A review of my household's budget

I have been trying to put together a better understanding of where my household spends its money. It proved harder than I imagined due to the fact that our expenditures often happen across multiple channels - sometimes on our American Express Credit card, sometimes of our HSBC current account, both jointly held between my wife and I, and sometimes of our individual Monzo cards, or even cash.

However, I spent some time consolidating our records across various channels and produced a relatively good idea of where we spend our money. This post is about an analysis based on that consolidation.

As an introduction, the analysis draws on 24 months of data, starting from 2020-October and ending in 2022-September. 24 months gives enough time to smooth out any minor ups and downs in the expenditure in months where major expenses tend to skew the data. Starting from October 2022 allows us to look at the expenditure on a regularised basis, so as to not factor in the lockdown periods of the pandemic, where expenditures were somewhat different, for obvious reasons.

In order to ensure that no one can double guess our exact income from these numbers, I have slightly obfuscated the numbers, by taking out some sections that are not relevant to this analysis, while keeping the statistical significance of this breakdown intact. Trust the proportions, not any reverse engineered absolute numbers!

For context, the percentages represent each slice as a percentage of our total post-tax income. My wife and I both have salaried jobs and hence our incomes comes deducted with PAYE and NI. So the numbers in this post use post-tax income as the denominator in the calculations. If you see Tax being only 2.6%, that's because that slice is the additional taxes we pay after we get money in our hands. Paying only 2.6% taxes on our total incomes can't happen while we are still living under HMRC's aegis!

For further context, we are a family of 3 living in a Zone 3/4 suburb of London, owning a terraced townhouse on 90% mortgage, with our child attending state primary school. We like to vacation 1-2 times a year abroad and perhaps a short local getaway once a year, and eat out between 6-8 times a month. My wife works fully remote, while I go to office 3 times a week, sometimes more. Based on government data, we are in the top-7% of household income in this country, so we are definitely blessed for what we have, but we aren't rich by any means and I believe our lifestyles mimic middle-class living in London. 

Rental Mortgage

In rather self-explanatory slice, this is the amount of money we have paid towards our mortgage over the past 2 years. This also includes some pre-payment that we paid from redemptions of our past investments. Without the prepayment, this slice would have been something like 30%. Clearly the biggest expense in our house is our mortgage. Given the high LTV of our house (90% when we bought) and the fact that we bought it somewhat late in our lives (just about touching 40 years in age each) making sure we got a 27 years loan (as against 35 years for younger people), this is likely going to stay high for a while, unless we put away a lot of our monies in the direction of paying off our mortgage early. That day may come, who knows!

Discretionary Expenditure

This includes everything that we choose to spend on a discretionary basis, including eating out, parties, events, sports etc. Vacations are included in this section, and so are one-time expenses like buying a car, or getting some upgrades done to the household. 

Household

This includes all of our non-discretionary household expenditures, such as groceries and essential home maintenance. This also includes fuel, day to day healthcare, online purchases on sites like Amazon, and miscellaneous spending of various types.

Childcare and Courses

This includes what we explicitly pay on account of our child - includes courses, after or pre-school clubs, and any tuitions we put her on. This is obviously not the full extent of our expenditure on our child, but represents the most explicit line items.

Insurance

This includes home insurance, car insurance, healthcare insurance (we have our own private family healthcare insurance), critical illness Insurance and obviously life insurance. It is a surprisingly large proportion of our expenditure, with some of the taxes being mandated by the government, but the rest allow my family to sleep tight at night. I chalk it up to "it is what it is and I would much rather be protected than not". 

Tax

As mentioned above in the context, this represent taxes we pay from our post-tax income, includes council tax and road tax for most part, but also a tiny representation from a small amount of tax we paid on some capital gains last year. 

Charity

This is one of the things my wife and I like to do - we like to do a little something each month, instead of waiting for our old age to give away parts of our wealth. We feel very privileged to be where we are and like to share some of it as we go along. By God's grace, we have been able to afford to do so, so we like to keep doing it. The 2.3% here is likely a small understatement, as some of our giveaways in 2020-2021 were from our monies in India and hence not counted here, but which we are now firmly doing from our incomes in the UK, so it is likely to land somewhere at about 3% in future years. So long as we can continue to afford it, we hope we can maintain that giveaway in the future too.

Utilities, Subscriptions & Commute

Largely self-explanatory, utilities includes gas, electricity and water, subscriptions include everything we subscribe for including BBC License, Now TV (from time to time), Netflix, Newspapers and Magazines. Commute is largely bus and train expenditures.

Investment and External Remittances

Last but not the least, this is the portion of our money we can put away, either by investing it, or by remitting it for our family's (or our own) use in India. The remittances are becoming smaller with time, as we have enough monies in India that we can put to use for such needs. I expect this section to be largely investment in the future.

Summary

I started off thinking about our expenditures in response to the cost of living crisis, that all of us are living through. I was wondering if there are expenditures we can cut. There is obviously potential here - mostly around the discretionary expenses. In fact I can see that the line item in our budget has seen some level of inflation in the past few months as everything has become more expensive and might need some moderation in the coming months. My purpose of doing this analysis, and sharing it with readers, is to have a medium term outlook of what it has been so I can plan properly.

I don't think too many households do this analysis on their own, forget having something ready enough to share with others. I am hoping that by putting this together, I have some frame of reference myself, as well as encourage others to analyse their own expenditures and write a post this like this themselves. If you write one, please drop a link in comments so I can go take a look. 

If you have comments about some of the expenses here - something too big or too small, call it out too. Would love to hear your thoughts!