Onwards to freedom!

SuperSecretSquirrel

I did wonder if it was down to a strong dollar and weak pound, but didn't dwell on it too long. I figure I don't need to rationalise it away if I intend to stick to purely passive investing. Not understanding too much actually helps me leave it well alone

Will be checking in on pensions for my quarterly update on Friday. I have no idea what to expect

SuperSecretSquirrel

1st July - time for another quarterly update

[FONT=Lucida Console][SIZE=2] [FONT=Courier New] [FONT=Fixedsys] [FONT=Lucida Console] [FONT=Fixedsys] [FONT=Courier New]            CURRENTVALUE   +/-QUARTER    +/-ANNUAL
House Value:   [COLOR=Blue]+£125,000.00[/COLOR]        £0.00        £0.00
Cash:           [COLOR=Blue]+£45,678.38[/COLOR]   +£1,005.75     -£428.25
Pensions:       [COLOR=Blue]+£48,376.50[/COLOR]   +£4,364.53  +£11,589.78
Car Value:       [COLOR=Blue]+£9,800.00[/COLOR]     -£450.00   -£1,800.00
S&S:             [COLOR=Blue]+£9,203.65[/COLOR]   +£1,458.91   +£4,655.94
Mortgage:       [COLOR=DarkRed]-£29,898.59[/COLOR]   +£2,092.95  +£11,806.11
Due to HMRC:       [COLOR=DarkRed]-£373.19[/COLOR]     +£288.15   +£1,584.06
Student Loan:    [COLOR=DarkRed]-£2,554.91[/COLOR]     +£324.82     +£997.54
[B]Total:         +£205,231.84   +£9,085.11  +£28,405.18[/B][/FONT][/FONT][/FONT][/FONT][/FONT][/SIZE][/FONT]

That sees us at 68.4% of the 300k by 2020 target, and £24,610.25 ahead of mortgage neutral in liquid assets. The mortgage ltv is now down to about 23.9%

I've updated our SOA, and at the moment it looks like we need around £2,400pm to live quite comfortably. This includes childcare costs, mortgage overpayments, and overly generous budgets for groceries, cars, entertainment, home impovements, and holidays. Our real number is almost certainly lower than this, but without actively monitoring all our spends I can't get a totally accurate figure, and I would prefer to overestimate expenses than underestimate.

Anyway, based on a monthly spend of £2,400, I calculate that we are now around 9.8% financially independent... The balance of our investments minus debts (stripping house and car values out of the equation to arrive at a rough "interest accruing assets" value) is £70,431.84. That's equivalent to £2,817.27 annual passive income according to the 4% rule, or £234.77 monthly. So right now our investments could in theory cover 9.8% of our monthly costs.

Of course this is just a bit of fun at the moment and not to be taken too seriously. The 4% rule is not set in stone, our monthly expense figure is not as accurate as it could be, quite a lot of our investments are tied up in pensions, we haven't worked enough years yet to qualify for a state pension (which may or may not exist for us in the future), so even if the FI% figure were 100% it wouldn't really be practical to give up work. I think it'll be an interesting metric to track though, mainly to see the difference when large expenses like mortgage and childcare reduce, and to have a clearer idea of what our savings and investments are equivalent to in practical terms for us as a family.

User1489

SSS, thanks for this. I've just tapped up a similar spreadsheet, using the 4% rule and costs as they are now. Really good piece of information to know!

SuperSecretSquirrel

Thanks MvM, great to see that you think it's a useful metric

SuperSecretSquirrel

I can't quite believe we're 6 months into MFiT4 already :eek:

Full update here. We are now MN+£25,043.79 - that's a whopping great £10,310.71 worth of progress in the first six months of the challenge Not bad considering our total household net income for that period was around about £16,700

SuperSecretSquirrel

I want to work out our savings rate as a percentage, but I'm honestly not sure how to go about it. Back in January I posted that net worth had increased by near enough our combined net salary. If we ignore interest and asset appreciation/depreciation etc, that might suggest at first glance that we have a near 100% savings rate, but that would be absolute nonsense!

I know our net income (near enough, side income varies a little each month but salaries are consistent), and I know what gets saved and invested each month. If it ended there it would be simple enough: (savings + investments) / net income * 100. I think of mortgage/debt repayment as a form of saving, so that can be covered quite easily, not a problem: (savings + investments + repayments) / net income * 100. But I get very confused once I start considering salary sacrifice and pension etc.

We salary sacrifice, which reduces our net income, and increases our pension savings, and covers some of our childcare bills. Also there are employer pension contributions involved. Does anyone know of a sensible way to account for all this when calculating savings rate? It has me stumped

SuperSecretSquirrel

It seems MMM has a solution for my "savings rate" quandary. Sadly it's not all that straightforward for us, since I don't track our spending.

MMM wrote:

savings rate = (take home pay – spending) / (take home pay)"

Simple enough, makes sense. It's how he calculates take home pay is the interesting bit:

MMM wrote:

take home pay = gross pay + employer 401(k) match – federal tax – state tax - professional fees

I don't have a payslip to hand so can't modify this to suit our circumstances, but I think it would be something along the lines of:

SSS wrote:

take home pay = gross pay (this should be the amount after salary sacrifices have been applied) + childcare voucher salary sacrifice + pension salary sacrifice + pension employer match - income tax - national insurance - student loan repayment

I can't be 100% sure of the above as without an example to hand I can't for the life of me remember how the salary sacrifice amounts and gross pay are handled on a payslip!

Monthly self employed side income complicates matters, but I guess it would be fine if looking back at previous financial years with completed tax returns to hand. My SE turnover is so low that this wouldn't make a big difference to our numbers, I could just exclude the SE income and deductions (and savings in the next step) entirely.

If we knew our spending amount, we could plug our values into the formulae above, and arrive at our savings rate percentage. But we come at this from another angle... We track our savings and investments, not spending, so in theory we could simplify the first formula to read:

SSS wrote:

savings rate = savings and investments / take home pay

The savings and investments would include what goes into long term cash accounts, long term investment accounts including pensions (the total amount, including employer contributions), and mortgage repayments or overpayments.

I do think MMM's method is better if you have all the information to hand, but my compromise above should result in a reasonable ballpark figure in the absence of accurate spending data. I might revisit this and test the method when I've got some payslips and tax returns to hand!

SuperSecretSquirrel

The news that the S123 interest rate is due to be slashed has me reconsidering the complexity of our financial setup. Realistically, I'm expecting all the other interest paying current accounts to take a similar hit, so it feels like the game is up. In addition to multiple current accounts, I have regular savers maturing at various times of year, and once they mature I tend to open a new issue. Something tells me the 6% regular saver rates won't be around for much longer either. It may be time to consider going back to a simpler way of doing things.

My spreadsheet currently tracks 7 individual current accounts, 5 regular savers, 1 cash isa, 1 stocks and shares isa, 2 savings accounts, 1 premium bond account, 2 credit cards, and 1 joint current account... Four years ago, there was just the 1 individual current account, 1 regular saver, 1 cash isa, 1 savings account, 1 premium bond account, 1 credit card, and 1 joint current account. The total number of accounts being tracked has pretty much tripled over four years, and the standing orders and direct debits bouncing between them all is truly mind boggling!

Although I have an almighty beast of a spreadsheet that helps keeps track of everything, it still feels like our finances don't have the same level of visibility/clarity as back when things were nice and simple. The stoozing, although arguably worthwhile at the moment, makes my spending that little bit less disciplined and obvious. The drip feeding into multiple regular savers, although the smart choice in terms of pure interest earned, makes it a little less clear exactly how much new money we're saving each month.

If rates were to be slashed across the board, I think I could quite happily go back to having the number of accounts I had in 2012, plus a stocks and shares isa. Excess monthly cashflow could be split between increased monthly S&S purchases and the single best current/savings account available.

About half of our cash savings could be spent paying off the mortgage and my student loan in full, neither action would be quite as silly as they once seemed... From September 1st, student loan interest will rise from 0.9% to 1.25%, and mortgage ERC will drop from 6% to 5%. Assuming 1.5% would be the best rate available on savings, I would be paying a 0.25% premium to wipe out my student loan. In real money that's about £5. For the satisfaction of paying it off, an absolute bargain. Paying off the mortgage would at first glance seem to be a little costlier, I would save 0.29% on the mortgage in the first year (5% ERC vs 5.29% interest rate), but lose out on 1.5% savings interest, so a real cost of 1.21%. I would at least wait until January to benefit from a fresh new penalty free 10% overpayment allowance, so at that point we'd be looking at paying a penalty on approx 23k. I figure it would "cost" us something in the region of £280ish in the first year. The maths gets a bit ropey here though, as the ERC is a one-time cost, whereas the interest rate is applied every year for the life of the mortgage. We originally intended on having the mortgage run until there would be no ERC to pay (2020), meaning paying interest over multiple years. Of course the balance would be reducing over time, but without even bothering to run the numbers for an accurate conclusion my gut tells me there's really not a lot in it either way.

We'd still have plenty of liquid savings on hand after this. S&S would not need to be touched, and we'd have enough cash to see us through an extended period (well over a year) of neither of us earning a single penny should we be hit be the perfect storm of double redundancy and me failing to make a success of myself in a self employed environment. Pretty low risk.

Not only would the bank accounts situation be simpler and clearer, but so would the net worth tracking. The only small "debt" to track would be my forecast amount due to hmrc, everything else would be firmly in the black. My charts would look so much nicer, and my spreadsheet house would be totally coloured in The lions share of our monthly cashflow would be for us to do with as we pleased. I'm thinking S&S more than luxury holidays and gold plated margarita makers, but I'm also thinking maybe reduced hours at work - our LO will be starting school in a couple of years time, I would love to work 9-3 Monday to Friday so I could do school dropoff and pickup every day for example. Similarly, OH would like to be in a position to refuse any weekend hours by then.

I'm not going to rush into anything, but I think it's always best to remember that our circumstances are fluid. It's worth constantly evaluating a changing situation and responding accordingly - no point getting set in our ways with the blinkers on assuming that the course we set out on months or years ago will always be the best route forward!

I expect our future reality will end up sitting somewhere in between the two extremes of the current complexity and the possible extreme simplification. Having justified my thinking ahead of time it shouldn't come as a surprise when a future post exclaims that I've done something "silly" like repaying my student loan or mortgage or stooze cards in full :rotfl:

SuperSecretSquirrel

Thought I might do a short and sweet post for a change!

Our mortgage balance is down to £28,501.88. Since we now have more than twice that in liquid savings, we are mortgage neutral twice over, which is pretty cool :cool:

ajmoney

SuperSecretSquirrel wrote: »

Thought I might do a short and sweet post for a change!

Our mortgage balance is down to £28,501.88. Since we now have more than twice that in liquid savings, we are mortgage neutral twice over, which is pretty cool :cool:

SSS that is great, well done. I am just over halfway to mortgage neutral and we are bringing it down each month by a month. Do you intend to keep saving above mortgage neutral until the mortgage has gone or will you clear it?