Another month down. I’m a little closer to catching up – only one month behind now! Here’s my March 2017 monthly summary following on from my March income fund update. It’s almost like a balance sheet statement, but different!
My Score for March
|Living Expenses Budget||$3,970||😐|
|Work Freedom Day||20-Oct-17||😎|
|Cash Reserves||4.3 months||🙂|
|Emergency Fund||8.9 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. $3,970 is the amount from my Budget 17.0.
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 $700 a month which is 17.6% of my current $3,900 monthly budget.
I’ll change this amount once or twice a year as dividend income increases. $700 a month is $8,400 a year which is about 84% of the total dividends I’m expecting.
Living Expenses %
The percentage of net income that’s spent on living expenses. Lower numbers are better here.
This month’s 42.5% is almost a record result – it crushes last month’s 53.2% due to the large investment income. But December 2016 still had a better result of 40.9% due to lower living expenses and higher income. I save or invest any income that I don’t spend on Living Expenses so my effective “Savings Rate” this month was 57.5%.
Like the Security Ratio, any change in this number is caused by a change in either income or budget. However this metric takes total income into account including actual investment income.
The average percentage value should decrease over time because salary and investment income should increase faster than living expenses as I try to limit lifestyle creep and personal inflation.
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 March I spent 49.2% of my income on expenses, so I’ve improved 6.7% points compared to last year. Although last year’s budget was $70 less at $3,900, this year’s result is helped by a higher paycheck and income. In other words, my budget increased at a lower rate (1.8%) than my salary + investment income.
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 2015 I started Budget 3.0 which I updated to Budget 3.5 in July.
This year I’ve adopted Budget 17.0 which increased monthly spending to $3,970.
The percentage of net income spent on Savings (excluding Investments). Savings represents cash plus a long-term holding in Vanguard’s Wellington fund (VWELX).
As part of my revised budget and savings plans, I’m putting aside $1,310 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 17.7% of my month’s income compared to 19.8% last year.
Last month’s saving rate was 18.6%; the percentage decreased this month because of higher total income.
The percentage of net income that I invest.
All spare money left over after savings and living expenses are paid goes into my Income Fund. This month it was 39.8% of my income.
I’ve written about my March 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 $2,889 in March from $219,955 to $222,844. This is another all-time 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.
My current estimate of my Work Freedom Day is now 11 days earlier based on higher income and now falls on 20 October 2017 for this year! It’s nice to think that I only need to work 10 months of the year before investment income takes over.
Note that based on my $3,970 budget, one Work Freedom Day requires about $132 of dividend income which in turn requires about $4,400 of capital. Financial Independence then requires about $1,584,000 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 $3,421.91 in March which means I underspent my budget by $548.09. I added another $210 from Savings as I’m paying down some Medical expenses.
This means that the amount of monthly Living Expenses that I hold in cash has increased this month. The account balance at the end of March is now at 4.3 months of living expenses, compared to 3.5 months in January.
After my recent Emergency Fund shuffle, I’m now holding $35,368.28 in VBIIX and my former money market account is now closed. I didn’t convert all of the money in Bonds; some went into VHDYX instead so I’m left with 8.9 months of reserves (at $3,970 a month) if I really need it.
My EF was originally dedicated solely to covering loss of employment; I use Savings to pay for large unexpected expenses. I’m comfortable with the risk of intermediate term bonds when judging the chance and impacts of losing my job. Especially so since our household has two incomes and I’m only considering my income, which pays almost all our expenses, in this blog.
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||+$3,148||Cash for living expenses increased due to some extra cash from an insurance payout.|
|Debt||$4,370||Debt increased $4,370 this month, due to higher credit card charges.|
|Savings||+$1,045||Another fairly usual month for Savings.|
|Emergency Fund||-$13,635||I no longer have a dedicated Emergency Fund – this account is now closed. Proceeds went into the Income Fund.|
|Income Fund||+$16,701||My Income Fund market value increased in March. See my earlier post for details. All of the Emergency Fund cash went here.|
|Total||+$2,889||Total change in Wet Worth|
March 2017 Summary
So, yet another month where my Wet Worth reached a new record high. It’d be nice if I could write that every month! This result means that I could pay off all my debts tomorrow and still have $222,844 remaining. Of course, that’s not the plan since Mr. Taxman would want some money too.
Keeping track of my Wet Worth lets me consider myself to be debt-free. I chose not to pay off my mortgage because I can get better returns in the market and I prefer more liquidity. That said, I’ve started paying an extra $300 towards the mortgage and if I keep that up, will be done in 11 years’ time.
I’ll be increasing my income fund withdrawals from $700 to $800 starting April. I also plan to cap the cash I keep at three times the withdrawal amount ($2,400) which will allow one quarter to be paid without any cash-flow drama.
This month wasn’t all good news however as a bad storm damaged the house and we now have to get a new roof for a total of about $8,000. The insurance company paid about $2,500 but with a deductible of $2,500 we’re on the hook for about $5,000. The increased cash this month includes the insurance payment. Fortunately we don’t have to pay until the repairs are complete. On the plus side, the roof will have a 30 year warranty and it wasn’t as expensive as I feared.
But despite that, it was a pretty good month and things are all headed in the right direction so I’m happy about that!
Quote of the Day
Life isn’t about finding yourself. Life is about creating yourself.