April 2018: A look at my finances

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

My Score for April

Living Expenses Budget $4,040 😐
Freedom Ratio 21.7% 😎
Expenses 55.5% 😐
Savings 16.5% 🙂
Investments 28.0% 🙂
Wet Worth $345,261 😎
Work Freedom Day 02-Oct-18 🙂
Cash Reserves 3.2 months 🙂

Two records (😎) this month! April’s results include a new all-time high Wet Worth. My Freedom Ratio has a small increase but that still makes for a new record so I’ll take that.

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 has increased from $850 to $875 a month which is 21.7% of my current $4,040 monthly budget. So I’m 21% of the way to Financial Independence!

The $25 a month increase results from the average first quarter income (with a little bit of rounding). The first quarter of the year is usually the lowest, so I’m using that as the basis for future withdrawals and re-investing any excess income. Next year’s increase should be larger hopefully.

Living Expenses %

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

This month’s 55.5% beats January’s 59.8% 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 44.5%.

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 April I spent 52.6% of my income on expenses, so I’m 2.9% points worse than this time last year. This year’s budget is $70 more at $4,040 and I had higher investment income in April 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 16.5% 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 28.0% of my income.

I’ve written about my April 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 $4,097 in April from $341,164 to $345,261. 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 $4,275.37 in April which means I overspent my budget by $234. Non-typical expenses were some wet weather clothing that I bought.

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 -$1,011 Cash decreased as I paid some of the tax refund I received to Ms. DL.
Debt -$942 Continuing to pay down mortgage at old (higher) rate.
Savings +$1,172 Nothing major to report here.
Income Fund +$2,994 My Income Fund market value increased this month. See my earlier post for details.
Total +$4,097 Total change in Wet Worth

April 2018 Summary

Cash Flow Forecast

I decided to use a lawn cutting service so there will be some expenses to pay for that next month. Otherwise the next major expense should be car insurance premiums in July.

In other news

I’m continuing to slowly move money out of my Barclays Online Savings account to consolidate at American Express Bank. I haven’t had any trouble with Barclays and they pay a competitive interest rate. This is really just about reducing the number of accounts I own. It will take a while for me to complete the move though because I’m too lazy to make large changes to the Excel file I use to track my finances.

I’m trying to catch up on my posts so that I can report July’s results in ‘real-time’ instead of four months behind. Only May and 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.


2 thoughts on “April 2018: A look at my finances”

  1. Great progress. Looks like you had started off saving a greater portion of the income but that has since changed in the past few years and now you consistently stay around 50%. Way to go! I like the “Work Freedom Day” was sure exactly what that was until I read it over. 🙂

    Unless it is your spending chart, we hope all your charts continues to trend upward. Best wishes and continued success on your journey. Look forward to the next report! AFFJ

    1. Hi AFFJ,
      Thanks for the best wishes! This year I’m putting more into my 401k so income is a little less and investment income has been less too. But hopefully the numbers will continue to improve from here!

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.