March 2018: A look at my finances

March 2018 review - flowers in the springLots of dividend income this month plus mortgage payment equals good results. Here’s my March 2018 review following on from my March income fund update. It’s almost like a balance sheet statement, but different!

My Score for March

Living Expenses Budget $4,040 ?
Freedom Ratio 21.0% ?
Expenses 41.3% ?
Savings 13.4% ?
Investments 45.3% ?
Wet Worth $341,164 ?
Work Freedom Day 02-Oct-18 ?
Cash Reserves 3.5 months ?

Three records (?) this month! March’s results benefit from significantly higher dividend income. The month resulted in an increase to my Wet Worth although a lot of that was due to the mortgage paydown. My Work Freedom Day moved a couple of days earlier in October.

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 41% easily beats last month‘s 57% due to end of quarter dividend income from the funds in my portfolio. This result is a new record so far this year.

I save or invest any income that I don’t spend on Living Expenses so my effective “Savings Rate” this month was 58.7%.

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 March I spent 42.5% of my income on expenses, so I’m 1.2% points better than this time last year. This year’s budget is $70 more at $4,040 but I had much higher 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 some stocks (VTMSX) and bonds (VWSTX). In making the mortgage payment I exchanged my previous holdings in Vanguard’s Wellington fund (VWELX) for more tax-efficient funds.

I’m now putting aside about $1,300 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 13.4% of my month’s income compared to 17.7% 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 41.3% of my income.

I’ve written about my March 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 $20,521 in March from $320,643 to $341,164. 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 moves forward to 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 $4,017.15 in March which means I underspent my budget by $23. I had some car repairs expenses to pay for on account of hitting my wing mirror on a pole (doh!), but otherwise things were pretty normal.

But I did receive a tax refund, and I used some of that money to boost my cash reserves as they’ve been running a bit low lately. As a result, my account balance at the end of March increased to 3.5 months of living expenses, compared to 2.8 months the month before.

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 +$2,596 Cash increased due to money from tax refund plus some transfer from savings.
Debt -$60,645 Large decrease this month due to $60,000 mortgage payment.
Savings -$39,499 I spent $40,000 of savings towards the mortgage payment above.
Income Fund -$3,220 My Income Fund market value decreased this month. See my earlier post for details.
Total +$20,521 Total change in Wet Worth

This month would have been a net loss had it not been for $20,000 of the mortgage payment courtesy of Ms. DL. Her income and savings are not part of the metrics shown here.

March 2018 Summary

Cash Flow Forecast

No major expenses are planned for the next couple of months so spending should be fairly normal until larger bills (insurance) are due in the summer.

In other news

Last month I mentioned about changing my Savings – that’s the change from Wellington to more efficient tax holdings described above. My Savings account is certainly an area where I continue to evolve / change my mind as I don’t like seeing large amounts of cash just sitting there.

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

Quote of the Day

Life is either a great adventure or nothing.


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