August 2017 Review

August was an attempt at a ‘model’ or ‘perfect’ month for me. I tried to eliminate all unnecessary spend and lived frugally, or as frugally as I could anyway.

It was an experiment of sorts. I cut my food budget down to £25 a week which had to include any drinks or meals out. I allowed myself to carry over any leftover money, so in the second week for example I had a meal out at the pub with my workmates, but I asked for a glass of water (instead of my usual coke), and waited til I got home to have dessert.

Of course it all fell apart in the third week – I caved in and ordered a big takeaway which blew my food budget for that week. I also went out for meals in the third and fourth weeks, had a couple of nights out, and by the end of the month I’d overspent my budget significantly. Having said that, when I tallied up my spending at the end of the month I found I’d spent half of what I usually spend.

pizza
Mmmmmm. It was all worth it.

I also discovered a bit more about myself – about what I can happily get by on, and about where the line is when it comes to budgeting. It turns out my social life takes priority over frugality, but there is a middle road where I can be a bit more conscious about my spending choices when I’m out.

No one else really seemed to notice either which is good thing I think. In the third week I found a voucher for 50% off main courses for a table of six and my workmates were happy to oblige so I not only saved myself money but everyone else as well!

Calamity!

Everything was going fairly well on the finance front until the last Saturday of August when I had an accident.

There I was, sat at my desk with my feet up on the table. I had my laptop in my lap, playing a game (Guild Wars II if anyone’s interested), when the back of my desk chair broke off.

It happened in slow motion – I went over backwards, managing to hold onto my laptop as I did so. I knocked a glass off the table which smashed on the wood flooring. I did a sort of half roll and next thing I know I’m lying on my front, the laptop held above my head, as though I’ve just scored a touchdown in the Super Bowl.

touchdown.jpg
I definitely didn’t look as cool as this.

My housemate came running down the stairs – he later told me he thought someone had broken into the house! It was a pretty loud crash. I imagine it would have been fairly comic if anyone had been watching.

To be fair it was an old chair – I’d had it about 9 years and I’d taken it to 5 different houses in that time. It was probably about time I replaced it. And so I did – I went shopping for desk chairs and am now sitting comfy in a sturdy chair that I hope will last me several years.

Of course this didn’t help my attempt at living frugally for the month – I ended up spending £120 on the chair. Still, needs must I guess. On Sunday I took the old chair apart and bid it a tearful farewell at the tip.

obama
Maybe I’m overreacting a little bit.

August 2017 Round Up

So here we go, here is the breakdown of my spend in August:

Spending:

  • Mobile phone – £19.40
  • Rent – £550  – I own my house (with a mortgage) but I pay myself rent. I don’t actually move any money around, but for the purposes of my spreadsheet and my savings rate I treat my house as though it were a rental property and I am a tenant in it.
  • Food, drinks, toiletries – £95.15 – This is basically my supermarket shop.
  • Eating/drinking out, takeaways – £88.06
  • Petrol/travel – £33
  • Car expenses (insurance, repairs etc) – £0
  • Gym/Sports – £49.99 – My gym membership is £29 a month, but this month I bought myself a pull up bar as I’m trying to work out more at home – eventually I’m thinking of dropping the gym membership though I’m not quite ready for that.
  • Music/gigs/cinema – £27 – Bought a ticket to see a band in February.
  • Cash Withdrawals – £55 – I still get cash out from time to time. I suppose some of this should fit into some of the above categories somehow but it’s complicated. I do try and spend on my card for most things to keep this category as low as possible.
  • Miscellaneous – £286.75 – Including one new desk chair, a repayment on a couple of mattresses I bought a few months back, and some other bits and pieces.
  • Bank charge – Negative £9.01 (ie they paid me). I’m not sure why but I always put this in here – I suppose I should consider it extra income but on the other hand if I was paying for my bank account it would be an expense. Something to consider but it doesn’t change the overall figure very much.

Total: £1195.34

Income:

My income is a little complicated.

I have my salary from work, from which a pension payment and a sharesave payment are automatically taken out.

I also have the income from my properties – I have 2 properties one of which I live in. I have 5 tenants in the house I don’t live in and 3 tenants in the house I do live in (4 tenants if you include me). Both houses I pay all the bills and then my tenants each pay a flat rent each month. Then of course there is the mortgage on each house, and on top of that I’m paying back my parents a certain amount each month as they loaned me the money for the deposit on the first house – this is effectively a 3rd mortgage as far as I’m concerned – I pay interest on it and have a plan set up to repay it all over 10 years.

I split out my income into active and passive – passive is basically my rental income, active is everything else. At some point I might go into these in more detail but for now here are the vital statistics:

  • Salary (after pension/sharesave removed) – £2176.34
  • Pension payment – £877.50 – I put in 6%, my employer puts in 20%
  • Sharesave – £250
  • Matched betting – £332.59 – I don’t do matched betting very often but this month I tried out the 888casino freeplay offers and made £332.59 before my account got ‘gubbed’.
  • Rental Income (after bills, expenses, council tax and mortgage interest removed) – £1291.95 – the actual rent received was £2660 but once everything is considered my actual income drops to less than half that. It would drop even further if I considered the mortgage repayments as well but then I will eventually pay off the mortgages so I consider mortgage repayments as savings.

Total Active Income = £3636.43

Total Passive Income = £1291.95

My Savings Rate

This is where my approach differs to other bloggers. Most bloggers don’t appear to consider their investment income (my passive income above) the way I do. They usually just reinvest it, or they might add it to their total income.

So for most bloggers looking at my stats above they might see an income of £3636.43 and spending of £1195.34 and say, aha, your savings rate is 1-spending/income which equals 0.67, or 67%.

Other bloggers might add the active and passive income together for a total income of £4928.38 and use the same calculation above to get a savings rate of 76%.

Other bloggers might consider the mortgage repayments as an expense also (I’ve only considered the mortage interest above) but that’s a different topic altogether.

My method is to use passive income as an expense reducer. That is, my spending is £1195.34 minus £1291.95 which equals negative £96.91. As my active income is £3636.43 and my spending is negative £96.91 then my savings rate is 103%.

Let me just repeat that, my savings rate for August 2017 was 103%.

Say what now?!

mourinho
Mourinho is unimpressed with my ‘savings rate’

A bit of explanation

Okay this wasn’t a typical month. On the one hand I didn’t have any of the big yearly expenses – car insurance/MOT/repairs, home insurance, holidays, presents, and so on. I also didn’t have any of the big adhoc expenses – social occasions like weddings or stag dos for example. And finally I didn’t have any of the big life expenses – I didn’t get married, or buy a new house, and I don’t have kids to pay for.

So yes it might look great but there are many caveats to that savings rate and over time (over many years in fact) I expect my average monthly expenditure to be much higher than the sub £1300 it was this month.

Even so I’m fairly happy with how I did – there are still ways to trim the expenses down but it was a good month overall.

Thoughts on my new method of calculating my savings rate

Interestingly this month I knew that if I spent less than a certain amount then I would reach the 100% savings rate. I actually was able to count down how much I had left until I would go below 100%. This is a new development for me.

Also I noticed I was much more concerned about the passive income – if I could just increase that then I could spend more whilst still getting the 100% savings rate. This is a surprisingly powerful motivator – on my other house this month I moved my gas and electricity bills to a cheaper provider – before I’d have probably been lazy about it but now I know that every pound I increase my passive income by is an extra pound I can spend before my savings rate drops below 100%.

Conversely I wasn’t so bothered about my active income. As long as my passive income outweighed my expenses then it really didn’t matter what my active income was. My active income could be only £5 and I’d still have a savings rate over 100% (as long as my passive income outweighed my expenses). Ultimately this makes sense – when I’m financially independent if I decide to stop working then my savings rate should still technically be over 100% even with a lack of active income.

Some might say this is a bad thing – that I should choose a calculation method which motivates me to increase my active income. But I still have my net worth tracker and this increases more the more income I have so that is motivation enough for me. Which leads nicely on to:

My Net Worth Tracker

My net worth increased in August from £169,331.28 to £177,208.63. Not too shabby, a £7,877.35 increase. This is based on the estimated values of my properties minus my debts (mortgage/loans etc), plus my savings, plus my investment accounts (including pension) and the total of my bank balances. Since this time last year I estimate my net worth has increased by £59,106.40. Here’s a lovely graph to show how my net worth has increased since September 2012:

Net Worth 31-08-2017

It’s the green line that’s the main one. I’m hoping to get to a net worth of £200k by the end of the year though it depends to a great deal on share values and house values so we’ll see.

Conclusion

So there you go, a snapshot of where I am, financially speaking. If I’m honest with myself I probably won’t be doing an update like this every month, but it’s still interesting to check in like this every now and then.

If anyone is reading this, let me know your thoughts!

Thanks, Wephway

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3 thoughts on “August 2017 Review

  1. Great and detailed update Wephway!

    A few points/questions for you:

    1) What is with the 3 jumps in both Assets and Debts on the graph? I thought you said you only had 2 houses?
    2) Of course if your passive income is more than your expenses you are already FI… so this month you are technically FI even though this may change again in future months! 🙂
    3) However… I would say that this is still not actually true as you are still paying off the debt on your houses, so even though you’ve counted principle payments as savings and not expenses, that seems like that this is fudging the figures somewhat if you are going to say “well my passive income is more than my expenses therefore I could be FI right now”. In the real world if you did this you would be short of however much the principle payments were.
    4) I realise that you know you are not really FI and were not going to hand in your notice tomorrow so it’s a moot point, but just something to think about when looking at your numbers. Why do you want to track your savings rate and income vs expenses? Is the whole point of it to tell when you can reach FI? If so then I’m not sure that is the correct way of doing it. If it’s just to keep score and you like to keep score in this particular way, and are going to tell when you are FI on some other count such as “When my portfolio reaches 1 million” or something like that then that’s all good!

    I know we’ve spoken about this on my blog comments before so sorry if we’re going over old ground again – as I mentioned I still haven’t worked out a better way of doing the whole mortgage thing so I’d rather err on the side of caution and just count the whole lot as an expense. The worst case scenario with doing it that way is that in say 15 years when I am nearing “true FI” I might just work out that I can clear the rest of my mortgage, and be FI 1 or 2 years (maybe more?!) than I actually thought… which doesn’t sound like too bad of a surprise if you ask me 🙂

    Also £95 on groceries… TEACH ME MASTER!!!!! 😀

    The only thing I can beat you on here is we got our office chair via Freecycle (£0) but all other metrics you are firmly whipping my butt on the frugality scale haha.

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    1. Hi TFS,

      Lots of good questions! As you know I wrestled with the whole savings rate thing for a while – I was never really happy with how mortgages and investment income fit in with the savings rate but this method makes sense to me. So I’ll try and explain my logic whilst answering your questions:

      (1) The first and third jumps in the graph are my two houses. The second jump is a house I bought with my ex-girlfriend – it was a little semi-detached bungalow – for the purposes of this graph I only considered my half of the value of the house and my half of the mortgage. We ended up selling that house earlier this year and I used my half of the proceeds to buy my second house. There’s more info here if you’re interested (you have to get past all the guff about Rich Dad Poor Dad first sorry!): https://deliberatelivinguk.wordpress.com/2017/09/24/on-the-uk-housing-market-part-two/

      (2) and (3) You are correct I’m still paying off the mortgages. My logic was that I could (in theory) get interest-only mortgages and pocket the cash rather than paying down my mortgages. Actually most landlords get interest-only mortgages on their rental properties. And in the past a lot of people (including my parents) had interest-only mortgages on their own houses, though I’m not sure if you can do that so easily now since the Credit Crunch.

      BTW I’m not saying that getting an interest-only mortgage would be a good idea. It’s just, for the purpose of working out my savings rate I’m treating the repayment part of the mortgage as a voluntary saving. You’d never pay off the mortgage if it was interest-only, but then that’s why I say paying off the mortgage is like saving towards an investment – once the house is paid off it will effectively pay your rent for you.

      (4) I definitely wouldn’t say I’m FI – I’d like to have a very comfortable buffer before I finally declare myself FIREd, but also this was only one month, and a very good month for me at that! Actually earlier in the year I had a negative savings rate for a few months because I spent so much on house buying costs (solicitor, stamp duty, etc), furniture and redecoration costs, income tax for my property income, a skiing holiday, car tax, and so on and so on. In fact I just submitted my tax return for 2016-17 for my property income (early this year!) and have just found out I owe HMRC £2k, so that will have to come out in the next few months (which will massively reduce my passive income).

      Still it has been nice to see the monthly savings rate edge above 100% for a couple of months before it inevitably dives back down again. The main reason I do it is to try and accurately figure out how close I am to reaching FI – granted, one month doesn’t really do that, but hopefully if I take an average over the year I’ll get a closer estimate.

      Of course, even if you work out your annual savings rate it’s not perfect because there’s so many major costs over a lifetime – marriage, houses, kids… I’ve recently been reading the blog iretiredyoung (www.iretiredyoung.net) and they’re talking about helping their children out with student fees and house deposits – how does that fit into a savings rate? When I try and think about how to factor something like that into my savings rate it makes my head hurt!

      I guess that’s why bloggers starting out on their path to FIRE talk more about savings rates whereas bloggers who are almost there talk more about target net worths and safe withdrawal rates. I haven’t given a target net worth too much thought yet – initially I just thought £1m (including house equity) because it’s a nice round number but there’s so many things to consider and also I have my hypothetical future spouse’s wants and needs to consider also!

      It makes sense to be cautious like you say regarding the mortgage – if you end up reaching FI sooner than your projections tell you there’s no harm in that.

      The groceries, I don’t know, that’s a whole other kettle of fish (well not fish in my case), I was trying quite hard in August, normally I spend more. Maybe that’s a subject for another day though, this reply is already very long! I’ve never actually used Freecycle, though I know people who swear by it – another one I need to look into!

      Cheers,
      Wephway

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  2. Cheers for the reply!

    I won’t come back on any of the points or we’ll be here all year, but will have a read of the House posts soon (might be in a week as off on holiday tomorrow so might not get much laptop time… hah).

    Cheers for the tip off on Iretiredyoung.net, will check that out too, another UK dude… looks good!

    Freecycle is good if you don’t need something urgently and can bide your time till it comes up. We also get rid of a lot of our stuff on there too that isn’t worth selling. Better than scrapping it.

    Cheers again!

    Like

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