October 2012 Monthly Expenses

by FI Fighter on November 3, 2012

in Monthly Expenses

October was a great month for savings. Not only did I receive my signing bonus for the year, but I also tightened up on spending, and deployed more capital to purchase even more stocks. At times, the market was pretty beat up in October, so I tried to use this to my advantage by picking up shares of discounted companies. I am slowly, but surely building up the passive income portfolio!

One of my original goals for this year was to build a portfolio that would be valued at $60,000 by the end of the year. I hit that mark this month, and should the market cooperate, I will be able to check off this goal as successful at the end of the year. Going forward, I will set goals focusing on dividend income received as opposed to total portfolio value (which will always be volatile).

Further, I succeeded in reaching my fourth goal, which was to contribute up to the maximum ($17,000) in my 401k. Maxing out my 401k was a secondary goal for this year, as I had already been doing so since I first started working full-time. However, my current employer has a wonderful matching policy, which made it very difficult to pass up the free money. I told myself I would make an attempt to contribute up to the maximum, but would stop if I ever found myself needing the extra cash. Luckily things worked out ok (it helped that I switched jobs and received a higher salary/bonuses), and I was able to reach this goal.

I am striving so very hard to reach early financial independence, so I need to concentrate more on building up my taxable portfolio. I’ll need the taxable account to fund my freedom since my current plan is to not take an early withdrawal from any of my retirement plans. The Roth IRA and 401k are off limits until traditional retirement age. Since I’ve already contributed so much into the 401k, the foundation has already been put into place. I figure I will have at least 30 years or so to let this thing continue to compound and grow. Maybe next year, or the year after, I’ll stop making contributions to the 401k altogether.

Expenses were steady, and pretty much consistent with the previous month. I did spend a little bit more on food, but other costs were mostly minimized.

The rental property is doing well, although I did have a slight surprise this month. I found out that the trash and recycling are not included in the water bill, but are instead billed to the homeowner every four months. Since I wasn’t aware of this, I didn’t factor in this cost when the lease agreement was signed. Therefore, it would be difficult for me to try and force the tenant to pick up this tab now. I figure it probably isn’t worth the hassle, and as long as they pay their rent on time and take care of the property, I’ll let this slide and eat the cost myself. It’s about $30/month I will be losing on the bottom line. Oh well. I’ll just have to make sure future tenants are aware that they will have to account for the trash and recycling bill separately from their water bill. Lesson learned.

Lastly, I’ve decided to change the way I calculate the savings and expense ratios. Previously, I lumped all the rental expenses and rental income into both these categories which skews the total savings rate downward. For instance, the mortgage, HOA, insurance, etc. are fixed costs which totaled $1404.85 this month. The total income I received for the rental was $2090. The expense contribution of the rental alone is 67.2%. The rental property’s contribution to the total savings rate would be 32.8%, which would drag down the total savings rate by a large percentage. Obviously, this doesn’t make any sense since the rental property is making me money and actually improving my savings rate!

So, if I exclude the rental property expenses, and only consider the rental profits to the total savings rate, this gives me a better representation of my real spending habits. Besides, the mortgage isn’t really an expense anyway, since it helps build equity.

When adding in my yearly bonus, I was able to save over $8000 this month. But instead of going on a material shopping spree, I did the shrewd thing and invested the capital into stocks. I went on a different type of shopping spree and made a total of eight purchases this month, an all time high! I picked up shares of: Caterpillar (CAT), Cummins (CMI),  (2) Kinder Morgan (KMI), Intel (INTC), Air Products and Chemicals (APD), Abbott Laboratories (ABT), and Norfolk Southern (NSC).

Here are the dividends received this month. October was a slow and lonely month with only one holding, Coca-Cola (KO) paying:

{ 16 comments… read them below or add one }

1 Compounding IncomeNo Gravatar November 3, 2012 at 8:32 pm

Wow what a month! You say you are slowly building up your portfolio, I disagree. It’s growing like wildfire.

I don’t know how much income you are aiming for until you call it quits. I would say that if I were you I’d be focusing on my taxable account and rental properties. However all is not lost with the 401k. When you retire you can roll it into an IRA then do a SEPP. You’ll be able to access the money without penalties over a 5 year period, but will probably have to pay taxes. You can withdraw any contributions you made to your ROTH IRA before normal retirement age but since you’ll be retiring so young I’d skip the ROTH!

You ought to spend some time researching a SEPP. I think you’ll find you’ll have more assets at your disposal. Sounds like you make a killing at your job, it might be worth working a little longer to have a better quality of life at FI!

Awesome month!

Reply

2 FI FighterNo Gravatar November 4, 2012 at 9:00 am

CI,

Thanks for the encouragement! Also, I appreciate the input about the SEPP/potential options for early withdrawal.

I’ll spend some more time reading up on these options. Still, my current plan is to try and fund/sustain early retirement without having to withdraw from these retirement funds, if possible.

Call me conservative, but I like having the extra margin of safety in place. It would be even nicer if Social Security is still kicking around. I don’t spend too much anyway, so I’m hoping the combination of taxable dividends + rental properties will be a formula for success.

You’re probably right about focusing more on the taxable account + rental properties. I do want to add another property next year, so may very well have to stop the 401k. The Roth IRA is only 5k, so that won’t be too much of a constraint.

Best wishes!

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3 shawnNo Gravatar November 4, 2012 at 12:01 am

WOW!! I wish I had $8,000 a month to invest in some more dividend growth stocks. I’m about the same age as you (28) but have no where near the income you have. Great work here. Can’t wait to read next months report.

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4 FI FighterNo Gravatar November 4, 2012 at 9:03 am

Shawn,

Thanks! October was a great month, but unfortunately bonuses aren’t paid every month. Having $8000 in investment money sure makes it much simpler to buy stocks on a frequent basis. Then you don’t have to miss out on any good deals. It kind of feels like you are at a buffet (or Warren Buffett), and you can sample anything and everything you want.

Also, having so much income in one month is abnormal for me, but it does make me scratch my head and wonder what managers, directors, VP’s, etc. actually do with all their spare cash? You can only own so many jet skis and yachts, right?

Take care!

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5 The StoicNo Gravatar November 4, 2012 at 3:48 am

Solid month FI. Eight purchases eh? Nice. I was on the buying side with you on NSC and INTC.

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6 FI FighterNo Gravatar November 4, 2012 at 9:09 am

Stoic,

Great timing on NSC and INTC! It’s funny, we both have 100 shares of NSC now.

I can see that you are a patient guy, as you waited until just the right moment to get in on both.

Maybe you have a special knack for timing, and day trading could be your cup of tea 😉

Cheers!

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7 JC @ PassiveIncomePursuitNo Gravatar November 4, 2012 at 7:48 am

Looks like you beat me with your 8 purchases, I only made 7 in October. Congrats on maxing out the 401k. I wish my employer would give a 100% match with no cap. Congrats on a good month!

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8 FI FighterNo Gravatar November 4, 2012 at 9:16 am

JC,

Haha, yeah I noticed that you made 7 purchases in October, so I just had to do one better than you 😉

Yeah, the 401k matching is great. Although to clarify, the employer doesn’t actually match me dollar for dollar up to the full $17,000. That is, I won’t be contributing $34,000 in any given year.

How they define the match is that they will match a portion of your contributions all the way up to the max. After doing all the math, it comes out to be $4000 of free money, which is about 23.5% of $17,000. However, if you don’t contribute up to the max, you would get less than the $4000.

I’ve worked at other companies before in the past, and the most I ever received was like $1000-$2000. So, it’s still very hard to pass up on the free $4000, which encourages me to reach the max.

Best wishes!

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9 Dividend Growth MachineNo Gravatar November 4, 2012 at 8:38 am

$8,000 in savings is fantastic. It certainly represents a lot of fuel for buying dividend growth stocks, which you have been doing well. Congratulations!

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10 FI FighterNo Gravatar November 4, 2012 at 9:20 am

DGM,

Thanks! $8000 is definitely a lot of ammunition to fire off in any given month. I hope I don’t get spoiled b/c I won’t have $8000 every month to work with, sadly.

Next month, it will be back to reality.

Cheers!

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11 Dividend MantraNo Gravatar November 4, 2012 at 9:09 am

Holy smokes man! $8k in savings. That’ll make you smile! 🙂

It seems the rental property is already really working out for you. Congratulations on your success there.

At this rate, you’ll definitely be financially independent at a young age. Keep up the fantastic work and keep your eye on the ball. It’ll be yours before you know it.

Best wishes.

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12 FI FighterNo Gravatar November 4, 2012 at 9:26 am

DM,

Yep, I love bonuses! I only wish they arrived in my bank account more frequently 😉

The rental property has been very good so far. Although another hiccup just recently occurred, which I will do a post on. The extra cash flow is definitely nice, although I am now contemplating using the profits to help pay off the mortgage faster. That is, make extra principal payments. Up to now, I’ve been using the profits to purchase more stocks. It would be a plus to pay off the property sooner rather than later.

Thanks! The path to financial independence is a slow one, for sure, but it’s one I very much believe is worth achieving. It’ll be a glorious day when all of us early retirement chasers reach the top of the summit!

Take care!

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13 JC @ PassiveIncomePursuitNo Gravatar November 4, 2012 at 5:59 pm

I guess the decision comes down to what your interest rate is on the mortgage for the rental property. With as low as the rates have been it might be less than what you can get from dividends alone if you invest the difference. Although there is a feeling of calm and assurance knowing that it’s paid off and you’re debt free. I know i loved the day i got to pay off the last of my debt.

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14 FI FighterNo Gravatar November 4, 2012 at 9:47 pm

JC,

The interest rate on the mortgage is 3.75% currently. This isn’t astronomically high or anything, so I should be able to invest the money in the market and obtain a higher yield (by picking the right stocks, of course).

Still, like you mentioned, the sense of calm and peace of mind you get from being debt free is rather priceless. I would say in general, purchasing a home requires leveraging, and although it can be a powerful tool, ultimately it is debt.

Since I’m aiming for early FI, I would like to be able to reach it without still having 15-20 years of debt remaining. I’m confident I’ll still be able to continue building the passive income portfolio while doubling up on the mortgage payments. But we’ll see.

Thanks for the comment!

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15 SamirNo Gravatar November 6, 2012 at 11:57 pm

GREAT job, FI! 8K in one month is amazing. The rental property income of nearly $700/month is fantastic. I have actually been looking into that avenue for creating additional passive income and hope to achieve the goal of purchasing a rental property some time next year.

Keep up the fantastic work; you are well on your way to financial independence!

-Samir

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16 FI FighterNo Gravatar November 7, 2012 at 5:37 pm

Samir,

Thanks! The rental income has been good so far. But like most good things, they don’t come free. One of the reasons I really like dividend investing is that it is almost truly passive income (you still need to monitor your holdings every now and then). With a rental, it’s more like semi-passive income, and calling it that is somewhat of a stretch. For rentals, Murphy’s Law gets applied in full effect!

You’re doing an amazing job yourself. You almost hit $500 in dividends in October, which is generally a slow month!

Cheers!

Reply

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