This is my wet worth update and monthly summary for May – this post follows on from my May income fund update. May was a perfect storm of expenses all coming home at the same time, so it’s been a tough month for progress.
My Score for May
|Work Freedom Day||29-Oct-16 (!)|
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 $4,668.00 in May which means I overspent my budget by $768. However this total includes $1,350 that I paid with from my Savings.
This is the percentage of my monthly living expenses budget that current dividend income pays.
I’m changing how I calculate this value; it’s no longer tied to the actual dividend income per month. Instead I’m withdrawing a flat monthly amount of cash that’s fueled by dividends from my Income Fund. The current amount is $540 a month which is 13.8% of my current $3,900 monthly budget. This number won’t change very often going forward, perhaps twice a year if I adjust either my budget or my withdrawal rate.
Living Expenses %
The percentage of net income that’s spent on living expenses. Lower numbers are better here.
This month’s 52.4% is more or less the same as last month’s 52.8%, a slight improvement due to higher dividend income this month. I save or invest any income that I don’t spend on living expenses so this result means that my Savings Rate this month was 47.6%; that’s nearly half of my income being saved. In May 2015 I spent 53.7% of my income on expenses, so I’ve improved compared to last year.
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 and not just dividends.
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. The average percentage value should decrease over time because salary and investment income should increase faster than living expenses.
The Living Expenses % metric and the Work Freedom Day metric (see below) are both good incentives to avoid increasing the budget since both numbers are impacted by a higher budget. Currently I’m on track to hold the budget at $3,900 when I do my six-month review later this month.
The percentage of net income spent on Savings.
I’m putting aside $560 every month for mid and long term goals (any large expense or purchase due a year or more in the future) and I’m continuing to save my old car payment amount of $540. My Emergency Fund was fully funded so I didn’t add any extra money to it but I continued to add $20 into my Cash buffer. The savings percentage was 15.3% of my month’s income compared to 16.9% last month because of lower total savings.
For the first time in ages, I spent some of my Savings this month and it’s made me re-think how I’m using that account, so I’ll write about that in a separate post.
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 32.3% of my income, although I made some additional contributions on top of that from the additional income this month.
I’ve written about my portfolio income and gains in May 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 $967 in May to $134,993; down from last month’s record high. 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 and including the last dividend amounts, my Work Freedom Day has moved forward to 29 October 2016, one day closer! I’m hoping my estimates are accurate as I’d hate to see this number move back into November, but it’s certainly a move in the right direction!
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 which is 10 times my living expenses (i.e. $39,000). The stock market increased my EF funding level to 101.9% this month, up from last months 100.1%.
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.
The change in Wet Worth is caused by
|Cash||+$1,012||Cash for living expenses increased this month with higher medical, house and travel related costs.|
|Debt||-$7,344||Debt increased this month as I included the total amount of my new car lease payments. I also have higher charges on my credit card that are due to be paid in June.|
|Savings||+$1,846||Savings increased with some help from my company who added $1,500 to my HSA account. My longer-term savings in the Vanguard Wellington (VWELX) fund increased in value too.|
|Emergency Fund||+$692||My Emergency Fund consists of the Total Stock Market fund (VTSAX). I added no new money so this is all capital growth.|
|Portfolio||+$2,827||My Income Fund had a solid month from new capital and capital growth. See my earlier post for details.|
|Total||-$967||Total change in Wet Worth.|
May 2016 Summary
It’s been a crazy month for expenses. I spent $1,350 of my Savings on having trees removed around the house but I consider it a good long-term investment, both in protecting the house/roof and making it easier to cut the lawn. I’ve also been an almost weekly visitor at the doctor’s this month which isn’t helping either – and still more expensive visits to go 🙁
The next two months will be a large drag on my Cash accounts as I have a year’s Auto and Home insurance to pay. And we’re travelling to the UK and Spain this summer although that trip is part of our travel budget.
On the plus side, our monthly mortgage payment is decreasing a little in July, and without the $1,350 expense we would have broken even this month.
Were your expenses / budget in May on track?
Quote of the Day
Don’t be afraid to give your best to what seemingly are small jobs. Every time you conquer one it makes you that much stronger. If you do the little jobs well, the big ones tend to take care of themselves.