Here’s my wet worth update and spending summary for February – this post follows on from my February income fund update. February was a great month with an additional surprise from receiving a bonus from my Company.
My Score for February
|Living Expenses $||3,900|
|Security Ratio||9.72 %|
|Retirement (Taxable)||0 %|
|Wet Worth $||106,242 !|
|Work Freedom Day||7-Nov-16 !|
|Emergency Fund||98.1 %|
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 $4,252.77 in February which means I overspent my budget by $352.77.
This is the percentage of my monthly living expenses budget that my dividend income would pay for this month.
This month’s ratio of 9.7 % means that my dividend income paid almost 10% of my living expenses this month, an improvement from last month’s 7.8% . The percentage is improved by either lowering my budget (which is constant at $3,900) or by earning more income. Dividend income increased this month so the value improved. I earned $379 in dividend income this month; January’s income was $304.
Living Expenses %
The percentage of net income that’s spent on living expenses. Lower numbers are better here.
This month’s 55.0% is a small improvement on last month’s 55.1% since investment income was a little higher.
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.
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. As investment plus salary income should increase faster than living expenses, the average percentage will drop over time.
The percentage of net income spent on savings.
I put aside $535 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. I also added an extra $100 into my Emergency Fund plus $19 into my Cash buffer. The savings percentage decreased to 16.9% of my month’s income compared to 19.3% last 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 28.1% of my income.
I’ve written about my portfolio income and gains in February 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 increased $17,714.98 in February to $106,242. This is the first time it’s been over $100,000 since I started my journey! 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 moved forward to 7 November 2016 as I’ve adjusted my projected income estimate. My estimate is very conservative though so I expect to see this number move ahead some more, 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 98.1% since this month’s target is 9.60 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 it’s lost a little value 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||-$436||Cash for living expenses decreased again this month. I paid the medial bills from my surgery over Christmas.|
|Debt||-$2,096||Debt decreased this month due to lower credit card charges and continued mortgage payments.|
|Savings||+$7,184||In addition to my normal saving contributions, I put 50% of my bonus into Savings; about 40% of the total went into the cash element of my Savings and the remaining 60% went into Vanguard Wellington (VWELX) which I use for long-term saving goals. The result was a big increase.|
|Emergency Fund||+$99||My Emergency Fund consists of cash and a stock fund (VTSMX). The investments pretty much broke even this month.|
|Portfolio||+$8,773||The other 50% of my bonus went into my Income Fund. The underlying investments decreased in value this month by 0.57%. See my earlier post for details.|
|Total||+$17,715||Total change in Wet Worth.|
February 2016 Summary
So a great month given the work bonus that I received. Along with the bonus, I also had a raise which takes effect as of March so that’s another boost on the journey to Financial Independence. However, my living expense Cash reserves are now only $600 above my safety target so I’ll be keeping watch on that. Expenses in March should be back to normal though so I should be making a surplus next month.
Quote of the Day
Procrastination is the bad habit of putting of until the day after tomorrow what should have been done the day before yesterday.