November 2017 review – a look at my finances for the month

november 2017 reviewAlmost caught up to December’s numbers. But first, here’s my November 2017 review following on from my November income fund update. It’s almost like a balance sheet statement, but different!

My Score for November

Living Expenses Budget $3,970 😐
Freedom Ratio 20.8% 🙂
Expenses 51.7% 😐
Savings 19.9% 🙂
Investments 28.4% 🙂
Wet Worth $294,101 😎
Work Freedom Day 04-Oct-17 🙂
Cash Reserves 3.2 months 🙂

I’ve now passed my work freedom day so the rest of the year is (technically) all paid for! Another single 😎 this month as November reached yet another record 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 17.5.

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.

Freedom Ratio

My Freedom Ratio is the percentage of my monthly living expenses budget that my Income Fund pays for. The current payment is $825 a month which is 20.8% 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 51.7% is about the same as last month’s 51.4%, due to similar expenses and slight higher income last month. But it’s still better than the average 52% I’ve been getting in ‘off-months’, so it’s all good! I save or invest any income that I don’t spend on Living Expenses so my effective “Savings Rate” this month was 48.3%.

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 November I spent 48.3% of my income on expenses, so I’m 2.4% points worse than this time last year. This year’s budget is $70 more at $3,970 plus I had higher investment income this time last year because of the bonds I held back then.

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.

Budget 4.0 started in 2016 with an increase to the monthly amount which I held constant in the mid-year review of Budget 4.5.

This year I’ve adopted Budget 17.0 which increased monthly spending to $3,970 and tweaked it a little to Budget 17.5.

Savings %

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 now putting aside $1,500 every month 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 and other long term savings. This month the savings percentage was 19.9% of my month’s income compared to 21.3% last year, because I saved a bit more this time last year.

Last month’s saving rate was also 21.3% however. The decrease this month compared to last month is due to higher income this month and a bit higher savings last month.

Investment %

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 28.4% 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 $15,814 in November from $278,284 to $294,101, 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 moves forward to 04 October 2017. This number includes some very conservative estimates of fund income, so the final date will be known next month. 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.

Cash Reserves

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 $3,354.49 in November which means I underspent my budget by $615.81. Spending was fairly usual with no large items.

The over-spend meant my account balance at the end of this month is now back to 3.2 months of living expenses, compared to 2.9 months 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 +$950 Usual spending this month plus I offset some medical expenses with $300 from my Savings.
Debt -$326 Debt increased this month as I charged more to my credit card than I paid the mortgage.
Savings +$2,447 VWELX gained $1,300 in capital gains in addition to the $100 I added to it. Plus I saved cash as noted above.
Income Fund +$12,746 My Income Fund market value increased this month. See my earlier post for details.
Total +$15,816 Total change in Wet Worth

November 2017 Summary

Cash Flow Forecast

Cash flow should be increasing again in December as all large yearly expenses are now paid, and most spending on my credit card now won’t be paid until January. It looks like this year will largely be a wash in terms of cash reserves.

In other news

My Wet Worth increased again this month by over $15,000. 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 have over $290,000 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

An investment in knowledge pays the best interest.

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