We are coming up on a year of living in California and are now largely accustomed to this new lifestyle. We have our routines and most things are on autopilot, including our spending.
With our big move I had framed out a rough budget and recently reviewed our expenses to make sure it was at least in the right ballpark.
Below I answer some frequently asked questions:
- how much do we spend?
- where does the money go?
- where does the money come from?
Let’s go.
California Dreamin’ Budget
We now live full-time in the Sacramento area, home to good schools, lots of sunshine, and a ton of farmer’s markets, with easy access to snowboarding, bike trails, and water sports.
We live a simple life – we spend a great deal of time at home, enjoying the amenities (pool, hot tub, sauna, hammock, etc…) Our garden and finely tuned cooking skills provide endless joy and entertainment.
Times away from home are often adventure focused, kid activities or the aforementioned snowboarding, biking trails, and water sports. We spent spring break in Hawaii, started summer with a coastal road trip, and will end it with a camping trip near Yosemite.
With that context, our core cost of living is about $75k/year. Somehow that is about average for us.
Here is the breakdown
Housing
We own a 4-bedroom (pseudo 5-bedroom) house with a large garage and a pool on a big lot with an abundance of greenery (photos here.) There is a small mortgage.
On a monthly / annual basis, we spend:
- Property taxes: $835 / $10,000
- Utilities: $600 / $7,200 (natural gas, electricity, water/sewer/garbage, internet, cell phones, pool care.)
- Mortgage interest: $565 / $6,780
- Maintenance: $375 / $4,500 (estimated, ~1% of structure value)
- Insurance: $90 / $1,100
- Total: $2,465 / $29,580
Our solar panels bring down the utility bills a bit (bill has been $0 or negative the past 3 months.) We are in the process of switching to a heat pump which will bring down natural gas prices ($15 in August, ~$500 in January.)
We use Google Fi for cell phones, it is great. Get $20 off when you switch (affiliate link, we also get $20.)
Food
We eat most meals at home – ribs on the smoker, home made bread, amazing salads from the garden, etc…
The restaurant scene isn’t that great in the burbs, but we do eat out on occasion. Lunch at one of the “steak and seafood” places near here is pretty good and there are $100 gift cards at Costco for $80. On our recent coastal road trip and trip to Hawaii we ate out for all meals which brings up the average (free “breakfast” in the hotel most days though.) I think of meals on vacation as vacation expenses, but all expense tracking software automagically lumps them into the food budget and I’m too lazy to change it.
- Groceries: $1,000 / $12,000
- Dining out: $500 / $6,000
- Total: $1,500 / $18,000
garden salad with shrimp and chicken with home baked bread (greens and tomatoes from our garden)
Car / Transportation
We get around by walking, biking (e-bike and old skool, both), and car (EV.) Winnie is grocery shopping at this very moment with our e-bike, for example.
We will put over 7,000 miles on our EV in a year, most from bigger excursions – 150 miles round-trip to snowboard, 300 miles round-trip to Yosemite, etc… It costs $6-$7 to “fill the tank” at home, but we got 3-years of free charging with vehicle purchase. Spent $0 on fuel for recent 500-mile road trip. Costs <$0.10 to charge the e-bike.
- Interest on car loan: $100 / $1,200
- Maintenance: $100 / $1,200 (estimated, so far $0. Includes tires.)
- Insurance: $85 / $1,020
- Fuel: $20 / $120
- Total: $305 / $3,660
Health / Health Insurance
Health insurance is a big expense in the US. We have a silver plan via the ACA with a low-deductible. The kids are on a Medi-cal plan through the State of California.
- Health insurance for 2 adults / 2 kids: $75 / $900
- Health care: $100 / $1,200 (deductibles, co-pays, dental, etc…)
- Gym membership: $150 / $1,800 – lap pool, “free” childcare – also have home gym in garage
- Total: $325 / $3,900
Taxes
As US and California residents we have to pay a bit more in taxes than we paid before. Thankfully California is a low-tax state.
- US Federal government: -$200 / -$2,400 (refundable child tax credit for 2 kids)
- California: $83 / $1,000
- Self-employment taxes – $500 / $6,000
- Total: $383 / $4,600
Property taxes included in housing.
Travel / Vacation
We will have an annual +/- trip to Taiwan to visit friends and family and to provide some Chinese immersion time for the kiddos, plus the odd vacation / getaway / road-trip / excursion.
I enjoy the travel hacking game so we get some good deals – a recent 7-night trip to Hawaii was $630 plus food, for example (4 flights, a big hotel suite, etc…) Our coastal road-trip was free-ish (4 free night certificates plus free fuel.)
Our travel / vacation budget is above and beyond what we are able to get for free-ish.
Hawaii is nice
Entertainment / Kid Expenses
We are simple folk – entertainment is food, friends, and family, with a bit of travel.
Kid expenses are highly variable – sports cost $150 or so plus gear, boat camp this year was $400 for a week, swimming lessons cost $150 for 2 weeks.
We have zero childcare expenses as we are with our little one 24/7, except for the occasional visit to the gym.
- Entertainment / Kid expenses – $500 / $6,000
Another Double
Misc
We spend money on other things that don’t fit into the larger buckets – gifts, donations, random stuff.
Summary
| Cost of Living | Monthly | Annual |
|---|---|---|
| Housing | $2,465 | $29,580 |
| Food | $1,500 | $18,000 |
| Transport | $305 | $3,660 |
| Health ins/care | $325 | $3,900 |
| Taxes | $383 | $4,600 |
| Vacation | $500 | $6,000 |
| Entertainment / Kids | $500 | $6,000 |
| Misc | $375 | $6,000 |
| Other stuff I probably forgot (round to $75k annual) |
$280 | $3,360 |
| Total | $6,250 | $75,000 |
Cash Flow
In addition to the expenses listed above, we are paying down several low/no interest loans. The interest portion is a real expense and is included in our budget.
Contributions to IRAs / HSAs / 529s / etc… just involve moving money from account A to account B. Net worth remains the same before and after. These transactions may impact taxes but are otherwise a neutral event.
Principal pay down on debt is similarly net worth neutral.
These transactions do however require cash flow.
Total debt ~$300k. My expectation is that inflation helps erase these debts, e.g. our 2.75% 30-year fixed mortgage is basically free money.
- Mortgage principal: $455 / $5,460 (fairly flat in first few years)
- Car loan principal: $645 / $7,740
- Credit card 0%: $375 / $4,500
- Traditional IRA contributions: $500 / $6,000
- 529 contribution: $25 / $300 (will cancel soon, just did this to get a $25 Target gift card.)
- Total: $2,000 / $24,000
When combined with our $75k annual expenses, we need to somehow have access to 99,000 dollars to make it through a year.
Not included: vehicle replacement value, future big expenses (e.g. kids’ college, my 50th birthday party), home improvements that are above and beyond maintenance, perhaps a 2nd car or a boat, etc..
Where the money comes from
We have some income, fortunately:
- Blog profit: ~$40,000 +/- $5k (details here.)
- Blog “expenses” that are already factored into the budget: $5,000 (home office deduction, etc…)
- Dividends in taxable account: $30,000
- Total: ~$75,000
This provides sufficient income to cover our core expenses, but is ~$25,000 short of our cash flow needs.
$25k is roughly equal to dividend income in our tax-deferred accounts, which is roughly equal to our debt maintenance + IRA contributions. Completely by coincidence, I’m sure.
This $25k gap will be covered by:
- selling stock – I’ve sold stock most years of our retirement
- debt
- earning extra money somehow (related: Everyone should blog)
- maybe spend a little less
- any combination of the above
Oh… and I plan to make a full contribution to my Roth solo-401k this year, so that is another $20,500 stock sale for 2022.
Summary
We spend about $75k on core cost of living and another $25k ~$45k on debt pay-down and retirement contributions.
Most of this is covered by various side hustle and investment income. The remainder is covered by debt and stock sales.
At the end of the day we spend less than 4%.
Addendum:
We have debt by choice. Since rates were so low and inflation so high, we chose to buy assets (house / car / house furnishings) with debt rather than sell stock.
Had we chosen differently, our cash flow needs would be $1.5k/month / $18k/year lower and our cost of living would be $665/month / ~$8,000/year lower, or about 20% lower in both cases. The interest portion will decrease over time as we walk down the amortization table.
The expectation is that this approach will result in greater net worth in the long run.
