2017 End of Year Review

Another year ends and a new one begins, and it’s time to look back and try to make sense of what has been a fairly crazy year before looking ahead to 2018. This has turned into a mammoth post and I did consider splitting it out but in the end thought what the hell, I’ll just post it as one. I have to admit a lot of it is probably only interesting to me, sort of like a diary entry if you will, so apologies again, skip the bits that sound boring! This is the first time I’ve tried to do a whole year’s review so I’m not really sure how it’s going to work, but I’m thinking it will go something like this:

  • The 2017 Story – A general overview/description of the year, month by month, with major expenses and life events in each month.
  • Expenses – Breakdown by month and by category.
  • Passive Income – Breakdown by month. Analysis of the different components.
  • Active Income – Detail and breakdown.
  • Savings Rates – Overall, month by month, and averages.
  • Where did my savings go?
  • Net Worth – Savings vs Investments
  • Targets for 2018

My 2017 Story

In January 2017 I was in a state of flux. I’m sure we’ve all had times like that. I’d broken up with my ex-girlfriend about 4 months before and we’d decided to sell our house. I had made an offer on a new house in October 2016 but it was taking an age for the sale to go through, so I was cooped up in the house not able to do much and feeling a bit in limbo.

(January 2017 was a fairly standard month financially speaking, there weren’t any major expenses apart from a course instalment fee of £434 for my Creative Writing course.)

At some point in January I remember thinking, I’d quite like to go on a holiday, but as soon as I book it Sod’s Law that will turn out to be the house moving date. And so it was, I booked a skiing holiday for the week of the 25th February, and then I found out the house moving date would be the 3rd March.

I still went skiing. I was in the perhaps envious position that we were selling the old house to my parents (they were planning to use it as a rental property) so they didn’t need me to move out straight away. Even so, as anyone who’s bought a house before will know, it was stressful. This was my To Do list the day before my skiing holiday, I was so happy when I completed it that I took a picture of it for posterity:

DSC_0055

I reckon I spent just over £1k on that skiing holiday in February. Skiing can be expensive, especially if you need to buy new clothes like I did. I also had my final Creative Writing course fee to pay in February (£434 again) and then of course there were the house purchase fees – stamp duty and solicitor fees being the main ones. I have to admit, my figures get a little hazy here as the money came out of the money I received for the sale of my previous house, but I think all in all I spent around £3k buying the house (in fees, stamp duty etc).

I returned from holiday on the 4th March. I moved into the new house on the 6th. Even though I’d packed everything and had some help moving, it was still a massive effort. You never realise how much stuff you have until you try moving it all. I try to be fairly minimalist but even so here was my living room after the movers had put everything (apart from furniture) in it:

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And here was my kitchen:

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The house had been used as a rental property before and as such was magnolia throughout. No jokes, everything was magnolia – the walls, the bathroom, the kitchen, the curtains, the lampshades – all magnolia. I was starting to have magnolia nightmares by the end of the first week, and so the redecorating began.

DSC_0077
Bit of edging. I love edging. If you ever want me to come round and do some edging I’m your man. Put an audio book on and I’ll happily edge all day.

I did a lot of the redecorating myself, but I also got a man in to help for some of it. Here’s what I did:

  • Repainted 6 rooms (including bathroom and en suite)
  • Wallpapered in 2 rooms (feature walls)
  • Put new curtains up in 5 rooms
  • Put 2 new towel radiators in
  • Converted a bath to a bath/shower (with new tiling)
  • Put new locks on the 4 bedrooms
  • Put new lampshades in 4 rooms
  • Put new spotlights in kitchen
  • Put new carpet in 1 room

I think that’s about it. Who needs a drink?

I was reasonably happy with the results:

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IMG-20170428-WA0001

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I even refelted the shed roof because the old felt had almost completely worn off. Not too bad if I may say so myself.

I also needed to buy some new furniture to make the spare rooms habitable for lodgers and around this point I almost ran out of liquid money, dipping into my credit card and taking out a finance option on some mattresses to get me through. All in all I spent about £5k on redecorating, new furniture and so on.

In May I had a little house warming party:

DSC_0088

And shortly after that my first lodger – M – moved in. A month or so later I filled the other spare bedroom with a couple – L & G. Their rents effectively cover my mortgage so I just had the other house bills (about £350 a month) to pay. Having lodgers was a huge boost to my finances and around this point my bank balance started to post a healthy positive flow each month.

In June I spent around £800 redecorating and furnishing the guest bedroom, again repainting, new carpet, curtains, lampshade, furniture, mattress, and bedding. It all adds up.

July was also an expensive month, involving one festival near Cheltenham, a Stag Do down in Brighton, and a wedding over near Hereford. I also needed to renew my car insurance and MOT.

That was also roughly around when I decided to kick this blog into gear. I’d set it up a couple of years before but it had lain dormant for some time. I’m quite proud, the visitor and viewing stats have been progressively increasing each month since then, though I’m pretty sure I won’t be able to keep up this rise:

views

August, September, and October were fairly solid months financially. You can see the review here, here, and here. There were no major expenses to report in those months really. Then came the November splurge.

If you’ve read my November review you’ll know I spent almost £2k on future holidays and a new laptop. It was a splurge and a half.

And then of course December is the month of Christmas, so naturally my spending increased there. My biggest expenses though were for my car – car tax and a repair coming to about £600. But I also spent around £300 extra for Christmas – decorations, presents, and travel.

Expenses

So how do my expenses stack up across the year? Well, here’s the graph you lucky people:

expenses2017

Overall my expenses for 2017 added up to £30,317.33. Quite a lot but then I did buy and redecorate a house. Still there is a lot of room for improvement. More on this below.

How does this expenditure break down? Well here it is by category:

expenses2017cats

And here is a pie chart:

expenses2017pie

It is interesting looking at it to see where my major expenses were in 2017. I would hope that the redecoration/furnishings slice should be a lot smaller next year, and the writing course fees are all paid for of course. I do think the food/toiletries, takeaways/eat outs, and the cash withdrawal sections are too big and could be worked on.

Passive Income

  • Tax Payments and Refunds

In Jan 2017 I paid £1002.31 in income tax for the 2015-16 tax year (that was actually the third and final payment for that tax year). I also paid a £1184.34 advance payment for the 2016-17 tax year though in July I got this back (see next paragraph). In Dec 2017 I paid another £1952.60 for the 2016-17 tax year. That’s obviously just my self assessment tax, I pay a lot more tax through my workplace salary.

But the big news of the year was that I discovered I’d been overcharged for my self-assessed income tax because I hadn’t been counting my workplace pension savings and so had been paying 40% when I didn’t need to. Naturally I called up HMRC to check and they confirmed that yes I was due a refund. And so in July I got £2325.63 back (£1184.34 of which was the advance payment for 2016-17 that I no longer needed to pay), and in September I got another £753.48 back.

  • Tenant changes

I had a fairly stable year for my HMO rental property in 2017. The house has 5 tenants when it is full. I had 1 tenant move out mid April who was replaced by the end of May, and then I had another tenant move out mid September, who was replaced by the end of November. So only about 4 months vacancy out of a possible 60 (5 rooms times 12 months).

As mentioned above I had 3 lodgers move into my house in May/June and they have stayed since.

I should also point out here that I pay myself rent for the house I live in. This makes my passive income look better than perhaps it is, but it does increase my expenses also. (As I use passive income as an expense reducer it doesn’t actually affect my savings rate – see savings rates below.) After a lot of consideration I decided this was the right way to consider the house I live in, in terms of calculating how far to go before financial independence, more on that here.

Obviously my passive income is massively affected by the tax payments and refunds, but here is a graph of my passive income month by month for 2017:

passive2017

As you can see, in January and December I paid my income tax (for 2015-16 and 2016-17 respectively), and in July I received a big tax refund. Overall my passive income for 2017 added up to £11,667.38. Still a long way off being able to call myself financially independent, but I’m getting there.

How do I work out my passive income? Well it is the total rent from all my tenants (which includes me), minus the house bills (gas/electricity/council tax etc) for both houses, minus self assessment income tax, and minus the interest part of the mortgages. What does that look like? Here is the breakdown:

Rent received = £32,739.70

House bills = £10,475.46

Self Assessment Income Tax = £1060.14 (This is usually quite a bit higher but I received some tax refunds as mentioned earlier)

Mortgage Interest = £9938.73

There are a few other little things to consider but those are the main blocks and taken together add up to my passive income total above (or near enough, I think there is some bank account balancing to make it work out exactly).

Active Income

My active income was fairly stable throughout 2017. I received a bonus and a very modest pay increase in March, and I did a little matched betting in Jan, Feb, and Aug. And in December I received some money from my parents for Christmas and my birthday.

The other thing to note is that I finished paying off my student loan in March. I paid a large chunk through my workplace bonus and then made a one off payment of about £770 to finish paying it so that it wouldn’t come out of my salary from April onwards – the idea being that it would simplify my self assessment form for 2017-18. Of course, my employees, HMRC, and the Student Loan Company don’t actually talk to each other, and so I continued having to pay student loan for the next three months until they could sort it out. I called up each time and was refunded each time but what a hassle.

In August I upped my workplace pension contributions, from 20% to 26%. Part of this extra contribution comes from work so I effectively increased my income from August onwards. I’m not really sure why I didn’t do this before to be honest.

Here is my active income month by month for 2017:

active2017

Overall my active income for 2017 was £41,473.70. This was my total income after tax, national insurance and student loan was taken off.

I’m just going to note here I did also pay off £2350 of student loan in Jan/Feb/Mar, through my salary, through my income tax self assessment, and through a one off payment in March (as mentioned above). I consider the repayment of debts as the equivalent of saving, that is, it’s like the opposite of putting money in an interest paying savings account (not sure if that makes sense, it does to me anyway). Let me put that in infographic form:

nwcontinuum

I will consider how my student loan repayments affect my savings rates later. If I’d had no student loan to pay at the start of the year then my active income would have been £1750 higher, and my passive income would have been £600 higher.

My Savings Rate for 2017

Erm… it’s complicated. Can I leave it there?

Oh alright then, I’ll attempt to work it out.

Now some FIRE bloggers reinvest their passive income and don’t consider it at all when working out their savings rates. Others might add their passive income to their active income.

Personally I think passive income should be considered as an expense reducer (as opposed to an income increaser).

Put it this way, if my passive income covered my expenses then I would be financially independent, right? That is, I could in theory live off my passive income. The question of whether I could call myself comfortably financially independent is a different question of course. And if I am making repayments on a mortgage/s then that of course means my cash flow may not cover my expenses (theoretically if I had interest-only mortgages then I would have the cash flow but that is not currently the case).

Anyway these are all questions that I’ve covered elsewhere, and so I’m going to proceed with what I reckon is the correct way of working out the savings rate:

1-[(expenses – passive income) / active income] = savings rate

That is:

1-[(30,317.33-11,667.38)/ 41,473.70] = 0.55 (or 55%)

How would that look if I included the student loan repayments? Well the active income should be increased by £1750 and the passive income by £600. So we have:

1-[(30,317.33-12,267.38)/ 43,223.70] = 0.58 (or 58%)

So there you have it, I reckon my savings rate for 2017 was 58%.

It’s an odd one really because 58% doesn’t seem that great considering the year I’ve had, and especially considering I was posting +100% savings rates in Jul/Aug/Sep/Oct (the July savings rate was only high because of the big tax refund I received to be fair). Here is the graph of my savings rates by month (the red line is the average for the year):

savingsrate2017

Plugging that 58% figure into MMM’s famous chart would suggest I have about 13 years to go until FI. Which seems quite a long time, but then I hope over time my salary might increase and that my (leveraged) investments will throw off more value also (perhaps I’m being overly optimistic here). And I did buy a house and redecorate it in 2017. Nevertheless, in 13 years I’ll just have turned 46, a respectable age to retire.

Where did my savings go?

The figures above would suggest that I actually saved £25,173.75 in 2017. So how does this break down?

Mortgage Repayments – I paid off £4256.60 of house 1’s mortgage, and £4657.93 of house 2’s mortgage, or £8914.53 overall.

Repayment of loan from parents – I paid my parents off £430.50 of the loan they gave me.

Sharesave – I saved £3000.00 through my workplace sharesave scheme.

Pension Payments – I put £9094.50 into my workplace pension.

Student loan repayments – I paid £2350 of my student loan and in doing so finished paying it off.

Extra payment to balance mortgages – I paid £1180.63 extra when I bought my house to bring the mortgage down to the level it needed to be at.

That all adds up to £24,970.16, the rest is just bank balancing amounts – I had 3 bank accounts at the start of the year, 1 of which was a joint account with my ex that is now closed. The remaining two bank balances are a little higher at the end of the year than they were at the start.

Let’s put that into a pie chart to get a better idea of the proportion that I saved in each pot:

savings2017pie

Net Worth

In my December review I stated that my net worth had increased by £51,745.72 since the year before. Thinking about it, I hadn’t counted the Student Loan debt at the start of the year so I reckon actually my new worth increased by £54,095.72. That figure is made up of £25,173.75 in savings and the rest, £28,921.97, through increases in the value of my assets (ie my houses, pension and investments). Here is my (perhaps now familiar) net worth graph, the green line is the most important one:

networthdec17

As you can see, there was a big jump in my total assets and total debt in March 2017 when I bought my new house. This actually resulted in a slight dip in my total equity (ie my net worth) due to the moving costs (and also the skiing holiday I went on may have had something to do with it).

I could probably dig down further into my net worth, looking at how the individual components have done for 2017, but this is already an extremely long post so maybe I’ll talk about that another time.

Targets for 2018

I may have mentioned before but I don’t really like setting targets, at least not annual targets anyway. I’m just not sure I can think in time frames that long. I will of course be trying to reduce my spending and increase my saving on a month by month basis, but those are short term targets so I’m not sure they come under the banner of targets for 2018.

Last August I attempted to have a ‘perfect’ month, whereby I cut all my expenses as much as I possibly could. I may try and do that again a few times this year, perhaps in February as I don’t have too much on, and then we’ll see as the year progresses. Going for a ‘perfect’ month I do find fun and because it’s only one month it doesn’t feel like such a hardship.

In April the mortgage for house 1 is up for renewal, and in July/August the mortgage for house 2 is up for renewal also. I’m thinking of getting longer fix terms on these, say 3+ years (and hopefully 5 years), because then I have a bit of leeway in terms of going contracting (if I decide to do that).

I’m also hoping to release a fair old chunk of equity from house 1 when I remortgage that, and this could lead to me buying a third property. This is still very much a vague plan at the moment but once I understand how much money I can release then it will start to become a firmer plan. On the other hand I might start looking at filling a stocks and shares ISA, and/or contributing more into my pension.

There are some fairly large expenses coming my way in March/April – I need to do some redecoration of house 1, and it also looks like the front face of house 1 may need repointing as the walls are leaking. In house 2 the boiler may or may not need replacing, so that also could be a large expense.

Anyway those aren’t really targets, more future plans. I hope that my net worth will continue to improve, and that will be boosted if I can buy a third property. All in all, I have a strategy, the plan is to keep following through with it.

Conclusion

Well there you go, a fairly in depth analysis of my year for 2017! There are some areas that I may need to dig into further to try and figure out where I can make more improvements. I’m told that I charge quite a cheap rent for my properties so maybe I need to slowly up the rents as tenants move out. I also need to keep considering where I can make savings on bills and on things like food and takeaways.

If you got this far then well done you and thanks for reading!

Wephway

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7 thoughts on “2017 End of Year Review

  1. A busy year! Getting an almost 60% saving rate is good so you should be pleased with how the year has gone – not least as you had a few big expenses over 2017.
    Seems that you’ve hit upon a good formula for BTL but I’d agree that you might look into the Shares ISA, just so you have another potential passive income set-up, even if it’s just got a trickle of funds going in.
    It’s very interesting to see how you’re aiming to achieve financial independence, not least as I’m in a similar-ish position and there is no one right way to do it. Keep it up!

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  2. Nice review, wasn’t boring at all.

    I have taken to using some of our BTL income to go into a couple of S&S ISA`s , once we had built up a “safe” amount in the respective house current accounts to cover boiler, redecoration, voids, evictions (!), etc etc

    Its a slow way of diversifying….

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    1. Thank you, I feel like it was a bit of an up and down year but overall it was good.

      I have to admit my experience of living with lodgers has been very hit and miss, in fact there is a couple who have just moved out and I couldn’t be more glad, they were an absolute nightmare to live with. I came back from my holidays to find the house was like a bombsite. On the other hand my other housemate is very good and has helped me tidy the house up and make it nice again. You can be selective in who you take on as a lodger, but mistakes do get made also!

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  3. Hey man, I really like coming across UK sites like this rather than the usual US sites. Makes it much easier to relate.

    However I do have issue with the way you do your savings rate. What you have is 1 – ((expenses + BTL profit) / active income)) giving you what I would say is an artificially high savings rate of 58%.

    Personally I think the correct way to do it is 1 – (all expenses/all income) so in your case 1 – ((30,317.33+10,475.46+1060.14+9938.73)/(41,473.70+32,739.70) this gives 1-(51,791.2 / 74,213.4) which is more like 30% savings rate.

    You may think I am wrong, but I don’t think you can show your formula with the BTL profit as passive income due to the expenses that occur. For example if you had dividends from shares then that could be classed as fully passive income as the only expense is a nominal platform fee (after purchase assuming no loans).

    At the end of the day whatever savings rate is used does not matter if you have enough passive income to cover all expenses plus some.

    By the way do you have an article that outlines your rough plans for how you will replace active income fully with passive income? From what I can see even if your two houses were mortgage free, that would be enough to cover the BTL expenses and about 20k of your own expenses. So about 10k short for this year.

    P.S. I also have the workplace pension as a seperate item for FIRE purposes because it can’t be accessed until 55 atm (and could very well rise in the next 20!)

    All the best.

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    1. Thanks,

      Yeah it seems everyone has their own way of working out their savings rate. My logic was that if my passive income covers all my expenses then I am (in theory) financially independent, and after that any active income I make is 100% saved – so my savings rate then would be over 100%.

      When it comes to my rental properties I sort of see them like a business. So the income is the revenue minus the costs, and I only look at the income when I come to work out my savings rate. I don’t know if that’s correct, but I’d like to think once my income from my rental properties exceeds my expenses then I would be financially independent, so like I say I would be saving 100% of my active (ie non-rental) income. I’m not sure if that makes sense?

      I don’t actually have a post outlining my plans, it’s all very changeable at the moment. I was hoping to be financially independent by the age of 40 but realistically it’s more likely to be between 42-45. In my head I was thinking I’d buy one more rental property, possibly this year, and then concentrate on filling up my pension and ISAs each year. It’s tricky of course, because I can’t access my pension until I’m 55 (I think) which is a good 22 years away. I don’t want to have too many rental properties because they can be hassle to look after, and I’m still unsure ethically about being involved in the BTL industry. And of course there are big expenses on the horizon, the costs of marriage, of children, and everything that entails in the long term. And then of course I’m thinking of changing jobs at the beginning of next year, and I’d like to get a book published and so on. There are too many variables to plan it out!

      How about you, do you have a rough plan of how things might work out?

      Cheers, W

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      1. I think that taking off your passive income from the expenses actually makes the overall savings rate appear worse when less than 100%. An interesting question is how your idea of saving rates works if you had more passive income than expenses and then divide by your active income? I hope you actually achieve this soon rather than just philosophically!

        As you say ‘at the end of the day’ if you have passive income that fully covers expenses (plus a bit) than that is job done.

        If you are able to fill up the ISA limit of 20k each year then I think you will be well on your way over the next 10 years. Over that time with just divs reinvested is 260k+ and at 5% is 12k a year.
        BTL is just one strategy and there are people in this country who are looking for places to rent, such as moving jobs, waiting for ‘the perfect house’, not wanting all their wealth in property etc…

        For me I have a rough plan, however my main cross-road will be in 6 years time when my 10 year fixed mortgage expires. I currently live in the south-east, but have family in the north east. Should everything stay the same as right now I could sell my house and buy a nice 4 bed house in the North mortgage-free. I could then work a lower paid job (mortgage is my main expense), build up passive incomes and be in a very good position and closer to family. If things change the wrong way then I will plod on and dream up another cunning plan.

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