Income vs. Expenses Showdown- 2012 Against 2011 2

Okay, it’s time for the tale of the tape. To hold myself accountable and chart my frugality and savings progress I track my income and expenses monthly and have done so since the beginning of 2011. I do this with the assistance of Mint, which is a wonderful free resource able to consolidate accounts and track spending in one place. I purchase 99% of items with credit cards to take advantage of the rewards programs (paid off in full monthly, of course!)

This process has made me much more conscious of spending and has encouraged me to “game” against myself and create mini-goals to improve certain areas, and provides me with the data to make future decisions towards my goals. I strongly recommend those seeking to grasp better control of their finances, especially in the beginning phases of their financial journey, to utilize this process.

INCOME

I earned two raises during the year and also worked around 80 extra hours overtime near the end of the year to contribute to my 13% yearly boost in income. I’m very pleased as this is the biggest yearly bump I’ve had thus far in my career.

EXPENSES

 My total spending was up $3,267 this year. However, this figure includes over $6,700 spent to purchase a used vehicle (details forthcoming in future post). Deducting the purchase price of the vehicle results in a 17% yearly reduction in spending! The great news is that my spending still presents large slabs of fat I aim to trim going forward. I began 2012 with three targeted spending categories to focus on decreasing including:

• Housing- I moved into a new location part way through 2012 which helped me lower my monthly expenses significantly.
• Groceries- I credit Costco for helping me lessen the grocery expenditures. Relying on Costco for dietary staples allowed this spending cut despite the big yearly jump in inflation at the grocery stores.
• Restaurants & Bars- I acheived a smaller than desired spending cut in this area. This figure is exaggerated by the fact that I almost always grab the check when going out with my girlfriend, and the fact that I’m living in a big city for the first time which presents all types of exotic and delicious cuisine within a few mile radius.

SAVINGS

 It’s not how much you make, but rather what you save! That’s why my focus is to continue growing my income while minimizing expenses to expand my net worth. Overall, 2012 was a banner year as I managed to increase the gap between my earnings and expenses by $11,531 for a total gap of $53,599 to be plowed into investments embracing the power of compounding interest. This far exceeds the $42,068 I managed to save in 2011 and bumps my savings rate from 67% to 75%!

Mr. Money Mustache illustrates how savings rates correspond to financial independence beautifully in his post: http://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/

Using his figures, a continuous 75% savings rate will grant financial independence in seven years! That’s a hugely encouraging figure and I’m aiming to bump my savings rate up again in 2013 on my march to financial independence.

Image courtesy of Evgeni Dinev/FreeDigitalPhotos.net