What do our finances as a frugal family of five look like? Read on to find out! In this post, I use Sankey diagrams to illustrate the sources of our total income and expenses. Furthermore, I break down where we are saving our money and what our biggest expenses on. It’s financial voyeurism at its finest. Check out what finances for a frugal family of five look like below!
Mrs. GovWorker and I both work normal, W2 jobs. Our jobs account for most of our income. The non-W2 income on the graph comes from our tax return, money from informal side hustles, selling items we no longer need, and gifts. Yes. I know. Our tax return is not “income”. However, we treat it as such. My blog, my rules.
I was surprised at how large our amount of non-W2 income turned out to be for 2019. Since it comes in throughout the year in drips and spurts it never seems like a lot. However, over the entire year it ended up being equal to 6.5% of our gross paychecks, which is a sizable number. We save 100% of our non-W2 income, so this money really fuels our savings!
This category includes everything that the government takes out of our paychecks on a biweekly basis including medicare and OASDI. I did not include our property taxes. We escrow our property taxes with our mortgage so I put it in the “expenses” category. When I saw that 22% of our income went to taxes it seemed like a lot. It’s no wonder that the government breaks our taxes into a lot of subcategories on our pay stubs– it makes our taxes look a lot smaller.
Savings and Expenses
We saved 32% of our income and spent 56%. If you follow our monthly spending reports, you’d know that I claim we save closer to 50% of our paychecks (after taxes are taken out). That’s because I include our mortgage principal reduction in our monthly savings rate. If you remove the principal payment from our mortgage from our expenses category you end up with the diagram below. (We pay a lot of principal each month because we have a 10 year fixed mortgage) You can see there that of our income left over after taxes we save 41% and spend 37% (for a savings rate of 53%).
Frugal family of five finances- expenses
- Our mortgage (principal, interest, insurance, and property taxes) is our biggest expense. We pay a lot every month to live in an extremely bikeable neighborhood. On the other hand, our mortgage is less than what it would cost to rent an equivalent house in our neighborhood and it will be paid off by 2024 if not before.
- Daycare is our second biggest expense. I estimated the that Daycare will set back our retirement savings by about $2 million. But it is still worth every penny.
- Groceries comes in 3rd. However, we rock the grocery budget and spend well under the USDA thrifty plan for our family of five.
- My wife and I both get an “allowance”. While most of our money goes into joint checking, we both get a money deposited into a secret account that the other person can’t see. This works out really well for us. We don’t fight about whether someone is buying lunch at restaurants or fancy coffee. It’s a relatively large percentage of our spending (5%) but totally worth it to not fight about money!
- “Kids” only accounts for 2% of our spending. Obviously kids show up other places too (like owning a bigger house, buying more groceries, and paying for daycare). However, the kids themselves don’t actually cost that much. I thought Krisy Shen did a great recap about whether kids were expensive or not in her recent book (affiliate link). They can be more expensive than advertised in some respects, but in many ways are way cheaper than mainstream media suggests they are.
Frugal family of five finances- savings
Get ready to throw your stones and bring your pitchforks. What kind of a personal finance blogger puts 32% of his savings into paying off his house?
Yup. This guy. I wrote a little bit about it earlier. Yes. I know we should max out our tax advantaged accounts first. But– it’s super motivating to watch that number shrink to zero. And paying off the mortgage will give us financial freedom to live on a very small fraction of our income if one of us were to lose our jobs before we reach financial independence.
We are also putting a healthy amount into tax deferred retirement accounts, a little bit into Roths and some into our HSAs. I know there are optimal tax minimization strategies we could be implementing. However, I feel like we’re doing a lot of things right by saving a giant chunk of our income and I don’t have the mental bandwidth to optimize this further today. Maybe 2020 is the year I get my shit together and implement a tax optimization strategy.
Mrs. GovWorker and I also have to contribute a fair chunk of change towards our pensions. While we don’t include this money in our financial independence calculations, there is a high likelihood that we will both receive a pension around age 60±3.
The last thing to note is that we are putting a small amount into 529 plans for our daughters. We have a lot of conflicted feelings about that. But at this point, we feel like putting a small amount away for their college is the best of both worlds for us at this stage.