My November 2016 monthly summary follows on from my November income fund update and shows spending / savings during the month. November had some ups and downs: a hospital visit, a damaged car plus a surprise work bonus. So what are the numbers?
My Score for November
|Living Expenses Budget||$3,900||😐|
|Work Freedom Day||26-Oct-16||🎉|
|Cash Reserves||3.1 months||😐|
Living Expenses Budget
This is my 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 Budget 4.5.
The amount is more of a spending goal than a strict budget as I over/underspend each month. The budget is calculated from an estimated yearly spend divided by 12, so it’s normal for some months to be over or under the target amount.
This is the percentage of my monthly living expenses budget that my Income Fund pays for. This metric is 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 $600 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. $600 a month is $7,200 a year which is about 86% of the total dividends I’m projecting to receive this year.
Living Expenses %
The percentage of net income that’s spent on living expenses. Lower numbers are better here.
This month’s 48.3% continues at typical levels from last month’s 49.9% level due to lower investment income in November. I save or invest any income that I don’t spend on Living Expenses so my Savings Rate this month was 51.7%. I received some unexpected additional income from work this month but have removed it from this calculation to better compare the underlying performance.
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. This value uses the planned budget against income; not the actual spend.
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.
Living Expense History
Last November I spent 52.9% of my income on expenses, so I’ve improved 4.6% points compared to last year. Although last year’s budget was $50 less at $3,850, this year’s result is helped by a higher paycheck as I reached the social security maximum earlier this year.
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.
The percentage of net income spent on Savings (excluding Investments).
As part of my revised budget and savings plans, I’m putting aside $1,280 every month for mid and long term goals (any large expense or purchase due a year or more in the future). The savings percentage was 21.3% of my month’s income compared to 16.7% last year.
Last month’s saving rate was 17.1%; the percentage increased this month because I saved some additional money.
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 30.5% of my income.
I’ve written about my November 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 $12,998 in November from $153,755 to $166,753. So last month’s $35 drop in value has been more than overcome! 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.
Since I’m already enjoying my Work Freedom period, I’m holding my Work Freedom Day at 26 October 2016 for this year. It’s nice to think that I only need to work 10 months of the year before dividends take over.
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.
This is a new metric I’m reporting to keep a closer eye on the account balance of my Living Expense account. I’m tracking the number of months of monthly expenses currently in my Living Expense account. Cash stored in other accounts such as Savings and Investment is not included here.
I spent a total of $3,894.83 in November which means I underspent my budget by $5.5. The main expense this month was replacing our duvets and linen. I’m continuing to use some of my Savings ($140 this month) to payback some of the medical and home repair costs I’ve incurred this year.
Overall though, the amount of monthly Living Expenses that I hold in cash has increased this month. The account balance at the end of November is up to 3.1 months of living expenses, compared to 3.0 months in October. I plan on continuing to improve this number over the coming year.
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 again and my EF funding level is up to 109.5% this month from last month’s 104.8%.
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 (I rely on Savings for that), 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. I feel comfortable with this risk when judging the chance of losing my job. Especially so since our household has two incomes. 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.
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||+$243||Cash for living expenses increased this month on account of higher income and lower spending.|
|Debt||-$986||Debt decreased this month due to a lighter credit card bill so my mortgage payment and car payments had more impact.|
|Savings||+$2,531||I saved $1,717 in cash this month. But I also withdrew $527 to pay towards my medical bills and car lease. My longer-term savings in the Vanguard Wellington (VWELX) fund increased $1,234 overall thanks to a $400 contribution and Mr. Market. My HSA increased $500 on its own too.|
|Emergency Fund||+$1,820||My Emergency Fund consists of the Total Stock Market fund (VTSAX). I didn’t add any new money this month so this is the market performance.|
|Portfolio||+$7,418||My Income Fund market value increased in November. See my earlier post for details.|
|Total||+$12,998||Total change in Wet Worth|
November 2016 Summary
So a great month for my overall Wet Worth. Living Expense cash increased a little as I squirrelled a little money aside but I continued to put most available money into investments which means a stronger cash flow in the future.
Quote of the Day
Today is life-the only life you are sure of. Make the most of today. Get interested in something. Shake yourself awake. Develop a hobby. Let the winds of enthusiasm sweep through you. Live today with gusto.