I still have quite a bit of catching up to do! September seems so long ago now that I don’t even remember what I did. So without further ado, here’s my September 2017 review following on from my September income fund update. It’s almost like a balance sheet statement, but different!
My Score for September
|Living Expenses Budget||$3,970||😐|
|Work Freedom Day||12-Oct-17||🙂|
|Cash Reserves||3.2 months||😐|
Back to a single 😎 this month as September reached a record Wet Worth after last month’s retreat.
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 17.5.
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.
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 41.3% is a big improvement on last month’s 52.7%, helped by the large third-quarter dividend income. Not quite a record though as June was better at 40.4%. I save or invest any income that I don’t spend on Living Expenses so my effective “Savings Rate” this month was 56.2%.
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 September I spent 46% of my income on expenses, so I’m 4.7% points better than this time last year! Although last year’s budget was $70 less at $3,900, this year’s result is improved by higher income and 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.
The percentage of net income spent on Savings (excluding Investments). Savings represents cash plus a long-term holding in Vanguard’s Wellington fund (VWELX).
I’m putting aside $1,400 every month again for unexpected and mid / long term goals (any large expense or purchase due a year or more in the future). $100 of this goes into a ‘sinking fund’ towards paying down my mortgage. This month the savings percentage was 15.0% of my month’s income compared to 15.5% last year.
Last month’s saving rate was 15.4% so there’s been little change in this metric and it usually ends up in the 15-20% range.
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 43.8% of my income.
I’ve written about my September 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 $14,000 in September from $252,605 to $266,606, a new 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.
The current estimate of my Work Freedom Day remains at 12 October 2017, which is fast approaching! 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 a $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 $8,393.35 in September which means I exceeded my budget by $4,343.61. My yearly auto insurance bill was the main reason at about $3,700 although I should be getting 20% of that back next year. I also spent some Savings for a new vacuum cleaner and fan. Spending otherwise was fairly usual.
The over-spend meant my account balance at the end of September is now 3.2 months of living expenses, compared to 4.0 months in August.
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||-$3,209||I overspent due to my yearly auto insurance and offset some of the expense of new household accessories with Savings.|
|Debt||-$3,973||Debt decreased this month as I paid off the credit card bill and charged less to it than last month.|
|Savings||+$1,328||Savings increased as I started saving a bit more this month, despite withdrawing some. VWELX gained $700 in capital gains in addition to the $100 I added.|
|Income Fund||+$11,908||My Income Fund market value increased this month. See my earlier post for details.|
|Total||+$14,000||Total change in Wet Worth|
September 2017 Summary
Cash Flow Forecast
The forward projections on my cash balance is pretty bad for the rest of the year, dropping down to a low of 2.9 times monthly expenses in October before increasing due to lower expenses in November / December. This is expected due to yearly Home Insurance premiums due as well as medical expenses that I need to pay.
Lower net salary (again)
I increased the amount paid into my 401k again this month with the goal of maximizing the contributions. I started the year with an 8% contribution, increased it to 9% in May, to 10% last month and now 12% this month.
In other news
My Wet Worth increases increased again this month with a $14,000 increase. Most of this came from the market via paper capital gains. It’s all good though as I could still pay off all my debts with liquid assets tomorrow and still have over $260,000 remaining.
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.
All in all, it’s one more step in the right direction towards Financial Independence!
Quote of the Day
Tell me and I forget. Teach me and I remember. Involve me and I learn.