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.
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!
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.
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.
August 2017 Round Up
So here we go, here is the breakdown of my spend in August:
- 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.
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?!
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:
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.
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!