 9.43% We own both cars and do not finance car purchases.
food at home + alcohol 6.21% 4.88% 3.92% I will attempt to lower the food budget. We have a lot that can be cut
Food away from home 0.83% 0.98% 3.37% Less in lunches at the office, more date nights
Total Food and supplies 7.04% 5.86% 7.28%
Day care expense 9.65% 4.07% This may be lowered further
clothes 1.24% 1.95% 2.98%
travel 5.18% 6.11% Travel is a priority for family
Otis (Dog) 1.37% 0.73% 0.49% Eliminating dog walker service
Ent/Babysit 0.00% 0.49% 0.55% Babysitter once a month for date night
gym 0.37% 0.44% 0.72% Mrs. TPM expense
Gift 0.60% 0.71% 2.63%
Misc 4.14% 2.44% 1.07%
Total Expenses 48.76% 43.85% 68.06% US Mean does not add up. They have additional expense we do not plan for.
Total Expenses with automated saving 71.50% 62.73% Total planned monthly allocated dollars
Additional Taxable Saving 28.50% 37.27% 31.94% Budget Surplus, may include unplanned out-of-pocket tax expense
Total Net Savings not including 401k 51.24% 56.15% 31.94% Over 60% savings with 401k contribution

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