The holiday season just came to an end and it feels like the right time to go back and evaluate how well we did in the year that just passed. Both my wife and I set personal and professional goals at the beginning of the year but if there is one thing we also look forward to is calculating our annual savings rate.

But before we get into the numbers let me share some of the highlights in 2019. This year was definitely an interesting one.

• Dealt with a lot of bullshit at work to the point I considered quitting.

• My wife had unexpected surgery.

• I found I needed surgery on my left knee for the second time.

• I developed sciatic nerve pain on my lower back.

• Our company got bought out so dealt with a ton of uncertainty

Despite all the shit at work and health issues we had to deal with, we’re thankful for a great year.

As a family we’re stronger than ever, our boys are healthy and my wife is doing great.

Our oldest started kindergarten and is having the time of his life.

The little guy started daycare and is now saying: Mami and Papi!

I’m still dealing with health issues but proactively addressing them.

Things stabilized at work and the future is looking bright.

On To The Numbers

First of all, calculating your savings rate depends on your ability to track your income and expenses. The math is simple but the challenge is pulling all the data together and having the will to run the numbers.

Today, there is simply no excuse.

Mint and Personal Capital are some of the big names in the data and money management space that allow connecting all your financial information so that you can have a one-stop-shop to track your income, spending and your net worth.

I’m a big fan of personal capital and like in previous years, I recently downloaded all the activity in 2019, plugged in income and expenses and estimated my savings rate.

The equation to estimate savings rate is pretty straightforward. You grab your take-home pay subtract your expenses, divide the result by your take-home pay and multiply the result by 100.

You can come across versions of this equation that include contributions to tax-deferred accounts or that don’t split your mortgage principal and interest.

This year we decided to keep things simple and did not bother subtracting the mortgage principal. The reality is that the additional complexity doesn’t make a significant difference to make it worth the effort.

We also don’t account for contributions to our tax-deferred accounts (which we maximize on an annual basis). If included, it would have just resulted in a higher number.

If you want to include those amounts be my guest. It is certainly a personal choice so do what you think is right for you.

The plot below shows our savings rate sitting at 55% for 2019. Later, I’ll share the main drivers leading to a lower number compared to 2018.

When the acquisition of our company was announced our stock skyrocketed. When we were given a green light I went ahead and reduced our exposure bringing home a good chunk of change.

We were certainly happy to bring the extra income but just keep in mind that it was something we did not expect or account for in 2019.

Having said that, one of the things my wife and I discussed was removing that amount to truly assess our performance.

We went ahead and did that but the story was not pretty.

If you see the graph below the one thing you should takeaway is that selling of company stocks saved our ass. Had it not been for that our annual savings rate would have been really low.

When we did the math, the sale of those stocks represented 52% of our annual income. If you couple that with a 20% increase in total spent you get less than stellar performance.

In short, we realized a 17% savings rate in 2019.

Now let’s look at the main expense categories that contributed to our savings rate, and more importantly, how they compare to 2017 and 2018.

All figures have been normalized to reflect % spend as a function of total expenses in 2019.

Mortgage

As expected, this continues to be the core of our spending at ~23%. This includes the mortgage of both our primary home and rental units. Even though interest rates have significantly dropped we were able to lock favorable rates at the time of purchase.

At this point, we see no value in refinancing but we’ll keep an eye out in case things change in the near future.

Education

No real surprises here. Our youngest joined his older brother at daycare and they overlapped for almost eight (8) months.

In the fall, our oldest transitioned to kindergarten so we look forward to seeing this category drop when we do this same analysis in 2021.

Groceries

I feel compelled to share numbers on this one.

We spent almost $1,200 per month for a family of four (4). Almost $100 more compared to 2018. Our boys are now six (6) and two (2), and boy do they eat.

We’ve talked to our friends (same family size) about these numbers and they’ve confirmed they spend a similar amount.

There’s no need to give ourselves a pad in the back just because they spend more or less than us. We’re trying to eat healthy (which usually translates into $$$) so we are still scratching our heads on what to do in 2020.

Travel

You have no idea how happy we were when we saw this category rising to close to the top. In our view, this was our top expense in 2019. We visited Miami & Orlando, Washington DC, Portland, Seattle, Scottsdale, and Charleston.

We plan to continue our travel hacking strategy in 2020; however, it’s going to get tricky and likely more expensive given the constraints imposed by the school calendar year. Regardless, I’m pretty sure we’ll figure it out.

Property Taxes

You can’t mess with this category … it is what it is.

The chart below could be misleading. The only reason you see a significant difference between 2017, 2018 and 2019 is because we paid 2018 property taxes in 2019.

As for 2018, we paid property taxes that same year to make sure we could itemize before the new tax law went into effect.

Restaurant & General Merchandise

A tie for 6th place.

Compared to 2018, we spent 28% less on stuff and 6% more on restaurants.

I should say that the higher spend on restaurants was heavily influenced by the six (6) trips we made in the year.

Overall, I think we did pretty well on these two categories

Paying Yourself First

We truly believe in paying yourself first. The concept is pretty simple. Before your take-home pay hits your checking account automate funneling money to all your available tax-deferred vehicles: 401(k), HSA and IRAs.

You can take it one step further and automate contributions to a brokerage account(s), a saving(s) account, etc.

The goal is to make sure that you take care of your future by putting money aside for retirement, and that whatever is left on your checking account you can spend guilt-free.

In 2019, we paid ourselves first by maximizing all my tax-deferred vehicles.

This is our second year doing the mega backdoor Roth which helped us maximize our contributions up to Defined Contribution Limit set at $56,000.

The table below shows our numbers.

Account Type	Amount
Pre-Tax 401(k)	$18,928
After-Tax 401(k) – Mega Backdoor Roth	$12,965
Health Savings Account (HSA)	$6,650
529 (1)	$3,375
529(2)	$1,975
Total	$43,893

Final Thoughts

2019 was an interesting year.

Some of the things that happen kind of slapped us in the face but at the same time made us stronger as a family.

We certainly spent more than in years prior but traveling had a lot to do with it.

Our challenge will be to up our game in the travel hacking space to see if we can bring our total number for the year down while keeping a similar number of trips.

Education should come down in 2020 but there’s a chance it could increase if our little guy starts attending more days in the week.

Groceries will continue to be the wild card and if we travel as much as we did in 2019, we’ll need to keep an eye on the restaurant category.

Liquidating company stock is something you should consider. I’ve been doing it almost every year (when stocks vest) with the intent of lowering our exposure to individual stocks. We’ve used the proceeds for investing in the stock market buying Vanguard funds and also real estate.

All in all it was a great 2019 and we look forward to an even better 2020.

Until next time … JJ