Real Family Budget Update — December 2020

Happy New Year friends!  It’s time share our real numbers budget from December and tell you how we finished off 2020.

We made a couple of big financial moves during December that might be interesting to you.

We refinanced our house again!  We bought the house four years ago and this is the third time that we’ve refinanced!  It sounds kind of crazy, but each time the numbers made sense.

We used owning.com again, since their rates were about as low as anyone’s and they offered to pay all the closing costs themselves again. Our last re-fi went really smoothly and this time was about the same.  It was 11 days between the first phone call and the final signing, which was nice and fast. It took Mike just over 2 hours to get the loan approved, and about another 1 hour for each of us at signing. The total transaction costs were $45, and we rolled our 15-year mortgage from 2.875% to 2.375% interest.

The result is that our 4 hours of work saves us about $3,500 in interest, if we pay off the house in five years. If we decided to pay it off more casually over the 13-year term remaining on the old mortgage, the savings would be just under $10,000. We can’t make $875 an hour doing anything else, so it absolutely made sense. If you’re paying 3% or 4% interest on your mortgage, you should really look at whether it makes sense to re-finance the loan. There are very few things with that sort of hourly return on your time.

The second big item for the month was to make an extra $16,000 in charitable deductions. That may sound crazy, but it’s a tax minimizing strategy, and since we have kind of a crazy tax code, sometimes the ways we deal with it are a little unusual. This is how it works. Our major itemizable deduction each tax year is charitable giving, a large portion of which is a 10% tithe of our income. By taking nearly all of the donations that would normally be for 2021 and making them at the end of 2020 instead, we’re effectively bundling two years’ worth of giving into a single tax year.

That means that in 2020 we have a larger itemized deduction, and thus have a smaller tax bill. In 2021, we’ll have very few itemizable deductions, so we’ll take the standard deduction.

The effective result is that we pay about $3,000 less in taxes over the two years. That’s $3,000 we can put toward our mortgage or our other financial goals, just by changing the timing, not the total amount, of our donations. So that’s what we did.  For a longer walk-through, you can check out this article where we first discuss the idea.

Now, let’s jump into the numbers. For a live budget walkthrough in YNAB check out the video below. For all the written details, just scroll on down.

Income Earned in December – $14,167 (includes $4,800 stimulus)

We live on last month’s income. If that doesn’t mean anything to you, check out the video explaining how living on last month’s income changed our lives or the post explaining how we got to that point.

This income section shows the money we earned in December, which has all been set aside to use in our January budget. The spending section below shows the money we earned in November and spent in December.

Attorney Income – $6,988 Mike works as an attorney for the state of California. This is his take-home pay after taxes, social security, and health insurance premiums. He recently got a pay increase, but still has the pandemic-related 10% pay cut like all California state employees.

Blogging Income – $1,379 This is my blogging income after expenses have been taken out. My blog has really taken a backseat to life right now, but I’m thankful that it still brings in something even if it is neglected.

Rental Income – $1,000 We rent the one-bedroom apartment on our property. We’ve had it listed on Airbnb for the last few years, but we have a long-term renter now instead. Though we make much less in rent than we did with Airbnb, there are some big perks. We don’t have to clean and turn over the apartment between stays and with covid it’s nice to have something steady. We expect that we’ll go back to Airbnb after our current renter moves out. If you’re thinking about renting out your space, check out Mike’s post about dealing with insurance for your Airbnb rental or our explanation of how we handle our Airbnb finances.

Covid Stimulus- $4,800 We received our stimulus deposit of $600 per person at the end of December.

Spending in December

Each month we budget the previous month’s income down to zero. This is how we spent the money we earned in November.

Giving

Tithing – $17,025 We always pay a 10% tithe on our income. This tithing (like all of our December spending) comes from the money we earned in November. This month it’s actually a 10% tithe on all of next year’s expected income as well, as we talked about above, for tax purposes. You can read our thoughts on paying a 10% tithe, and see a longer walk-through on the tax benefits of doubling up two year’s worth of charitable donations.

Fast Offering – $100 Each month we take one day to fast (go without food and drink) for two meals and contribute to a charity program that helps provide for the local poor.

Monthly Bills

Mortgage – $2,837 We re-financed our 15-year mortgage to a rate of 2.875% back in December 2019, which was an amazing rate then. Rates have gone down even more since then; as low as 2% APR today! If you have dependable income and a mortgage, there’s serious savings waiting for you on one of life’s biggest expenses. Mike shares our experience with a true no-cost mortgage re-fi, with all the numbers you could want. Anyone with a current mortgage rate above three percent is likely to find a better rate now. Check out the post to see how you might be able to save.

Electricity – $173 Our electric bill covers both our home and our rental. Our house and rental are both completely electric, with no gas or propane.

Car Insurance – $78 We took Mike’s vehicle off the insurance at the beginning of the pandemic when we realized he would be working from home indefinitely.  We’re essentially a one-car family now and saving on insurance and registration. We have insurance with USAA and love them! If you, your parent, or your spouse were/are in the military, you’re probably eligible for USAA too!

Internet – $70 Having good internet access at home is super important now with everyone at home for work and school. We’re so glad we invested in bringing internet access to our property when we first bought our house (a $5,000 investment)!

Water – $125 This bill comes every other month, so we set aside half of what we expect the bill to be.

Cell Phones – $50 We have two phones with Visible, a Verizon subsidiary that offers wifi calling and unlimited cell calls and data on the Verizon 4G LTE network, all for $25 a month! This isn’t the very cheapest cell phone option out there, but the Verizon 4G network is the only network with any signal at our house, and we’re at our house pretty much all the time now.

We used to use Republic Wireless, which costs less, and some readers rave about Mint Mobile’s great service and even lower costs, but neither of those has signal at our house now.

If you are paying more than you want for cell service, check out one of these three great and affordable companies: Visible, Republic Wireless, Mint Mobile.

Orthodontist – $61 Since our oldest gets her braces adjusted every other month, we’re treating this as a monthly bill rather than paying it all up front.  These payments will last for another year.

Disability Insurance- $151 This will replace about 2/3 of Mike’s current income for the rest of his life if injury or illness leaves him unable to work. Our income potential is our greatest financial asset right now and this insurance helps us protect it.

Piano – $120 Our oldest takes piano lessons.  The younger kids are still working with mom off and on.

Everyday Expenses

Food – $529 December was a normal month for grocery spending.  I took a look at the entire year’s grocery budget to see what the average was (because it was such a weird year with our quarantine food storage challenge and then some big stock up months).  While we spent more in 2020 on groceries than we ever have before, it still averaged out to less than $500 per month!  I will be talking about the step-by-step method of how we do this in Grocery Budget Hero!

Fuel – $134 We are loving our Covid gas budget.

Household Misc – $496 We spent way more than normal here because we bought a bunk bed for our girls.  It’s a nice solid wood bed that we found on Facebook marketplace for $250.

Clothing – $53 – We got a few things from Old Navy.

Animals – $66 We got two bags of chicken feed and some dog food.

Allowances – $70 Because our allowance system is age-based, we increase this monthly amount as kids have birthdays. We give our kids “practice money” as a weekly allowance.  You can read all about why we decided to pay our kids allowance that’s not directly tied to chores, as well as all the details of when and how much in this blog post.

Homeschool- $108 We get a generous budget through our homeschool charter (it’s a California thing), but there are some materials that it won’t cover and I got a few of those things in December.

Sinking Funds

For most of our budget categories, we zero out what is left at the end of the month and send it to our mortgage payoff goal, but in our sinking funds we set aside money each month for periodic expenses and let it build up until we need it.

The amount in bold is the amount we added to the fund this month. Any spending is noted in the comments along with the current balance of each fund.

We do not have separate bank accounts for these funds. All of the money sits in our checking account. We’re not worried about getting the money mixed up because we spend according to our budget category balances, not our checking account balance. We seriously never even look at our checking account balance unless we’re reconciling the account. We track our budget categories and spending in YNAB.

Medical/Dental – $400 added. We spent $145 on dental.  We hit our max out of pocket right at the end of the year, so we’re building this category back up again and hopefully we’ll hold onto more of it this year. Current category balance is $293.

Car Maintenance – $0 added. We decided to stop putting money toward this category for now. We have a nice balance and we’re only driving one car, and rarely, so we don’t have a lot of maintenance to do.  Current category balance is $3,973.

Christmas – $100 added. We spent $725 on some all things Christmas! Current category balance is $22.

Life Insurance – $75 added. Normally we add $75 per month here and then we have what we need for our life insurance premiums which will be due next November. Current category balance is $150.

Birthdays & Gifts – $0 added. We spent $94 on gifts in December. Current category balance is $212. 

Car Registration & Smog – $0 added. We aren’t adding to this category for now.  Current category balance is $461.

Family Fun Fund – $0 added. We didn’t add to or spend from this category in December.  Current category balance is $745.

Car Fund – $0 added. We were saving to buy a more efficient commuter car for Mike, but since it looks like he will be working from home for a while still, we’re pausing the $550 monthly contributions we were making to this fund. We actually borrowed $4,900 from this category to use for a tax strategy we talked about at the top. Current category balance is $159.

Preparedness – $100 added. I didn’t do any extra emergency preparations in December. Current category balance is $164.

Home Projects- $300 added. We spend $560 on things for the house.  Over Christmas week, Mike put in two ceiling fans, new towel racks in two bathrooms, got some pruners to use around the property, and bought some wood for the garden. The category balance is currently $40.

Investing

Kids’ 529s – $125 We know that $25 per kid per month invested for college isn’t much, but we’re not super concerned about college costs. Scholarships, grants, loans, and jobs during school worked for us. We may accelerate this savings later, but it’s not our highest priority now. You can read about our decision to start saving a little for college in this post.

IRA (Steph) – $500 With $500 monthly, I’ll max out my $6,000 IRA contribution for 2020.  Mike has a little over $700 each month deducted directly from his paycheck into a pension fund.

Mortgage Payoff Goal Progress

Our big financial goal right now is paying off our mortgage. At the end of 2018 we made a goal to pay it off in 5 years. We just finished up the second year of working on this goal.  You can read about our mortgage-payoff goal here and see the numbers for our most recent re-fi here.

We paid $1,536 of principal in our normal December mortgage payment, but we didn’t put any EXTRA toward the principal this month since we refinanced the house again.

We knew in November that we would be closing on a re-fi with Owning.com in December, and that there would be cash due at closing. Because of that, we had set aside $1,755 in November to put toward the cash-to-close.  When we got our final numbers, the cash-at-close amount was $1,839.  We used the $1,755 from November plus an additional $84 from December’s income to pay that cash-to-close. That left us with $1,027 of December income that we will put toward the paying additional mortgage principal once we can get to our new loan servicer’s website to make payments.

To be clear, the transaction costs of the refi were $45. Our old loanholder charged $25 to pay off the loan.  Our bank charged $20 to wire the cash-to-close to Owning.  That $45 is all we paid that we wouldn’t have had to pay anyway if we just kept the old loan.

The $1,839 is different. That’s the amount we paid out of our account at closing. It doesn’t include any traditional loan costs, like origination fees, appraisals, recording fees, or notary fees. All that was covered by Owning. We got to the $1,839 as follows:

Description	Cost (Credit) Amount
Pre-paid interest (between payoff date and start of January)	$214.54
Pre-paid property taxes for escrow account	$2,160.60
Pre-paid homeowner’s insurance premiums	$2,619.00
Remaining escrow funds rolled over from old loan	($4434.17)
Difference between $271,000 (rounded) loan amount and actual amount of payoff	($560.02)
TOTAL cash we actually wired at closing	$1997.66
Wire fee from our bank	$20.00
Refund check sent by Owning the next week for overpayment	($178.47)
Final cash	$1839.14

 

And after all that, our loan numbers now are:

Current balance (after the December 2020 payment, then rounded nicely by the refi): $271,000

For reference:

Original balance of 15-year mortgage: $372,700
Balance at start of 5-year goal (Nov 2018): $363,171

Percent of 5-year goal reached: 25.4%
Percent of 5-year time elapsed (26 mo): 43.3%.  Yep, we’re behind. We’re excited to make a much larger payment next month!

You can get this hand-drawn brick house printable progress chart here.  I love that it has LOTS of spaces (365 in total) so that we can color it in often and celebrate our progress!  It would work great for paying off your mortgage OR saving for a down payment.

Whew!  That was a lot of numbers.  Thanks for reading our personal finances made public!

How About You?

• How did your budget and/or debt repayment go in December?

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