I can’t believe that another six months has flown by (or that another year is turning over on the calendar), but here we are again! It’s already time for my biannual spending, budgeting, and savings review, and we’ll be taking a look at how I did over the past six months to close out 2022.
Inflation continued to be the main theme through the remainder of the year both in peoples’ personal budgets and more broadly in financial markets; the CPI-U measurement for November showed a 7.1% increase compared to a year prior. This means that a household purchasing the same basket of goods as the CPI-U attempts to capture would be paying 7.1% more for the same than a year ago. Our “personal” inflation experience may differ based on how our individual consumption tendencies vary compared to the theoretical CPI-U consumer.
Six months ago I set the following two goals for myself during this latter part of the year:
- Hit the ever-present budgeting goal of staying on or under my new budget of $2,544 per month.
- Hopefully buy a house to get some more space and lock in our cost of living.
Let’s start with the second one; it’s probably obvious to those of you who have been keeping up with the blog that we did not end up buying a home. To the contrary I reported in October that we had stopped looking at homes completely due to affordability now being worse than 2008 and demonstrated that by normalized affordability metrics, it’s definitively the worst time in American history to buy a home for anybody under 60 years old.
According to Redfin’s data center, the median home price nationally has now gone negative in real terms year-over-year (the median sale price for the week ending 12/18/2022 was $352k, up 1% YOY, however with 7% inflation that is an inflation-adjusted YOY change of -6%). Our local housing market is in line with these percentages (albeit with higher nominal prices) but home prices have not softened nearly enough to counteract the effect of high mortgage rates.
We’re not willing to compromise on our other financial goals such as building wealth and retiring early in order to own a home, so that’s that. Renting is the wisest move for now, unless the housing market corrects (which I still think is inevitable) or unless mortgage rates fall drastically (which is not likely to happen within the next 1.5 years, listening to Fed chair Powell’s signaling and the expectations of bond markets). So that goal is shelved for now, unless something unexpected occurs in the real estate market or otherwise in our lives.
Next let’s turn to my ever-present budgeting goal. Six months ago I set a budget of $2,544 per month for myself. To see whether I met my goal, we will have to take a look at my actual spending over this period:
I denoted the expenses for our upcoming wedding in yellow because that’s a category where I had some sizeable spending but hadn’t budgeted for. I like the idea of creating a temporary category for this outflow rather than leaving it under the Uncategorized catch-all.
Unfortunately I was once again over budget, this time by $65.69 per month or 2.6% of my spending goal. But I consider this past 6 months to be a huge financial win. I’m definitely not going to beat myself up over missing my goal by such a small amount when considered in the broader context of my financial picture which is looking great thanks to the compounding effect of many years of diligent effort.
As I mentioned earlier the name of the game recently has been inflation, and one thing that I don’t do is try to build inflation expectations into my budget — really that would be quite silly and my prediction would mostly be wrong anyway. It is fun to look at in hindsight though especially in periods like this. Interestingly over the past 6 months of available data (June to November 2022) from BLS, the CPI-U increased by 2.3%, which was very close to my 2.6% overage. I could calculate my personal inflation rate which is likely an interesting topic for a future article, but using the CPI-U as a rough measure it’s clear that my expenses rose about in line with inflation.
The standout category this time was Clothing/Shoes, because I remember writing about a similar overspend in this category during my previous budget review. This time it is mainly because I ended up having to buy a new suit which I have already on several occasions needed to wear; at this point it has nearly “paid for itself” in comparison to the cost of rentals, and I’m sure fits much better. This category continues to be frustratingly lumpy over time, and I will wait for another data point before I decide whether to increase my budget for Clothing/Shoes, because I know that I have historically gone long stretches without buying any new items.
Everything else is looking really good, besides a small overage in Groceries. I did spend under budget in several categories which helped me to still come close to meeting my overall spending goal despite not initially accounting for any pre-wedding expenses.
I’m very happy with my monthly cash flow figures. Even after maxing out my 401k, I’m only spending barely over half of the net pay that hits my bank account and saving the rest.
Budget Update, Net Changes, and Future Goals
I took this new data and updated my permanent budget with it. In the net change column, red indicates an increase in monthly spending in that category, whereas green indicates a decrease in monthly spending in that category. I’m using yellow to denote a temporary category which will fall off of my budget in the near future.
Here’s the rationale for every value change explained in sequential order:
- I included a temporary budget line for additional wedding planning expenses for deposits and other related expenses leading up to our wedding. We are getting married in the second half of 2023 so that will be when the largest capital outflow will occur — expect some articles related to wedding planning, and the financials of marriage coming at some point this year.
- Factoring in my upcoming raise for 2023. I’ll be making some more money to help offset the impact of inflation on my finances.
I didn’t change any other existing categories because I think I did a great job of sticking to my budget for the past six months, and I’d like a challenge to do it again. The fun part about keeping your budget the same over time is that if you do meet your goal, you’re actually spending less in real terms thanks to inflation (and hopefully your pay is creeping up at the same time, which effectively means you’re reducing expenses).
Setting my financial goals for the first half of 2023, I’m aiming to:
- Hit the ever-present budgeting goal to stay on or under my new budget of $2,744 per month.
Honestly that’s all I can think of for goals, as I’m happy with my overall spending. I’m firmly in financial “coast mode” yet appreciate these budget reviews twice per year to make sure that my spending isn’t drifting wildly off-course.
Let’s take a look at my total cash inflows to savings and investment accounts over the past 6 months:
Again a number that I am very happy with. This puts me at about $61.5k total saved into my various financial accounts during 2022.
For 2023 I think I will be turning more attention towards my taxable brokerage account, now that my down payment fund is established I have little need for more cash on hand.
Net Worth Check-up
June 30, 2022 Net Worth: $266,915
December 31, 2022 Net Worth: $301,720
6 Month Change: $34,805
As usual this is just a fun exercise and I don’t stress over changes in my net worth over such short periods; they’re mostly just a function of market volatility. Over the past six months markets have been up some, down some, and back up a little to mostly end where they were at the start of July. So the majority of the gain in my net worth is mostly attributable to my own contributions.
I did take advantage of the market volatility to do some tax-loss harvesting of the investments that I hold in my (small) normal brokerage account with Vanguard. I swapped VTSAX for VLCAX, and VTIAX for VFWAX. I realized about $1,700 of losses which I will use to offset against my income when I file my taxes and net a nice little windfall of several hundred dollars.
Happy New Year! As always, thanks for reading and here’s hoping that each of us hit whatever financial goals that we choose to work towards in 2023.