October 2016 Dividend Income And Expenses
October was a scary month, and I’m not just talking about Halloween. It was a month of big changes for our family…and change is often expensive.
Sometimes very expensive, and this month was no exception to that rule.
Expenses For October
Expenses for October clocked-in frighteningly high, at $6,796.61. This is over two thousand dollars higher than our monthly average!
“Aaaarrrgh!” is the word that comes to mind when I look at October. So where did we go wrong?
The answer to this question is easier to explain after showing you the monthly expense break-out:
The main culprits this month were Childcare, Insurance, and Other. The remaining categories, Food, Fuel, Mortgage, Utilities & Internet were largely the same as previous months.
The big expense in the Insurance category was our annual car insurance renewal. Yes, we pay 12 months of car insurance (for two cars) in one big lump sum.
This reduces the overall annual cost by roughly 10%. Unfortunately we suffered a 20% premium increase due to Mrs. Tako’s car accident.
The Other category clocked in higher because of several purchases —
First, we purchased a shikibuton mattress (and mattress cover) for Tako Jr. #2. He is officially moved out of his crib!
We like this Japanese style fold-up mattress (called a shikibuton) for the kids. They’re cheap, comfortable, easy to clean, and easy to move. Amazon has a variety of different options, but we like the 4″ thick version.
Second, with winter fast approaching, I needed to finish our outdoor landscaping project before rain made it impossible. While the manual labor didn’t cost anything, I needed to purchase soil, landscaping bricks, and gravel to complete the project.
Here’s a few before and after photos…
Before:
Our front yard as a gigantic pile of dirt, rocks, tree roots and holes large enough to swallow children whole.
After:
We now have a perfectly level front yard with landscaping rocks and drain rock preventing mud splashing up on the house. We’ll install plants next spring when the weather improves.
Childcare
The big elephant in the room with this month’s expenses is the Childcare category. Lots of people have been asking questions about our childcare situation, and wondering why we don’t just keep the kids home with us. It would save us a HUGE amount of money and put us back to living within our dividend income.
Well, Mr. Internet, you are completely right…but life is sometimes about more than optimizing for current cash flow. Sometimes we need to invest for the future.
This month’s childcare expense was $1,000 higher because we started sending our youngest son (Tako Jr. #2) to the same language immersive daycare as his older brother.
What’s a language immersive daycare you ask? This is a daycare conducted entirely in a foreign language. There is absolutely no English spoken for the entire day. By its very nature, this forces the children to become rapidly fluent in a second language at exactly the right time — when their little brains are most adaptable.
For our oldest son, it took 3 months before he developed a comfortable level of second language proficiency. After 8 months, his second language ability exceeds mine, and he’s now working on fluency.
During the past year, Tako Jr. #2 stayed-home with me, and it worked out well. Learning a second language wasn’t a big deal because he didn’t speak at that point. He mostly filled diapers.
But, when a spot opened up for him at the same daycare, Mrs. Tako wanted to take it. She and I had some long serious talks about this situation. Another kid in daycare is a significant expense that falls well outside of our established budget and dividend income. Could we even afford it? Would this put our FIRE plans in jeopardy?
I was perfectly happy keeping him at-home with me, but Mrs. Tako felt he needed:
1. The same second-language immersive opportunity as his brother.
2. More socialization with other young children.
Ultimately the two of us worked out a compromise: Tako Jr. #2 would attend the language immersive daycare 3 days a week, and I would continue to watch him the other 2 days.
This means paying a lower rate than a full-time child, but also requires Mrs. Tako to keep working longer than we planned to pay for this added expense. So far, she seems perfectly happy to do this, and she’s pleased that both boys get the opportunity.
For now, we’re going to forgo our plans for things like traveling, and just let the boys learn.
Dividends For October
Dividends for October were a reasonable $4,168.85. Not our best month ever, but not too shabby either. This roughly matches our average monthly expenditures.
Obviously with the large increase in daycare expenses, we won’t be able to live entirely within our dividend income. Life changes, and so do our goals.
The goal of living off dividend income for 2016 is officially dead. No, not just dead….taken out back to the woodshed and a bullet put through its head.
So how is dividend income looking for the entire year?
We’re a few thousand behind what I planned back in January. Investing our excess cash proved to be more difficult than expected in 2016.
My projections for the entire year suggest we’ll hit $48k in dividend income for 2016. Expenses are expected to come in around $55k (inclusive of daycare costs). That’s a $7,000 deficit. Yikes!
October Portfolio Changes
In October, there were no portfolio changes. We neither bought nor sold any investments, mainly because I didn’t like the valuations.
With the S&P 500 having an earnings yield of only 4%, and economic growth rates being really low, I’m not going to be randomly throwing cash into the general market.
However, we did have one notable thing happen in October: One of our largest holdings decided to jump 40% in a single day. I wrote about it in our September Dividend And Expenses post, but it actually happened in early October.
This caused a significant boost to our net worth.
I’ll take it, but it also means I need to find even more smart places to invest our cash…
[Image Credit: Flickr]
A $7,000 per year deficit is sustainable for the rest of your life given your net worth.
All things being equal…if you stay invested in 2017 as you currently are, your dividend/interest revenue will rise year-on-year won’t it? You’ve been investing piecemeal throughout 2016. That means with static revenues and expenses, the deficit will shrink in 2017.
You are right, it probably is sustainable! Yes, I do expect our dividends will continue to rise in 2017. With any luck they will continue to rise for a very long time!
Just to keep things in perspective, you are not running a deficit with the day-care/language immersion costs. I assume your wife’s net salary is more than $7,000/year. You are only running a deficit w.r.t. your goal of living off your dividends. Your net worth is still increasing…
You are doing something similar to what I’m trying to do except I am not married or have children. You are creating a portfolio that will throw off enough dividends & interest to cover your expenses while still earning a salary (your wife’s salary in your case). For me, the portfolio dividends are a sanity check. If my portfolio can generate more than my net salary and I’m not running a deficit, I should be indifferent about the salary. I could choose to work based solely on the satisfaction/enjoyment I derive from my job.
The problem I am having is that I don’t want to go all-in with a portfolio of bonds and dividend paying stocks. I still want some stocks with strong growth potential. I don’t want to switch over to the more conservative portfolio until I retire (or get laid off). Every month, I go through this exercise where I calculate how much in dividends my “post retirement” portfolio would have generated if I had been invested in it as I plan to be when I retire.
Growth stocks can still pay dividends, they just usually are not as high. For my portfolio, most of my stocks have yields of 2-3%. I’ve actually sold investments recently that had dividend levels too high.
I try not to sacrifice growth for current income. Sure, I could optimize income levels by buying high dividend stocks, but that’s not my strategy.
My wife speaks three languages and she already talks to him in the various languages making him familiar with the different words. Hopefully he has her gift of language as it is definitely not something that I was blessed with 🙁
BTW…awesome job with the landscape I know how much work that must have been.
Thanks Mustard Seed. It was indeed a ton of work by myself and the whole family.
Oh, yes, that yard looks awesome. Having gone through something similar, I know exactly how much work that is and I commend you, sir!
Thank you!
This is such a great example of spending money for experiences. Your son will thank you for it many times over, even if you have not yet taught him the lesson that experiences are more valuable than things. How exciting to go to a language immersion school when you’re so young. I wish I had that opportunity when I was a kid.
I sure hope they appreciate it when they’re old enough to understand! I never had those opportunities as a kid either, so learning when I was older was much harder.
It’s interesting discussing the daycare situations with others. I think your solution of part-time day-care is great. You can afford it and you are doing it for a purpose. It will be awesome to follow your little ones progress with the languages. As Mustard Seed said above, I struggled terribly with a second language. My father came from Germany when he was in his late 20’s and I wish I would have that second language too.
It’s amazing what happens when they start young. My oldest can converse in both languages, and switch on the fly. Doesn’t phase his little brain for a second.
Nice work on the landscaping! Nothing like hauling a ton of dirt around 🙂
Smart move getting the kids going on a second language while they are young.
Daycare is pricey, but I’m sure it will open up a lot of opportunities for your kids to be fluent in several languages!
I’ve considered paying our car insurance once a year as well; I’ll have to call our insurance company to see if we could save on payments! I don’t know if it would work for you, but Mr. Picky Pincher and I took online defensive driving and got a pretty steep discount on our car insurance for the next few years. It might be worth a shot if you can find the time / if your insurer offers it.
Hey, good idea, that’s something worth looking into!
It’s awesome that your boys will be fully fluent as children. Do you plan to allow them the opportunity to maintain it throughout childhood? It reads like you speak the language, but not as well as your oldest son.
I’m still frustrated that my polyglot father and bilingual mother did not teach us another language growing up. They used their mutual tongue to say things we couldn’t understand. A wasted opportunity. Two of us our now linguists anyways, but it could have been easier.
Yes, the intent is going to be to maintain their language ability over the years. We intend to travel to foreign countries for several months a year.
Seems like a good investment to me, always good to learn multiple languages early in life.
Nice before and after pics, well done on the yard.
Keep it going, your doing fine 🙂
Paying car insurance sucks and having higher insurance premium sucks. We pay all at once too but on our budget we average it across 12 months.
The yard looks nice, good for you to get that done before the rain comes. The foreign language daycare sounds interesting, what kind of language(s) do they speak? It’s totally worth it for kids to speak multiple languages. Baby T1.0 now can understand English, Danish and Mandarin, I’m pretty impressed. Mrs. T’s cousins know a lot of language – English, Danish, Swedish, French, Spanish, and now they’re learning Italian…. we’ll see if Baby T1.0 (and T2.0) get to that point one day.
Very solid dividend income despite not covering your expenses. We hope to get to your level one day in the future.
Any downsides to the language immersion thing? We’re currently debating an immersion elementary school as a potential charter school option for next year. I’ve yet to decide as neither me or my wife would speak the language offered (though we both do have some modicum of 2nd language).
Downsides? Sometimes they are more expensive. We’re lucky because ours ended up being the same price as other daycare situations.
Other downsides might include the initial difficulty the child encounters adjusting to the alien environment. It’s a big change, but they adapt fast at that age.
Hello Mr. Tako,
Congratulations for your incoming.
Do you publish your portfolio?
Wich stocks do you have?
I’m starting to puchase my stocks in US and around the world.
I already have almost 30 stocks in Brazil.
I bought Berkshire last month, this month I’ll buy Black Rocks.
Thanks,
I don’t typically publish all of my portfolio, but I do talk about pieces of it quite frequently.
Language immersion is the way to go. I grew up speaking english and 2 asian languages and was exposed to the sounds of other asian languages as well. When i had to learn french in my mid 30s, it was not difficult as i had already developed a good ear for accents by then. I now speak 4 languages and i am hoping to learn japanese and cantonese when i reach financial independence. It will be a nice life-long project.
Renewed investor
FIRE is a wonderful goal, but it isn’t the only goal, and it isn’t even always the most important one. I like your plan for Tako Jr. #2 – I also appreciate the example you are setting for the rest of us. It is good to have a reminder that the best laid plans will change and the ability to adapt and go after what is important is key.
Thanks Mrs. BITA — I don’t like to “pull the punches” on myself, but your positive comments help me feel better about missing our goal! Indeed, life is in a constant state of change. We must adapt!
Very inspiring to read your blog! I am at the other end of the spectrum, working towards your situation 🙂 Keep posting, i want to read some more!
Working on a new post right now! 😉
Hi Mr. Tako,
This is my first visit to your blog! Just read your about page and this post. Truly amazed by the dividend income stream you have established. With your dividends growing on a yearly basis, your deficit is not going to affect you in the grand scheme of things.
That’s a solid passive income stream even if your monthly expense way exceeded what you brought in. Just keep plugging away and maybe 2017 will be that magic year where dividends cover all expenses. For now, I’m a stay at home dad so I can relate to watching a young one. I think a language immersion program is awesome and I guess the only part going forward is making sure that the language learned is used. Thanks for sharing.