Hello readers! We’re back! We had an absolutely fantastic trip to the United States and Canada. I can’t wait to bring you posts all about it and be prepared to see photos from the trip for the next six months… but for now, it’s time for our August Expenditures.
It was definitely a very expensive month for travel! We left for our trip on 19 August so this accounts for 12 days of our trip. We have another eight days to account for in September, which will appear in next month’s report. We had a fabulous time and believe it was worth every penny- but it’s still tough to see how much we did spend in the end!
We also moved into our new house which comes with some expenses, like redirecting mail and buying some towel racks. It was also our first month of paying a mortgage.
As we shared here, we intend to pay our mortgage off in under five years. However, what we actually mean by that, is we intend for our offset account to match the balance of our mortgage in under five years.
For those non-Australian readers, an offset account is a fairly common thing with Australian mortgages. It’s basically an account that is linked to your mortgage and any money in there is offset against your loan when calculating interest. For example, if you have a $100 000 loan balance and have $10 000 in your offset account, you are only charged interest on $90 000.
Many people just pay down their mortgage but we want the flexibility of always being able to utilise that money if we need to. An offset account allows us to do that. Once it is full, we will no longer be paying any interest on our mortgage and we also won’t need to contribute a mortgage payment from our salary (or our retirement funds). The mortgage payment will come out of the offset account and it will gradually draw down over the life of the loan.
By doing it this way, we ensure that we have an enormous safety net in early retirement, because we can always access that money if we need to. It also gives us excellent flexibility if we decide to change paths or invest elsewhere.
As such, we think the best way to track our mortgage in our expense reports is by tracking the interest. This will (hopefully) be shown as reducing every month until in five years time, it is at $0. Technically we are making a mortgage payment every month, but reducing the interest is our focus because that means we are increasing the amount in our offset.
Hopefully that all made sense. Particularly for any non-Australians, if it didn’t, please leave a comment with any questions you have and I’ll be sure to explain.
And now, our expenses for August:
|Mortgage Interest||$664.36||See above why we are only tracking our mortgage interest. We only had the mortgage for around half the month of August, so this will go up next month. But after that, our aim is for it to be lower every month!|
|Groceries||$235.88||Lower than usual because we spent the last 12 days of the month overseas.|
|Car Costs||$345.50||A bit higher than we would have liked. We had to pay to park in the city a couple of times and had to top up our E-Toll account.|
|Kids (child support, school fees, etc.)||$1,112.84||Child support and private health insurance.|
|Mobile||$55.51||About average. We're still looking into other carriers in a further effort to lower this cost.|
|Household||$130.32||We purchased a few things for the new house before we left including a towel rack and hooks for our artwork. We also redirected our mail from our old house and placed it on hold while we were away.|
|Home Insurance||$489.97||Now that we own a home, we need to insure it. It saved us a little bit of money to pay for it annually rather than monthly.|
|Eating Out||$76.95||This was all spent during the removal. Lack of a kitchen/all of our stuff in boxes… or perhaps just laziness.|
|Travel||$3,957.10||We had an amazing time on our trip. This is only the cost of the first half. Ouch! But worth every cent.|
|Gifts/Donations||$23.50||A birthday gift for my grandmother.|
What a great update AWP, I’m glad you guys had such a fun time! The pizza and US Open looks awesome, I’d gladly do that when we eventually go to NY!
I really like your method of paying down debt – building up a large offset is a great tactic. If we had a mortgage, we’d be doing exactly that. Plus, if another GFC happened, we’d have tons of cash to be able to invest into really depressed prices!
Thanks Tristan. Just like you said, we are watching the Newcastle housing market, ready to pounce if there is a crash (sorry to my pals who own property in Newcastle that we are secretly hoping for a big downturn)
Hey AwP – so how was the pizza? I’ve always just focused on the size of them, it looks like one could feed a whole neighbourhood.
Tracking your mortgage interest is a refreshing idea. It is the major factor in how quickly they can be paid off, all other things being equal. Because it is at the whim of the banks, however, it does mean that sometime in the next 5 years we might suddenly see a rise in the graph that’s out of your control if they decide to raise interest rates.
Good point about the interest rate rising. That makes it even more important to us to pay it down quickly before the rates start to go back up!
And the pizza was incredible!