July 2016 – monthly summary

It seems like just last week I was writing out June’s monthly summary. Wait…I was! I’m catching up so this is my wet worth update and monthly summary for July. This post follows on from my July income fund update. How did I do? Let’s take a look under the financial covers and see…

My Score for July

Living Expenses $3,900 😐
Security Ratio 13.8% 😐
Expenses 53.9% ☚
Savings 21.1% 🙂
Investments 24.9% ☚
Wet Worth $149,758 😎
Work Freedom Day 29-Oct-16 😐
Emergency Fund 106.7% 🙂

Living Expenses

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 updated Budget 4.5.

I spent a total of $3,329.76 in July which means I underspent my budget by $570.82. There were no major surprises this month.

Security Ratio

This is the percentage of my monthly living expenses budget that current dividend income pays.

I’ve changed how I calculate this value; it’s no longer tied to the actual dividend income per month. Instead I’m automatically withdrawing a flat monthly amount of cash from my Income Fund that’s fueled by dividend payments. The current amount is $540 a month which is 13.8% of my current $3,900 monthly budget.

I’ll change this amount once or twice a year as dividend income increases. $540 a month is $6,480 a year; that’s about 80% of the total dividends I’m projecting to receive this year as I want to build a small cash buffer for smoother cash flow.

Living Expenses %

The percentage of net income that’s spent on living expenses. Lower numbers are better here.

This month’s 53.9% is a decrease over last month’s 46.1% which spiked due to the higher June dividend payments. I save or invest any income that I don’t spend on Living Expenses so my Savings Rate this month was 46.1%.

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.

Last July I spent 53.4% of my income on expenses, so I’ve actually done worse compared to last year. This is partly due to last year’s budget being $50 less at $3,850. It’s also due to lower income this month and because I’m no longer including interest income from my Savings account as part of this calculation.

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 it increased the monthly amount which negatively affects results this year. I’m now following Budget 4.5 which kept the total monthly amount the same from January.

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.

Savings %

The percentage of net income spent on Savings.

As part of my revised budget and savings plans, I’m putting aside $1,380 every month for mid and long term goals (any large expense or purchase due a year or more in the future). I also added $100 to my Emergency Fund. The savings percentage was 21.1% of my month’s income compared to 16.3% last year.

Last month’s saving rate was 14.7%; this number increased this month at the expense of investments which decreased in July.

Investment %

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 24.9% of my income.

I’ve written about my July portfolio income and gains 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 non-liquid assets).

My Wet Worth increased $6,387 in July from $143,371 to to $149,758; a new 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 remains at 29 October 2016.

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. Financial Independence then requires about $1,600,000 at a 3% yield.

Emergency Fund

This value is the actual balance of my Emergency Fund vs my target balance which is 10 times my living expenses (i.e. $39,000). The stock market increased my EF funding level to 106.7% this month, up from last month’s 102.4%; my $100 contribution was 6% of the $1,681 total increase.

Currently my EF is 100% held in VTSAX, a low cost stock market fund. It is not recommended to hold your Emergency Fund in stocks. Economic conditions where you might lose your job would likely impact the market and cause lower prices. Also if you’re relying on your EF to pay an large unexpected expense, the money might not be all there when you need it due to stock market drops.

However, in my particular situation, my EF is dedicated solely to covering loss of employment and so I feel comfortable with this risk when judging the chance of losing my job. In an extreme case where the market drops 50%, I still have 5 months of living expenses. More importantly, every day I move closer to Financial Independence reduces the need for an EF to protect against job loss.

Retirement %

I’m not showing this metric in my score card anymore. Normally 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.

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 +$660 Cash for living expenses decreased this month due to a higher credit card payment.
Debt -$6,386 Debt increased this month as Living Expenses from early August appeared on the July card statement.
Savings +$2,432 My longer-term savings in the Vanguard Wellington (VWELX) fund and my HSA account increased this month, in addition to my cash savings.
Emergency Fund +$1,681 My Emergency Fund consists of the Total Stock Market fund (VTSAX). I added $100 in new money.
Portfolio +$7,980 My Income Fund had a solid month from new capital and capital growth. See my earlier post for details.
Total +$6,387 Total change in Wet Worth.

July 2016 Summary

My Cash accounts had a slight moment to breathe this month but are about to go back underwater as August expenses are paid next month.

However July was another good increase for Wet Worth and I reached a new record total!


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.

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