Here’s my wet worth update and spending summary for January – this post follows on from my January income fund update.
My Score for January
|Living Expenses $||3,900|
|Security Ratio||7.8 %|
|Retirement (Taxable)||0 %|
|Wet Worth $||88,527|
|Work Freedom Day||8-Nov-16|
|Emergency Fund||98.4 %|
This is my fixed monthly budget for living expenses and it includes both essential (e.g. groceries, mortgage, insurance), and non-essential (e.g. music, travel) purchases. $3,900 is the amount from my current Budget 4.0.
I spent a total of $4,421.12 in January which means I overspent my budget by $521.12.
This is the percentage of my monthly living expenses budget that my dividend income would pay for this month.
This month’s ratio of 7.8% means that my dividend income paid almost 8% of my living expenses this month. This result is hopefully the lowest result for the year ahead. The percentage is improved by either lowering my budget (which is constant at $3,900) or by earning more income. Dividend income decreased this month and I also increased the budget amount for the year so the result takes a double hit. I earned $304 in dividend income this month; December’s income was $1,161.
Living Expenses %
The percentage of net income that’s spent on living expenses. Lower numbers are better here.
This month’s 55.1% is a low start to the year and is directly related to the lower dividend income this month.
Any change in this number is caused by a change in either income or budget similar to the Security Ratio although this calculation takes total income into account. Non-dividend income was a little lower than last month.
The chart above shows the trend in my Living Expenses % since the start of 2014. For the first part of 2014 I was paying two mortgages. In June 2014, I introduced Budget 1.0 after selling my first house and I made some minor tweaks in Budget 2.0 from October onwards. In January I started Budget 3.0 which I updated to Budget 3.5 in July.
Budget 4.0 started this January and is an increased amount compared to last year which will negatively affect results this year. What is encouraging about the chart is that despite the lower dividend income and higher budget, I’m still starting the year at a better (lower) Living Expense ratio than last year (55.1% vs 55.6%). The improvement is from my salary income which is higher that the same time last year.
The percentage of net income spent on savings.
I put aside $530 every month for mid and long term goals (any large expense or purchase due a year or more in the future), as well as $547 for my car payment and added an extra $200 into my Emergency Fund plus $88 into my Cash buffer. The savings amount increased to 19.3% of my month’s income compared to 14.4% last month as a result of lower income this month.
This would represent the percentage of any post-tax contributions from net income towards my retirement accounts, but I don’t have any plans to do so at the moment. You can read about my target retirement account asset allocation here if you’re having trouble sleeping. It’s a simple low-cost index investing strategy using tax-advantaged accounts.
The percentage of net income that I invest.
Any spare money left over after savings, retirement and living expenses are paid goes into my Income Fund. This month it was 25.6% of my income.
I’ve written about my portfolio income and gains in January in a separate post, so I won’t repeat all of that here again.
Wet Worth $
My liquid assets minus all debt (excluding retirement and assets).
My Wet Worth decreased $3,554 in January to $88,527. There’s a more detailed breakdown of this amount further below.
Work Freedom Day
The day in the year that my dividend income could pay for the rest of the year’s expenses.
Based on current projections my Work Freedom Day has slipped back to 8 November 2016 due to the higher living expense budget. My projected income is very conservative though so I expect to see this number move ahead, hopefully even into October this year.
Note that based on my $3,900 budget, one Work Freedom Day requires about $128 of dividend income which in turn requires about $4,000 of capital.
I’m including my Emergency Fund (EF) funding in my score card this year. This value is the actual balance vs my target balance and it’s currently a little under-funded at 98.4% since this month’s target is 9.55 times my living expenses.
Sometime next year I hope to start phasing out my EF but this year I’m aiming to build it up to 10x my living expenses. I changed the asset allocation to around 70% stocks just in time for the January market drop so the total value has been decreasing this month. My goal is to keep the EF equal to a year’s living expenses minus the income from my Income Fund; so if my Income Fund is paying 2 months living expenses then my EF target will be 10 months. As it is, I’m not overly worried about it and I’m just adding a little bit more money to it each month to build it up until my Income Fund starts taking it over.
Wet Worth detail
I’m showing my Wet Worth in this post – this is the cost of my liquid assets minus debt, I exclude assets and retirement accounts from this number. I prefer this over Net Worth since the equity in large assets (house, car) and retirement funds is hard to get at and not always predictable. I find this is a more honest view of where I’m at on my journey.
There’s a small increase this month. The change in Wet Worth is caused by
|Cash||-$754||Cash for living expenses decreased this month. I bought a new phone in December and the credit card charges were paid this month.|
|Debt||-$993||Debt decreased this month due to lower credit card charges and continued mortgage payments.|
|Savings||-$420||Although I added some cash to my Savings, this was offset by loses in my investment allocation as I use the Vanguard Wellington (VWELX) fund for long-term Savings goals|
|Emergency Fund||-$1,280||My Emergency Fund consists of cash and a stock fund (VTSMX). The loses this month were from the stock fund.|
|Portfolio||-$2,093||My overall income portfolio decreased in value this month by -1.71%. See my earlier post for details.|
|Total||-$3,554||Total change in Wet Worth.|
January 2016 Summary
Not the best month to start the year with but I’ll take it and there were no major disruptions. I still have a long ways to go for Financial Independence but I will finish that journey one month at a time.
Quote of the Day
Don’t wait. The time will never be just right.