September 2016 – monthly summary

This post follows on from my September income fund update and shows spending / savings during the month. September was a quiet month for the most part although I’ve been busy / stressed with work. Financial Independence looks so attractive right now, but is it closer this month?

My Score for September

Living Expenses Budget $3,900 ?
Security Ratio 13.8% ?
Expenses 46% ?
Savings 15.5% ?
Investments 38.6% ?
Wet Worth $153,790 ?
Work Freedom Day 26-Oct-16 ?
Emergency Fund 105% ?

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. $3,900 is the amount from my Budget 4.5.

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.

I spent a total of $4,317.42 in September which means I overspent my budget by $417.42. The overspend was due to medical costs as I had some tests done which required a hospital visit. I used some of my Savings to pay towards the cost.

Security Ratio

This is the percentage of my monthly living expenses budget that my Income Fund pays for. This metric is no longer tied to the actual dividend income per month. Instead I’m automatically withdrawing a flat monthly amount of cash from my Income Fund that’s fueled by dividend payments. The current amount is $600 a month which is 13.8% of my current $3,900 monthly budget.

I’ll change this amount once or twice a year as dividend income increases. $600 a month is $7,200 a year which is about 86% of the total dividends I’m projecting to receive this year.

Living Expenses %

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

This month’s 46.0% is a new record for me and much better than last month’s 52.2% due to higher dividend income this month. I save or invest any income that I don’t spend on Living Expenses so my Savings Rate this month was 54%.

Any change in this number is caused by a change in either income or budget similar to the Security Ratio although this calculation takes total income into account and not just dividends. This value uses the planned budget against income; not the actual spend.

Last September I spent 50.4% of my income on expenses, so I’ve improved 4% points compared to last year. Although last year’s budget was $50 less at $3,850, this year’s result is helped by a higher salary and $500 more dividend income being paid out.

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 I started Budget 3.0 which I updated to Budget 3.5 in July.

Budget 4.0 started this January and it increased the monthly amount which negatively affects results this year. I’m now following Budget 4.5 which kept the total monthly amount the same from January.

The average percentage value should decrease over time because salary and investment income should increase faster than living expenses.

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.

Savings %

The percentage of net income spent on Savings (excluding Investments).

As part of my revised budget and savings plans, I’m putting aside $1,280 every month for mid and long term goals (any large expense or purchase due a year or more in the future). The savings percentage was 15.5% of my month’s income compared to 15.4% last year.

Last month’s saving rate was 18.7%; this number decreased this month primarily because of the higher monthly income I received.

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 Income Fund. This month it was 38.6% 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 $501 in September from $153,289 to $153,790, a new record 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.

Based on current projections and including the last dividend amounts, my Work Freedom Day has moved forward to 26 October 2016, which has come and gone already! It’s nice to think that I only need to work 10 months of the year before dividends take over. I look forward to watching that amount reach zero!

Note that based on my $3,900 budget, one Work Freedom Day requires about $128 of dividend income which in turn requires about $4,000 of capital. Financial Independence then requires about $1,600,000 at a 3% yield.

Emergency Fund

This value is the actual balance of my Emergency Fund vs my target balance which is 10 times my living expenses (i.e. $39,000). The stock market was mostly flat and my EF funding level is up to 107.2% this month, up from last month’s 107.0%.

Currently my EF is 100% held in VTSAX, a low cost stock market fund. It is not recommended to hold your Emergency Fund in stocks. Economic conditions where you might lose your job would likely impact the market and cause lower prices. Also if you’re relying on your EF to pay an large unexpected expense (I rely on Savings for that), the money might not be all there when you need it due to stock market drops.

However, in my particular situation, my EF is dedicated solely to covering loss of employment. So I feel comfortable with this risk when judging the chance of losing my job. Especially so since our household has two incomes. In an extreme case where the market drops 50%, I still have 5 months of living expenses. More importantly, every day I move closer to Financial Independence reduces the need for an EF to protect against job loss.

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 +$2,301 Cash for living expenses increased this month as I transferred some money from Savings.
Debt +$2,431 Debt increased this month as I paid for some house repairs on my credit card which will be paid in full until next month.
Savings -$1,652 I saved $1,300 this month. But I also withdrew $2,678 to pay towards my medical bills and upcoming house repairs. My longer-term savings in the Vanguard Wellington (VWELX) fund was mostly flat and my HSA account increased by $200 this month.
Emergency Fund +$64 My Emergency Fund consists of the Total Stock Market fund (VTSAX). It grew by $64 all on its own.
Portfolio +$2,219 My Income Fund had a flat month from new capital and capital growth. See my earlier post for details.
Total +$501 Total change in Wet Worth.

September 2016 Summary

September broke some new records in Wet Worth and lowest Living Expenses ratio. I also managed to build up a little more cash ahead of expenses coming up in October. I’m using Savings for unexpected / large planned purchases, so this is helping too.

Quote of the Day

Today is life-the only life you are sure of. Make the most of today. Get interested in something. Shake yourself awake. Develop a hobby. Let the winds of enthusiasm sweep through you. Live today with gusto.

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