Our Finances » Profit & loss
A household “profit and loss” (P&L) statement compares money coming in to money going out. Our P&L reports six important numbers:
- Earned income: Total compensation from working, including any employer benefits.
- Passive income: Income obtained without labor (e.g. rental income, interest and dividends).
- Taxes: Federal and state taxes, including payroll taxes.
- Giving: Charitable donations.
- Spending: Total household expenditure.
- Savings: Sum of items 1 through 5, analogous to “net profit” in a business.
The table below shows our P&L for the past three years. Elsewhere, we disclose our P&L back to 2012. All figures are adjusted for inflation (2020 dollars). Note that a positive value for “Taxes” means tax credits exceed liabilities.
|(1) Earned income||$44,650||$64,410||$62,970|
|(2) Passive income||$5,120||$7,460||$4,620|
It helps to supplement our P&L with information on how much we travel. In “normal” years, we spend 30-40 days visiting family or on shorter camping trips. During “adventure” years, we take off for longer periods. In 2018, we went on a three-month road trip of the western parks. For 2021-2022, we are planning to spend 10 months traveling abroad.
For clarity and context:
- Used properly, the U.S. tax code actually rewards frugality. In most years, we can create a highly-optimized tax situation that generates a net gain.
- In years that we don’t travel extensively, we can easily save or give away 50% (or more) of after-tax income.
- Since our mortgage principal is about $5k per year, the vast majority of our savings is liquid or “quasi-liquid” assets (e.g. retirement account contributions).