January 2018 – a look at my finances for the month


January 2018 reviewIt’s the first monthly update of 2018. Terribly late I know considering that it’s already May and this is old news. But hey, it is what it is. So here’s my January 2018 review following on from my January income fund update. It’s almost like a balance sheet statement, but different!

My Score for January

Living Expenses Budget $4,040 😐
Freedom Ratio 21.0% 🙂
Expenses 59.8% 🙁
Savings 22.4% 🙂
Investments 17.8% 🙂
Wet Worth $328,017 😎
Work Freedom Day 06-Oct-18 🙂
Cash Reserves 2.9 months 🙁

January is another new record for my Wet Worth since I’ve started tracking my finances in 2013. My Work Freedom Day starts the year with an estimate in early October. Other stats aren’t so great so there’s definitely room for improvement over the rest of this year.

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 $850 a month which is 21.0% of my current $4,040 monthly budget. So I’m 21% of the way to Financial Independence!

Living Expenses %

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

This month’s 59.8% is hopefully the worst result for the year ever. I had to go back to Q1 2014 to find similar results when my expenses were high due to paying two mortgages. This month’s poor result is due to low investment income and an increase in my expense budget.

I save or invest any income that I don’t spend on Living Expenses so my effective “Savings Rate” this month was 40.2%.

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 January I spent 54% of my income on expenses, so I’m 5.8% points worse than this time last year. This year’s budget is $70 more at $4,040 but I had significantly lower investment income this month compared to 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 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 22.4% of my month’s income compared to 19.8% last year.

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 17.8% of my income.

I’ve written about my January 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 $24,536 in January from $303,481 to $328,017, 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 Work Freedom Day estimate is 06 October 2018. 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 $7,167.36 in January which means I overspent my budget by $3,127.36. The bulk of the spending was in buying plane tickets for my annual UK trip which will be in May this year.

As a result, my account balance at the end of January decreased to 2.9 months of living expenses, compared to 3.5 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 -$2,152 Cash decreased due to large travel purchase. Other expenses were fairly low and I used Savings to offset some of the travel costs.
Debt -$3,586 Debt decreased this month as I paid off higher credit card balances.
Savings +$2,929 VWELX gained $1,400 in capital gains in addition to the $100 I added to it. My HSA account also increased. I spent some Savings cash towards the plane tickets.
Income Fund +$20,175 My Income Fund market value increased this month. See my earlier post for details.
Total +$24,536 Total change in Wet Worth

January 2018 Summary

Cash Flow Forecast

No major expenses are planned for the next couple of months.

In other news

The side window of my car was broken on the freeway by an errant stone. Fortunately my insurance covered it entirely with zero deductible as part of the glass protection package I have. Both Amica Insurance and their preferred glass company Safelite were fantastic at getting everything sorted out. Aside from that things are normal although work is keeping me busy.

All in all, it’s one more step in the right direction towards Financial Independence!

Quote of the Day

Optimism is the faith that leads to achievement. Nothing can be done without hope and confidence.


2 thoughts on “January 2018 – a look at my finances for the month”

  1. What a comprehensive breakdown of monthly expenses you’ve put together. It looks like you’re doing all the right moves. Paying down debt and saving! Personally I don’t consider my house or car an asset, they are more of a liability really. Especially the car which loses value over time. Keep up the good work.

    1. Thanks Captain, yes I avoid including house and car as assets too. The real value of the house is what someone will buy it for, and that can be quite different from estimated values. That’s not including a 6% sales commission or whatever.
      I’m leasing my car so I just include the remaining lease payments as a part of “Debt” in my Wet Worth along with my mortgage balance.
      Best wishes,

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