I’m back in the UK visiting my parents. I took this month’s photo myself – it’s from the South Downs, a few minutes walk from my parents’ house. Here’s my June 2017 review following on from my June income fund update. It’s almost like a balance sheet statement, but different!
My Score for June
|Living Expenses Budget||$3,970||😐|
|Work Freedom Day||12-Oct-17||😎|
|Cash Reserves||4.0 months||😐|
|Emergency Reserves||9.1 months||🙂|
Lots of 😎 this month as June proves to be a record-breaking month, not just in income but also in Wet Worth.
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.
My Freedom Ratio is the percentage of my monthly living expenses budget that my Income Fund pays for. The current payment is $800 a month which is 20.2% of my current $3,970 monthly budget. So I’m 20% of the way to Financial Independence!
I’ll change this amount once or twice a year as dividend income increases. I aim to keep this number as a sustainable number, so it’s a little below the maximum dividends from the Income Fund.
Living Expenses %
The percentage of net income that’s spent on living expenses. Lower numbers are better here.
This month’s 40.4% is a new record low, beating March’s 42.5%. I save or invest any income that I don’t spend on Living Expenses so my effective “Savings Rate” this month was 59.6%.
Like the Freedom Ratio, any change in this number is caused by a change in either income or budget. However this metric takes total monthly income into account including actual investment income. This means it jumps around more, especially in the third month of each quarter.
The average percentage value should gradually decrease over time. This is because salary and investment income will hopefully 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 June I spent 46.1% of my income on expenses, so I’ve improved 5.7% points compared to this time 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, compared to the same month last year, salary + investment income increased at a higher rate (16.2%) than my cost of living (1.8%).
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). I added a little extra money this month for a total of $1,454. This month the savings percentage was 14.8% of my month’s income compared to 14.7% last year.
Last month’s saving rate was 20%; the percentage decreased this month because income was much higher.
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 44.8% of my income.
I’ve written about my June 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 $7,958 in June from $239,924 to $247,882. This is yet another all-time high and so far this year there’s not been any decline. 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.
This month, my current estimate of my Work Freedom Day jumps forward to 12 October 2017. This number includes some very conservative estimates of fund income, so hopefully it will move forward again later 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 $1,588,000 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 $3,872.94 in June which means I underspent my budget by $97. This spending includes $1,300 of Savings used to pay some medical and clothing purchases as I spent some of my saved tax refund.
The addition of some Savings cash means that the amount of monthly Living Expenses that I hold in cash has increased again this month. The account balance at the end of June is now at 4.0 months of living expenses, compared to 3.6 months in May.
After my recent Emergency Fund shuffle, I’m now holding $36,264 in VBIIX as part of my Income Fund. This would fund 9.1 months of living expenses (at $3,970 a month) in an emergency. The investment has added a total of $533 of capital gains by itself, although the value overall has dropped a little since last month.
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||+$1,556||Cash for living expenses increased as some purchases were made with Savings.|
|Debt||-$2,268||Debt decreased this month as I paid off more typical credit card charges and a bit more towards my mortgage.|
|Savings||-$113||Savings decreased a little as I spent some. VWELX paid $305 in dividends that were reinvested.|
|Income Fund||+$4,247||My Income Fund market value increased this month. See my earlier post for details.|
|Total||+$7,958||Total change in Wet Worth|
June 2017 Summary
The roof, the roof is repaired!
The roof damage I mentioned last month has finally been repaired! I paid for it on my credit card so the debt won’t show until July’s report and won’t be actually paid until August’s report. Total cost was $7,843.45.
I’m in the process of reviewing my budget for a mid-year update. The premium of my auto insurance increased significantly and so I’m switching companies to save costs. I’ll likely shuffle some money around between categories while keeping the total the same.
In other news
My Wet Worth reached a new record high continuing the winning streak from each month so far this year. This result means that I could pay off all my debts with liquid assets tomorrow and still have over $240,000 remaining. Of course, that’s not the plan since Mr. Taxman would want some money too.
A positive Wet Worth lets me consider myself to be debt-free. I chose not to aggressively pay my mortgage down because I can get better returns in the market and I prefer more liquidity. That said, I paid $300 towards the mortgage this month.
So despite the looming roof expense (to be paid out of my Savings) June was another solid month. It’s one more step in the right direction towards Financial Independence!
Quote of the Day
I don’t mind going back to daylight saving time. With inflation, the hour will be the only thing I’ve saved all year.