December is usually a quiet month for us in spite of the Christmas holidays. The stock market hasn’t been as quiet however with a drop on the last day of the year erasing most of the gains for the month. I know you’re desperate to know if I moved forwards or backwards on the path towards Financial Independence in December so let me get on with the report. Caution: Three monthly records (♥) were broken in the writing of this email…
My Score for December
|Living Expenses $||3,960|
|Security Ratio||23.13 % ♥|
|Expenses||49.62 % ♥|
|Investments||36.95 % ♥|
|Wet Worth $||33,184|
|Work Freedom Day||14-Nov-15|
Living Expenses – 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. $3,960 is the amount from my last budget; budget v2.0 and will be reduced to $3,900 for 2015.
I spent a total of $3,436.17 this month which means I was $523.83 in surplus for the month against my budget.
Security Ratio – this is the percentage of living expenses that my dividend income would pay for this month.
This month’s value of 23.13% is significantly higher than last month’s because of higher dividend income in December with more stocks and funds paying out. Last month I earned $338 in dividend income, this month was $916. This month’s ratio is actually a record high for me, beating the previous highest value of 21.24% from June.
Living Expenses % – the percentage of net income that’s spent on living expenses. Lower numbers are better here.
This month’s 49.6% is a yet another new record for me and means that I saved over 50% of my income – the first time this year based on my normal income. Last month’s value was 52.5%. Since my living expenses are a fixed amount, any change in this number is caused by higher income or a revised budget level, and this month it was higher dividend income since my budget remained constant from the month before.
Savings % – the percentage of net income spent on savings.
After living expenses, I put aside a fixed amount for savings that came to 13.4% of my month’s income – lower than last month’s 14.2%. This percentage varies based on changing income levels so the lower value is due to higher income which is actually a good thing!
My Savings covers mid and long term goals (any large expense due a year or more in the future). I put about $500 aside for general savings as well as $547 for my car payment. This pays an interest free loan for the next 3 years (1 year down, 3 more to go). I’m usually fighting inflation but with this loan, inflation is working for me.
Investment % – the percentage of net income that I invest.
Any spare money left over after savings, retirement and living expenses are paid goes into my current income portfolio. This month it was around 36.95% of my income, up from 33% last month and beating the previous record in November.
Retirement % – the percentage of net income spent on retirement.
This would represent any taxable contributions towards my retirement account, but I don’t have any plans to do so at the moment. Originally when I first realized that maxing out my 401(k) wouldn’t cover my retirement, I was putting extra aside in tax-efficient funds in my taxable accounts. But I included them into my dividend portfolio after realizing that financial independence was possible.
My pre-tax retirement plans (I have a 401k, Roth IRA and Traditional IRA) are intentionally boring investments that I leave alone, so nothing to write home about – I follow a Boglehead approach for these accounts. They contain several low expense index mutual funds and I pay a total of 16% of my gross income into my 401(k), thanks to an 8% match from my employer.
Wet Worth $ – my liquid assets minus all debt (excluding retirement and assets).
My wet worth increased $3,090 this month to $33,184. There’s a more detailed breakdown of this amount further below.
Work Freedom Day – the day in the year that I’ll have earned enough dividends to pay for the remaining year’s budget.
My Work Freedom Day from 2014 was reached on 21 November 2014, so I’ve calculated next year’s day to be 14 November. I’ll review this date monthly as the income estimates become actual numbers to improve its accuracy.
Income from dividends was $916 this month. This makes a year to date total of $5,376 which beats my 2014 target of $4,950 by $426!
You can see a summary of the results on my goals page.
Dividend income from stocks
November and the other second months of the quarter are generally the middle dividend income months with my portfolio. This month 21 stocks paid dividends: MSFT, PFE, XOM, LB, VPU, ROC, INTC, VDE, EMR, AWR, CVX, HD, JNJ, KO, MCD, UPS, GXP, MAR, TROW, BMS & LMT as shown below.
The yield calculations are annualized, or extended forward a year based on the current dividend payment against the cost basis or market value respectively. They don’t include contributions from stocks added after the ex-dividend date so they may under estimate the value.
Last month my dividend stock portfolio was valued at $28,381. This month it’s $29,662 – an increase of $1,281 or 4.5%. However I added $1,200 in new investments so the real growth was $81 and I now have a 19% unrealized gain, down 1% from last month’s 20%.
Dividend income from funds
I also hold several mutual funds in my taxable account that I consider part of my dividend income portfolio.
Going forward I won’t be adding much new money, if any, to the bond funds – they do provide a safety net of monthly income at a reasonable yield but the income is taxed at a higher rate than the qualified income from stocks and the stock funds.
I added a total of $1,900 to my fund investments in December – $1,275 in VHDYX, $225 in VTIAX and $400 in VWEAX. This is in addition to the $1,200 I invested in dividend stocks.
Overall my portfolio of both stocks and funds increased from $155,330 to $156,231; a total gain of $901 or 0.58%. I added a total of $3,100 in new capital in December so overall this month had negative growth and ate into the gains from November. My unrealized gains decreased from $13,478 too $11,070 resulting in final unrealized gains of 7.63%.
Other investing activity
Nothing much to mention here. My Pension Fund check arrived on the last day of the year and it’s now on its way to my IRA. The money won’t show up in my Wet Worth calculations though since it’s part of my Retirement accounts.
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.
Here are the numbers for December.
The change in Wet Worth is caused by
|Cash||+$1,027||Positive cash flow this month from higher income and lower spending.|
|Debt||-$762||Overall debt decreased because of mortgage and car loan payments.|
|Savings||+$456||Monthly savings increased – some of the money is in cash and some is in <a href=”https://personal.vanguard.com/us/funds/snapshot?FundId=0021&FundIntExt=INT”>VWELX</a>.|
|Emergency Fund||-$55||My Emergency Fund now consists of cash, a stock fund and a short term bond fund. It decreased slightly because of the bond fund, but it’s still above the target level of 9 times my living expenses so I’ll stay calm and carry on.|
|Portfolio||+$901||My overall income portfolio increased in value this month as noted above.|
|Total||+$3,090||Total change in Wet Worth.|
December 2014 Summary
Overall December was a good month with another continued increase in m Wet Worth – that’s seven months in a row now!
Quote of the Day
Discipline is the bridge between goals and accomplishment.