May 2018: A look at my finances

May 2018 reviewHere’s my May 2018 review following on from my May income fund update. It’s almost like a balance sheet statement, but different!

My Score for May

Living Expenses Budget $4,040 😐
Freedom Ratio 21.7% 🙂
Expenses 55.1% 😐
Savings 16.3% 🙂
Investments 28.6% 🙂
Wet Worth $351,918 😎
Work Freedom Day 02-Oct-18 🙂
Cash Reserves 3.4 months 🙂

One record (😎) this month as this month’s results include another all-time high 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. $4,040 is the amount from my Budget 18.0.

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.

Freedom Ratio

My Freedom Ratio is the percentage of my monthly living expenses budget that my Income Fund ‘withdrawals’ pay for. The current payment is $875 a month which covers 21.7% of my current $4,040 monthly budget. So I’m 21% of the way to Financial Independence!

I’ll adjust this amount from investment income in the first quarter of next year. Surplus investment income for the remainder of this year will be re-invested.

Living Expenses %

The percentage of net income that’s spent on living expenses. Lower numbers are better here.

This month’s 55.1% beats February’s 57% due to higher salary and investment income than the first month of last quarter.

I save or invest any income that I don’t spend on Living Expenses so my effective “Savings Rate” this month was 43%.

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 May I spent 52.1% of my income on expenses, so I’m 3% points worse than this time last year. This year’s budget is $70 more at $4,040 and I had higher investment income in May last 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 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. In 2017 I moved to Budget 17.0 which increased monthly spending to $3,970.

This year I’m following Budget 18.0 which allows for $4,040 a month in living expenses.

Savings %

The percentage of net income spent on Savings (excluding Investments). Savings represents cash plus some stocks (VTMSX) and bonds (VWSTX).

I’m now putting aside about $1,200 every month for unexpected and mid / long term goals (any large expense or purchase due a year or more in the future). This month the savings percentage was 16.3% of my month’s income compared to 15.0% last year.

This metric tracks only the money paid into my savings accounts. I have been spending some of my savings in the last couple of months. The resulting change in the savings balance is shown further below.

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 28.6% of my income.

I’ve written about my May 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 $6,657 in April from $345,261 to $351,918. There’s a more detailed breakdown of this amount further below. This number is a new record high since I’ve tracked my finances.

Work Freedom Day

The day in the year that my dividend income could pay for the rest of the year’s expenses.

The current Work Freedom Day estimate remains at 02 October 2018 based on projected income. The exact date won’t be known until later in the year as I’m using conservative estimates to predict the date.

Note that based on a $4,040 budget, one Work Freedom Day requires about $134 of dividend income. Financial Independence then, requires about $1,800,000 at a 3% withdrawal rate.

Cash Reserves

Here 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 $4,313.63 in May which means I overspent my budget by $273. Non-typical expenses were joining the US Global Entry travel program and paying for a lawn mowing service.

Wet Worth detail

I’m showing my Wet Worth in this post – this is the cost of my liquid assets minus debt. Assets and retirement accounts are excluded 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 +$647 Cash decreased as I paid some of the tax refund I received to Ms. DL.
Debt -$1,141 Continuing to pay down mortgage at old (higher) rate.
Savings -$99 I used some of my Savings to pay a lump sum for the lawn service and some other expenses.
Income Fund +$4,974 My Income Fund market value increased this month. See my earlier post for details.
Total +$6,657 Total change in Wet Worth

May 2018 Summary

Cash Flow Forecast

The next couple of months should be similar to this month. My auto insurance premium will be a large expense that’s due in July.

I’m also planning to have some wood flooring installed in the house later this summer which will be paid for from Savings.

In other news

Nothing much to report this month. I’m catching up on my posts so that I can report July’s results in ‘real-time’ instead of four months behind. Only June to go now!

Anyway, it all adds up to one more step in the right direction towards Financial Independence!

Quote of the Day

It’s easy to sit there and say you’d like to have more money. And I guess that’s what I like about it. It’s easy. Just sitting there, rocking back and forth, wanting that money.


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