A Rich Frugal Life Year in Review – 2020 Financial Results

The most unpredictable year ever is finally over… Happy New Year! Although 2020 was strange and mostly unpleasant, I hope that you and your loved ones remained healthy and were able to find some silver linings. If you stayed invested in the stock market throughout the year, you likely at least have a fatter portfolio balance to be thankful for. Since there’s a lot to cover here, I’m just going to jump right in. Welcome to our first ever “year in review” on the Rich Frugal Life blog! In this post, I’m sharing our 2020 financial results, with all the details of our expenses for the year, passive income, savings rate, investments, and changes in net worth. Enjoy!    

Why share our 2020 financial results?

Because I’m nosey… and I’m guessing some of you are too. It’s ok, I won’t tell. Seeing the inner details of other bloggers’ spending habits and net worth gives me a voyeuristic thrill.

We’ve been motivated by the number of people in the FI community who’ve happily embraced simpler lives. Seeing others succeed is what gave us the confidence to begin our own journey to financial independence. I’m just trying to pay it forward.

If you’re looking for the frugalist of the frugal, you won’t find that here. Life is short and we have no problem splurging on things that make us happy. However, while we spend freely in those areas, we’re trying to ruthlessly cut back everywhere else. We call this “value-spending.”

Other information useful in reading this report

Did we just buy a money pit?

We took a risk and bought a complete fixer upper in late 2018… with a toddler. When we moved across the country for Mr. RFL’s job, we chose to live close to his work for a shorter commute and better quality of life. Unfortunately, real estate is expensive here.

When we found a great deal on a fixer upper that had a lot of potential, we decided to go for it. We’ve been working on projects ever since, trying to do as much as we can ourselves to learn some new skills and save money.

Since this is a whole home renovation, the costs are significant and non-recurring. We don’t include the costs in our monthly expenses budget as we have cash set aside for this in a renovation SINK fund, but I do share the amounts each month and provide periodic updates on the blog.

How we define an “expense”

Outside of renovation costs, the table below shows all expenses for the year. Principal payments on debt are not included. As a former accountant, I don’t view principal payments to be “expenses” since they directly reduce debt and increase net worth. Our current plan is to have all debt payed off by the time we fully retire.

2020 FINANCIAL RESULTS – NET WORTH UPDATE

Net Worth

We calculate net worth by subtracting total debt & other liabilities from total assets. We include cash, investments, home equity, and an immaterial amount of other assets in “total assets”.

Although 2020 was a meh year for a lot of things, it was a stellar year for market investors and homeowners as these markets unexplainedly kept climbing.

Our net worth grew by 24.3% from December 2019 to December 2020. Obviously, a significant portion of this growth comes from job earnings and high savings rate, but a large part is also attributable to the market growth.

FI Investment Portfolio

Our Financial Independence portfolio, which consists of cash and investments, excluding our renovation SINK fund and daughter’s 529 Plan, increased by a whopping 47.4% from last year.

We really committed to investing this year, more than we ever have in the past. We maxed out Mr. RFL’s 401k, a backdoor Roth IRA for me, and our HSA Plan, and put as much extra as we could into our taxable brokerage account.

This effort, along with the market’s generous returns, helped us to finish the year with a FI portfolio balance of $685,000…or 54.8% to our FI Number. Yay! I’ll be sharing more about our portfolio allocation in a post later this month, so check back for more on this one.

Debt

We ended December with $214,800 in debt, $200,000 of which relates to our mortgage. During the year, we made additional mortgage payments of $59,850. However, in November we refinanced to a lower rate and decided the balance was low enough that we were comfortable switching to an investing strategy vs. debt paydown.  

The remaining debt is a small project loan from replacing our HVAC systems last year (0% rate), and my student loans (0.75% rate). We only pay the minimums on these balances since the rates are easy to beat.

Savings Rate

Our after-tax savings rate clocked in at 76.6% for the year, which is exciting (and our highest ever)!

We had the benefit of dual incomes for the first three months of the year and both received annual bonuses in February, though that also meant full-time childcare and other additional convenience expenses from two demanding jobs.

However, I’m even more thrilled that we were able to maintain a high savings rate after I quit my toxic job and our family of 3 was living on one income for the rest of the year. You can read more about my first 8 months of early retirement here.

2020 FINANCIAL RESULTS – EXPENSES

Ok, full disclosure time! The table below shows our expenses for the entire year, along with some additional thoughts (or excuses).

_{*Does not include 2020 spending for home renovation from Reno SINK fund of $70,609, or charity contributions made (which we don’t share publicly).}

Fixed Costs

Housing-Related – $12,877

Housing-related costs include mortgage interest paid, property taxed, insurance and HOA dues. These costs make up 23% of the budget.

We refinanced our mortgage in November to take advantage of lower rates. We paid $855 to lock in a rate of 2.5%, which will save us money over the 15-year term and give us more confidence to invest savings each month (vs. paying down the mortgage more quickly). We’ll receive the full benefit of the lower rate in 2021.

Insurance – $6,341

Nothing exciting here, but all necessary for mitigating financial risk. This category includes our premiums for auto, term life, personal liability, and health insurance.

Our health insurance is a high-deductible plan which is partially subsidized by Mr. RFL’s employer. Because the plan is a high-deductible plan, we qualify for a Health Savings Account (HSA) and were able to contribute $7,100 on a before tax basis in 2020. Since his employer generously includes an employer match and offers wellness incentives, not all of this money came out of our pocket. We treat our HSA like any other retirement account, and don’t intend on tapping it until early retirement unless we have to.  

Student Loan Interest – $42

Though my parents helped to pay for college, I graduated university with two degrees and approximately $40,000 in student loans. These loans have a low interest rate, accruing interest at only 0.75% for the past several years. Since high-yield savings accounts have paid better rates than this (up until the last few months, that is), I only pay the minimum. I have about one more year and $3,400 left on this loan. Mr. RFL graduated debt-free.

Other Basics

Food – $8,880

While groceries and restaurants are split in the table above, I think it makes more sense to discuss them together since eating out more would result in lower grocery bills, and vice versa.

Food spending this year was $8,880 or about $740/month. While that may seem high to some people, it’s pretty darn good for our family! Even with the pandemic upcharges and some additional stockpiling, we managed to slash spending in this category by over 20% this year! In 2019, we spent $11,271 on food, including over $4,400 at restaurants.

While there is still room for improvement, I don’t expect this number to be drastically lower in the future (we’re budgeting $8,600 for 2021). We choose to prioritize high quality food, which means buying mostly organic and/or pasture-raised meats, dairy and produce. Although we pay a premium for these items, I think that the benefit outweighs the cost.  

Transportation (excl. insurance) – $2,456

Fuel costs were down this year due to the stay-home orders and increase in working from home.

Maintenance costs were a little higher this year, with Mr. RFL’s used Hyundai needing new tires and preventative maintenance at 60,000 miles.  

Childcare – $3,476

These costs are only for January through March, when we were both working full time. Though we planned for our daughter to continue attending part-time after I retired, we changed these plans due to the pandemic and deferred Pre-K for another year.

Utilities & Mobile Phone – $3,802

This includes electric, water, gas, security, internet, and cell phones. While these items are necessities in today’s world, they can be somewhat controlled.

We keep our home warmer in the summer and cooler in the winter to save money on heating and air conditioning. With 110+ degrees during the summer in the Phoenix metro, I think our electric is pretty low for the area and size of our home. We also don’t regularly irrigate our yard which saves water (and the environment), though did lose a few plants this summer, which is fine since we’re planning the outdoor renovation for 2021.

We were able to reduce our internet bill by $300+ in just 15 minutes this year, and will work on reducing mobile costs, which were $709 for the year, by switching to an MVNO provider in 2021.

Medical – $1,144

Because we’re on a high deductible plan, there will always be some out-of-pocket costs for medical visits each year. Unfortunately, this year was a bit higher due to $700 of unexpected dental work for me…oops. Either way, our total medical costs were less than the amount contributed to our HSA by Mr. RFL’s employer, so I’ll call it a win.   

Household Consumables – $1,309

This category includes most of the non-food consumables used in our household, such as toilet paper, shampoo, skincare, laundry detergent, cleaning products, batteries, etc. I target $100 or less per month for this category, but we did pay extra for and stock up on some items due to the pandemic.

Home Maintenance – $1,536

Our home maintenance costs are, and should be, reasonably low given that we’ve replaced nearly everything in our home over the past two years. A little less than half of this is pest control, which I hate paying, but am also an East-coaster who is terrified of scorpions. The rest is the usual, air filters and materials for minor repairs and maintenance of the home and yard.

Discretionary Spending (“Wants”)

These are the items that we could cut way back on if needed to due to a job loss or market crash. Discretionary spending, excluding restaurants, totaled $13,467 for the year. The amount is just over $15k with restaurants. Since any reduction in restaurant spending would lead to at least some increase in groceries, it seems safe to say that we have at least $14,000 in expenses, representing 25% of our annual spending, that we could fully eliminate if needed… at least for a short period of time.

I’ll just touch on a few of these categories for now.

Alcohol – $2,850

Let’s just jump straight to the line item that probably shocked you the most. Yes, I realize this is a lot to spend on alcohol. And no, we do not have a drinking problem.

I talked about this category more in the October expenses post, but the “TL,DR” is that we really enjoy craft beer and good wine. This has always been a high value-spending area in our budget, though it did increase quite a bit this year after our Fall 2019 trip to Sonoma and Napa Valley.  

We’re planning to reduce this back to our normal spending in 2021, with a budget of $1,400. Mr. RFL thinks we’ll blow this budget, and he’s probably right… but it will certainly be less than $2,850.

Travel – $1,992

Travel spending was low this year due to the pandemic. Our big Maui anniversary trip that would have cost at least $4,000 turned into a road trip to Moab, Utah for less than $1,000.

We travelled together a lot the first few years of our relationship, hitting up nearly 30 countries. But having a child, moving across country, and then the pandemic have certainly slowed us down. We’ll get back into it again, perhaps focusing on the West coast of the USA while we live out here. The travel budget for 2021 is $4,500.

Entertainment – $769

This category is for television, streaming music, books, games, concerts, and happy hours. Most of the spending for 2020 was for television in the first 10 months of the year. In October, we cancelled most of our television streaming to save money and do more useful things with our time.

Clothing – $783

I am the shopaholic in this house. However, I did embark on a 1-year clothing ban for myself starting in June 2020, which is still going strong! Spending is much lower this year. Mr. RFL still needs the occasional purchase to keep his minimalist wardrobe looking professional. And the little one outgrows clothes every month, though we have managed to save a lot by sourcing second-hand clothes for her. The 2021 budget is $520.

Furniture, Tools & Other Home Purchases – $3,818

This category encompasses pretty much everything else we buy for the home, so a lot.

The biggest purchase this year was an outdoor dining set and two large umbrellas to make our back patio more bearable in the heat ($942). We also bought 6 barstools for the new kitchen island ($391), an air purifier ($291), twin mattress ($180), Nespresso machine ($149) and some other small appliances, organizational storage, tools, and home décor.  

The 2021 budget for this category is $2,400.

2020 FINANCIAL RESULTS – PASSIVE INCOME

While we don’t share W-2 job income, a decent portion of our income is from sources outside of employee wages. Some of these sources are job-related (i.e. 401k match, deferred income, & wellness benefits); however, a large portion is not.

Here’s a break-out of our Non-Employer Related Passive & Other Income for 2020:

Dividends & Interest

This is the category I really care about because it represents true passive income, which is not only sustainable, but should grow with our investments.

Our dividend & interest income total for 2020 was $11,725, which would cover 21% of our expenses this year (and 23.5% of our planned expenses in retirement).

Dividends were up 55% over last year; however, this increase was partially offset by a less interest income from cash as we used $70k of our renovation SINK fund early in the year and interest rates tanked.

Reselling

This one shocked me. It’s way up from last year’s measly $209. This is split almost equally between Facebook Marketplace and Poshmark sales. With more time on my hands, I was able to declutter and list more items to sell in 2020.

Cash back rewards

This includes cash back from credit card rewards, as well as earnings from Rakuten (formerly E-bates) and Ibotta. We were able to put a large portion of renovation costs on a cash back credit card (paid in full each month), which helped to bump these earnings up in 2020.

There you have it, our 2020 financial results.

We’re ready to rock 2021! How about you?