I think it’s good to take some time every six to twelve months to evaluate the progress of our journey to financial independence. Not only is it motivating to recognise our progress, but we can also identify areas where we are falling short and develop ways to improve.
With that in mind, here is my year in review for 2018. I review my Profit and Loss statement and Balance Sheet for my entire financial independence journey, describe how my money flows between accounts, and share my successes and failures.
Plus there are a few little announcements at the end!
Profile & Loss Statement
The chart below shows my Profit and Loss Statement for the six months that I have been working towards financial independence.
As you can see, I have three main sources of income. In addition to my salary, I rent out a spare bedroom in my apartment to generate some additional income. Beyond that, there are some ‘once-offs’ that help generate income, such as selling unused bits and pieces on eBay.
My main expenses over the past six months have been my mortgage (I do live in Sydney, after all!) and discretionary items. Discretionary includes things like eating out, drinking and entertainment, and probably covers my cost and half of my partner’s cost. One goal for 2019 will be to reduce my discretionary spending without affecting quality of life.
The other big ticket item is groceries and pharmacy. I’ve always struggled to reduce my spending on groceries, as I regularly work out and take my nutrition quite seriously.
Finally, in July you’ll see a big chunk of spending on a holiday. And that’s not even half of what I spent! There’s a lot that I need to do to improve my spending on holidays. For the next trip I will be more proactive in accumulating and spending frequent flyer points, as well as looking for cheaper flights and better deals on accommodation.
Over the last 6 months I have been able to save approximately $12,500 or a little over $500 a week. That’s a savings rate of only 23%. Pretty dismal if you ask me. My goal for the next six months is a savings rate of 35% and we’ll see how much higher we can go after that!
The table below shows my balance sheet for the last six months.
I keep about $30,000 in my offset account as an emergency fund and as I accumulate more cash, I periodically transfer it to my investment account. Once there, I invest in a 50/50 mix of an Australian shares index ETF (Vanguard VAS) and a hedged international shares index ETF (Vanguard VGAD). This asset allocation was informed by my analysis on safe withdrawal rates.
Over the last 6 months both my investment account and superannuation have effectively returned at or below 0%. Any growth in those accounts is due to contributions that I’ve made. It’s a shame that performance has been bad — but this is a long game and as long as I’m playing the game, I’ll be pumping money into VAS and VGAD.
At the same time, I have been able to pay down my mortgage balance by abut $5,000. For those of you who have a new-ish mortgage, you’ll feel my pain. Mortgage balances barely move for the first decade of the mortgage, all the repayments are eaten up by interest.
So in the first six months of working towards financial independence I have been able to increase my total net worth by about $21,000 or 6.4%. That’s not too bad! But I’m sure that improving my savings rate and achieving some better investment returns will help me significantly improve this number going forward.
What’s planned for 2019?
I try not to plan too far in advance. But in the early part of 2019 I have two big goals.
First, I’d like to redesign the site to make it more user friendly and make the content easier to find. Right now we have a running list of blog posts on the front page and readers have to scroll through to separate the wheat from the chaff. Instead, I’d like to organise the content to correspond to different stages of financial independence so that readers can easily find what’s most applicable to them.
Second, I’m building an improved retirement calculator that takes into account Australia’s unique two phase retirement system. Our current calculator doesn’t take account for the allocation of funds to a brokerage account versus a superannuation account, and thus misses out on some important tax benefits.
I’m not too far away from finishing both of those little projects. So stay tuned!