Winter time – a good time to review last years family balance! (seen at Kitzbüheler Alpen, Austria)
2012 was a good year for the Woodpecker family.
Above all we increased our family size by 33% due to the birth of our second son beginning of 2012 – Welcome to this beautiful earth, little man!
Definitely, two kids is a different story also from a stress and sleep point of view. But this will pass and a new family member adds a new interesting complexity to the family: instead of 3 possible social matchings there are now 6 possible matchings, and the family feels a lot more complete – at least for us.
But 2012 was also a great year with regard to downshifting efforts:
Time worked (in the job) was flat for Mrs. Woodpecker and down 40% for Woodpecker (5 months of parental leave).
Commuting time was down another additional 40%, due to the instalment of two days home office per week.
And work stress overall declined dramatically due to an ongoing change in Woodpeckers mindset, this blog being an offspring of this change in mind.
Funnily enough, 2012 was even a good year financially:
Net family earnings were down only 8%! Great, given 40% less work, isn’t it?
That means earnings per hour of work were up 50%!
This fantastic result is due to tax effects (lower income, higher deductibles due to additional kid), state funded parental leave (thank you German state), a small increase in Woodpeckers salary, a slight increase in passive income and some sales of stuff (small effect).
Total family spending – and this is the figure I am most proud of, because it is 100% our own achievement – were down 15%.
This is a great result given that we did already a lot of optimizing last year, and our family size increased by 33% (meaning much more diapers, baby food, childcare cost, some cloths, some equipment, electricity bills and so on)!
As a consequence family savings hit an all time high in a year where family work hit an all time low – I wouldn’t mind if this situation would repeat! 
Partly the reduction in spending was due to some conscious abandonment of consumption or purchases.
But to a huge part the reduction stems from optimization efforts only, i.e. changes in behaviour that did not at all or only insignificantly impact on life quality.
This latter changes are highly recommended to everyone, even to those that are not willing to seriously explore on a more simply lifestyle. So I added a (not complete list) how little efforts can add up:
- Switch Woodpeckers health insurance to a scheme where you visit doctors only that cooperate specifically with your insurance:
40 EUR per month = 480 EUR p.a. - Changing tires at home instead of garage. Storage at home:
2×30+30 EUR= 90 EUR p.a. - Don’t buy sweets and snacks anymore at vending machine at work, but bring from home:
10 EUR per month = 120 EUR p.a. - Don’t buy bottled water and drinks from vending machine at work, but drink water from tap (very good quality in Munich, coming directly and unfiltered from the mountains) 8 EUR per month = 92 EUR p.a.
- Detailed Analysis of grocery bills, identification of major cost driver, check where they are cheap to get:
Grocery bill down 20 EUR per month, while buying the same stuff. = 240 EUR p.a. - Strictly adopted fuel optimized driving behavior, average fuel consumption down from 6,5l/100km to 6l/100km:
-80 liter fuel p.a.= -120 EUR p.a. - Even more frequent use of library (all kids books, all kids DVDs, games, books for Mrs. Woodpecker, films):
-200 EUR p.a. - If buying media, then strictly used stuff. Adopt a late-runner attitude (view films or series that are a bit older, thus much cheaper):
Amazon bill down -250 EUR. - Buy films/series via Amazon UK (cheaper than Germany)
-50 EUR - Resell used books, CD, DVD etc.:
Revenue 300 EUR - Sell clutter in basement that was destined for dumping (amazing, but there are always buyers for almost everything):
150 EUR - Cycling to work at least once a week:
30x30km=900km= -225 EUR p.a. - Find new child care for older boy: Better quality now for less price:
-80 EUR p.month, applies to 3 months in 2012: -240 EUR p.a. Will have huge impact in 2013. - Compare restaurant prices much more consciously when eating out:
-50 EUR p.a. - Fix some cloths that were destined for replacement:
-200 EUR p.a. - Buy child presents / cloths in advance at a local fire sale, rest on ebay:
-100 EUR p.a. - Lend out things that I wanted to buy initially (like a tent for holidays):
-400 EUR p.a. minus a few bottles of wine and olive oil as thank-you presents - Buy train tickets on eBay:
-80 EUR p.a. - Avoid planned purchases due to rethinking (i.e. no car roof box for holiday):
-300 EUR p.a. (+ saved fuel for roof box) - Replace all drives <5km by bicycle:
400km=-100 EUR p.a. plus gain in fitness. - Agreed on skipping obligatory espresso when eating out, and have it back at home:
30×2,50 EUR = -75 EUR p.a. - Less frequent car-wash, and only on special savings-day:
-30 EUR p.a. - Fueling car only on Mondays (statistically 1-2 cent cheaper per liter)
-15 EUR p.a. - Do car service in Bamberg instead Munich (generally cheaper garage costs there)
-100 EUR - Skipped cycling hours I did last year at local gym (no need anymore, more running and bike commuting):
-150 EUR - Sold second car:
Revenue 1200 EUR (not counted below as this is a one-off revenue) - Saving on 2nd car insurance and tax:
-500 EUR p.a. - Cutting hair (Woodpecker and kids only) at home with electric hair cutter (NOBODY ever noticed a difference or commented):
10×20 EUR = -200 EUR - Always stock some water, sweets etc. in car, to avoid buying at petrol stations:
-30 EUR - Visited major fun park virtually for free on a very special offer:
-60 EUR - Replaced Newspaper by weekend edition (never read all editions anyway, plus new readers present)
-250 EUR - Agreed with neighbour to share new lawn mower:-60 EUR
Voilá, this adds to a nicely 5.097 EUR – without any major loss in life quality!
Additionally there were some more savings. But some of them definitely impacted on quality of life or mean major changes in behaviour:
- More Camping instead of hotels
- Less eating out
- Less drinking out
- Less super-expensive short trips
- Less cloths purchases
And there were a couple of additional spending and increases in quality of life as well:
- Cost for 2nd kid
- A much longer holiday trip in Summer/Autumn (7 weeks instead of 4 weeks last year)
- More short trips to relatives
- Much more quality free time / less work
- Much more social activity, many activities with other families often at our or their home or at the nearby lake
- Higher cost for purchase of more bicycle brakes
Well, what should I say, I think I am quite satisfied with 2012 and am thankful that everything went so well. Especially or 4 months summer break and the trip to Italy was a great time that I can recommend to everybody having the opportunity.
In one of the following posts I will reveal budget and happiness plans for 2013!
Hope you had a good year as well and will have another happy one,
Cheers,
Woodpecker
Hi Woodpecker,
Great results and obviously a lot of effort. An extra addition to the family is quite a challenge.
I especially like the 20 Euro savings per month on the same food shop – got any tips:) ! Perhaps the weekend newspaper could go as well
Looks like a great balance of less work, more time as a family, increased savings and similar standard of living. Definitely the road to happiness in my opinion
MUFF
Hi MUFF,
I can recommend to do the detailed food shop cost analysis for two or three months. One of our main cost drivers there turned out to be Orange juice.
. Rest was similar stories but to a smaller scale.
We didn’t want to abstain from it but we did a “blind”-test with the brand we bought so far and three other discounter products at half the price. In the end both of us were not able to taste a difference, so we switched – that was already 10 EUR per month
Probably total savings on a compareable basis were even much higher but were counterbalanced to some part by higher demand in food as I was having lunch at home instead of at work for so much time.
Any additional ideas are always welcome!
Cheers,
Woodpecker
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Hi woodpecker,
I stumbled into your blog via valueandopportunity.com and I like both blogs very much. Since you mentioned the impact of taxes, maybe I can add a small idea that I practised for years to improve financial effectiveness related to investments and taxes. As your children are young and my are now studying this should work even better for your family than for mine.
Idea: transfer income to family members who do not pay taxes at all e.g. your kids (currently in Germany up to about 9000 EUR/year and person).
I did it by transferring interests, not money: Made a contract with my kids that I lend them a certain sum at zero interest for a given period with the obligation that until age of 25 they have to use the interest generated from this sum only for their professional education. For sure the contract was signed by a custodian (my wife). As result each of my kids now have an well filled account generated without paying any taxes.
As interest rates are much lower now this might be modified as appropriate. E.g. you could buy stocks for them and get the dividends without taxes. But you have to find a solution that they do not bear the downside risk as they are minors. And cave: to not endanger the tax effect you are not allowed to take the interests / dividends for other things like day to day costs of living.
kind regards
(PS: it might be a good idea to ask some tax adviser on this idea)
Hi Uwe,
a warm welcome, and glad you like the blog!
Thanks a lot for sharing your idea.
However, due to close 100% being invested in stocks, my interest income is close to zero.
And probably this would not work for German “Abgeltungssteuer” on stock price gains, wouldn’t it? Those make up the biggest part of our passive income. Splitting the dividends from the portfolio risk might become difficult then as you say. But thanks for noticing, I’ll check back.
Anyway, great it worked out in your case, but I also see a subtle risk in tax optimization, and that is losing sight of your original strategy, as I outlined in the Investing Guidelines post:
It is shown in many studies and also in my own experience (and every financial advisor will tell you the same), that avoiding tax for some reason leads to all kinds of irrational bahavior of investors. This ranges from exposing themselves overly high legal risk, up to swapping a very good investment strategy for something inferior, only because the latter is more tax efficient.
So I’d adopt a strategy like that only if I can make 100% sure that my other investment decisions are not affected.
Cheers,
Woodpecker
Hi Woodpecker,
I fully agree and I do not touch an investment due to tax reasons but only in case I am convinced it is a good investment by itself. If this is the case then I look for possible shaping of the investment to improve after tax results. You might call it deadweight effect or windfall profit – I do not know the right word in English, sorry.
Concerning your question on “Abgeltungssteuer” on gains from stock price changes. The answer is YES, it works for any income.
Up to 801 EUR / year and child you can avoid the “Abgeltungssteuer” with the “Freistellungsauftrag”. In addition you could request a “Nichtveranlagungsbescheinigung” at begin of the year which helps up to additional 8130 EUR (about 9000 all together). Beyond that the lower percentage from “Abgeltungssteuer” and “Grenzsteuersatz” is relevant. They get equal at about 28000 p.a. total income per capita.
Stock investment for minors is a little bit tricky as it depends from your familiar and financial situation, possibilities, individual ideas and wishes, and you have to find a bank where this is possible. I could give some hints by mail to think about. After all, I strongly advise to check with some professional tax advisor on this before you do anything in this direction..And, since you would transfer money to your children, you have to be aware, that you will loose control on this money.
Kind regards
Uwe
PS: I am very stock addicted for decades now. But in Oct 1987 I learned not to put all eggs in one basket. I married only a few days before Black Monday and for several years my wife used to call our relationship “Zuverlustgemeinschaft” then. In the meantime she calmed down.
Thanks, very interesting indeed!
A tax free stock portfolio for my kids, fed with some long-play stocks and for their education seem a very good idea. I will definitly check back on this.
“zuverlustgemeinschaft” is a funny word! Well, however that proved that your wife did not marry you only for you money! As obviously your marriage survived
But that first weeks must have been the most costly in her life then instead of the other way round. Good act of gender equality back in 1987 already!