July 2016 – NetWorth and Savings Rate Update – Habits

Dear Savings Diary…

As I hinted at in an earlier post I’ve been crazily busy with work which has left precious little time for anything other than my normal half hour spent at the weekends updating my NetWorth spreadsheet.

I must apologise for not responding to any comments that people have left on this blog, but alas when free time is short something has to suffer.  And the last thing I want is for this to become a chore!

Like Geraint Thomas going on a 50k solo break, it’s good to be put outside your comfort zone every now and then.  It’s all to easy to get into the habit of working 5 days a week and taking two days off, forgetting that this pattern isn’t a fundamental law of nature but just something that apparently works quite well for business.

As I crest the “Col du Thirteen Hour Days” my head clears of the previous weeks of effort and I can take a moment to remember exactly why I am currently trying to save over 60% of my pay cheque.  So I don’t have to put in weeks/months like that if I don’t want to.

I set myself some goals at the start of the year, some temporary carrots to entice myself towards the over-arching destination of Financial Independence, which I am defining as when the total return on my investments more than covers day to day living expenses.

I’ve set myself goals around NetWorth growth and a targeted Savings Rate for the last couple of years.  Trying to aim for just one goal that is potentially over a decade away is exhausting.  Months roll by and it can appear that very little progress has been made.  Which would be terribly demotivating.  Our brains just aren’t wired to keep track of such distant things.

These intermediate goals have done their job, to set up the effective habits that I need to complete this long journey.  Now, it’s just about keeping it up.

The first goal for 2016 is to try and achieve an average savings rate of 60% across the year.

Developing the habit of consistently hitting a high savings rate is the biggest driver in hitting that overall goal of financial independence, especially at the start of the journey where your contributions will have a much larger impact than any investment returns.

Where NetWorth is the showy sleek outer shell of your new Tesla Model S, the savings rate is the electric motor that is actually doing all the hardlifting and impressing the crowds of screaming rabid fans.

60% is looking less and less achievable for the year, due to wedding costs which pulled my average savings rate down in the first part of the year, and even into negative territory in some months.

July was an average month for Mr Zombie Limited, money came in, bills got paid and money got saved.  No huge cashflows heading out of the financial Zombie fortress but no additional efforts was made to save anything more.

The bulk of my savings is made up from pension contributions, monthly ISA contributions and monthly payments into a share options scheme with my employer.

I did manage to secure myself a semi-promotion.  You know, where the person above you moves on and you do their job and yours for a few months before asking “Ummm, what exactly is going on here?”.  The Company put their hands up and have offered me an ‘acting up allowance’, it’s not a permanent thing but hopefully it will go that way 🙂

It does mean that going forward I need to find a home for this new income. My ISA is going to be maxed out for the year, so is it just to be a global tracker in a taxable account?  Or perhaps it would be the perfect time to diversify the portfolio a bit and invest in some Peer to Peer lending?  What I do know is that I won’t be using it to finance a new car or buy some sweet new brogues each month.

Enough procrastinating over the future, back to the now.  The Savings Rate was 70% for July, which didn’t feel like a squeeze.  Which either means there’s room to squeeze out a few more % or that my lifestyle on autopilot hits a 70% savings rate, which would have seemed unachievable a few years ago.

Savings Diary July 2016

60% average for the year is looking tough

Target: 60% savings rate

Year to Date average: 45.9% FAIL 

In month: 70.0% PASS

My second goal is centred around NetWorth growth.

NetWorth growth, in the early accumulation years, will be primarily impacted by my Savings Rate, i.e. my first goal. Mr Market will try to have his wicked way with things as well, but until savings become more substantial, market movements will have less of an impact compared to me constantly feeding the savings inferno each month.

With that said, NetWorth is more fun to track and provides a representation of progress towards Financial Independence.  Tracking it is my ‘savings diary’.

My goal for 2016 is to increase my NetWorth by 45%, I don’t include equity on my house for the purpose of this goal.

To be on track I needed to increase NetWorth by 24.2% from the start of the year to the end of July.  I’ve actually seen an increase of 28.8%, the gap is closed! 😀  It seems the market movements I was poopooing only moments ago have given me the boost I needed to get my NetWorth back on track.

Savings Diary July 2016

Onwards and upwards people!

After a slow start to the year my NetWorth has started to become super charged in the last few months, enough to get me back on target to hit my growth goal.  At some point in the month it also passed the £100k mark, one of those stupid psychological steps that mean very little but it is pretty nice to see it move into 6 figure territory.  A small confirmation that I am on the right track.

Simply spending less than I earn and saving the difference, that’s all I’m doing. 🙂

Target: Annual 45% increase in NetWorth.

Actual: Annualised projected growth of 43.4%.

Result: PASS

Goal three is simply to overpay the mortgage each month.

Mrs Z and I carried on overpaying the mortgage this month, to the tune of £200 each.  It’s amazing how quickly these things become habit, how something that seemed a bit of a strain the first time round just becomes normal after only a couple of months.

With overpayments now becoming habit, maybe it’s time to tweak this goal…something like “pay off the mortgage in < 10 years”?

That’s why challenging yourself routinely is good, eventually I’ll hit the limit that I am comfortable saving at.  But it will be a far cry from where I initially thought it would be a couple of years ago when I was barely saving anything and chewing through cash like it was a bag of jelly babies (mmmmm jelly babies).

Setting myself a savings routine really has been the most powerful thing, there’s always time later to play around with investment strategies.

Target: Overpay mortgage each month.

Actual: £200 overpayment each.

Result: PASS

Pretty good month then, for Mr Zombie.  I haven’t revisited my Financial Independence savings target for nearly a couple of years now, the amount at which I will feel comfortable leaving the working world.  I suspect it will have reduced somewhat as my horizons have changed over the last two years.

When I very first decided to start saving like this I thought I’d need a million, for no other reason than it would make me sound like a baller.  Then I actually sat down, cracked my knuckles and spent an afternoon casting spells in Excel and decided that £625k would be about right, enough to provide me with £25k a year in perpetuity.

By the time I inevitably reach Financial Independence (got to be confident, right?) there won’t be a mortgage to pay and the need to save quite as much will be reduced, outgoings will be reduced pretty substantially..  At the moment I don’t think that the unit that is “Mr&Mrs Z” will need £25k a year, let alone Mr Z himself.  I must have been a greedy shit a couple of years ago.

I’ve also realised during my morning meditation sessions (the ones where I travel to a loosely connected undead parallel universe to ponder Financial Independence) that work of some kind will probably be on the horizon, just on my own terms.  And we all know that just a tiny bit of income is worth plenty in capital terms if we look at it in terms of the £4% rule (every £1k is worth £25k of capital).

These two facts combine to make Captain Planet…no, to make it possible to reach Financial Independence much earlier that I had originally planned.  Something I’ll need to revisit 😀

How was everyone’s July?

All of my prior months updates are here, if you just.  Need.  More!

Spend Less, Save More & Escape the Horde

Mr Z

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16 thoughts on “July 2016 – NetWorth and Savings Rate Update – Habits

  1. Mick

    Sounds good progress Mr Z.
    One small note – I don’t see much in most FI posts about the cost of things like small zombies, or more particularly small zombie costs should they decide to go to Uni.
    Although I am now (at last) fully FI there was an unexpected blip between mortgage pay-off and said FI caused by the sudden introduction of the 9K Uni tuition fee at precisely the wrong moment. Not wanting to saddle the offspring with massive debt we effectively carried on paying out something that looked like the mortgage for another 4 years.
    Cheers

    Reply
    1. Mr Zombie Post author

      Hi Mick,
      Thanks! And congrats on making FI!
      It is something we don’t have to worry about at the moment, but possibly will do in the future. If we do have kids I want to be as open as possible with the costs, to show if it is possible, which it is! Any tips? 🙂

      Mr Z

      Reply
    2. WestCountryEscapee

      We’ve been paying the child benefit into a junior ISA and over time it adds up to a decent sum. It might not be enough to cover university fees but it should at least help, or go towards a property deposit or entrepreneurial venture maybe…

      Reply
  2. London Rob

    Hi Mr. Z,

    Another corker of a month – well done and congratulations and fingers crossed the official promotion comes through!
    In terms of the extra cash – if you have filled up your ISA you could use Mrs. Z’s if that wont get too complicated, or pay down the mortgage. I’ve thought about what I would do when I have spare cash, however I have yet to fill my ISA, my other half’s ISA and my pension allowance in one year (for tax reasons even if I cant touch it for some time) so it hasnt been an issue. I got it down to a choice of either more off the mortgage (very low fee impact), or setting up a cheap online account and getting something like the Vanguard 80/20 fund acc. to allow me to build up a pot that can be slowly sold as part of my CGT allowance each year 🙂
    Keep up the good work!

    Reply
    1. Mr Zombie Post author

      Thanks LR 🙂 Been a hectic time and hopefully the work will pay off!

      It’s looking like both our ISA’s will be full by the end of the year, which is a nice position to be in! It’s a good point about the pension allowance as I’m some way off filling that, the lack of access before you’re nearly 60 does put me off. A great shout for some of it though 😀

      Tempted by the mortgage option too, but interest rates have gone down! Haha.

      It definitely needs some further thought and spreadsheet work.

      Mr Z

      Reply
  3. Finance Solver

    Great progress and great that work died down a little bit so that you were able to write this post 🙂 how does the allowance work? Is it like a signing bonus where it’s a one-time money that you receive? I haven’t heard of it being prevalent in my working friends which gets my curiosity!

    Reply
    1. Mr Zombie Post author

      Thanks FS!

      The allowance is like a payrise, but it doesn’t count towards pensionable pay or bonuses (if you’re lucky enough to get one, haha). So it’s just the extra cash each month without the extra, that’s not guaranteed each month. So it’s at the company’s discretion and they could take it away if they wanted to!

      Mr Z

      Reply
  4. HS

    Well done on the savings rate. I find summer is a difficult time as far as sticking to the budget goes. Work is usually quiet(ish) and the screens of coworkers at the office as far as eye can see have browser windows open, sporting pictures of holiday destinations and gadgets. Plus lunchtime-cum-after-work schmoozing is de rigueur in the City in August.
    Congrats on the semi-promotion, hope it translates into a permanent one. A bit of unsolicited advice here (apologies and please ignore all that follows if I’m insulting your intelligence by stating the obvious): while you’re doing two people’s jobs, try to delegate as much of your “old” job to others in the team as you can, sell it as cross-training if you must. You didn’t say if that upwards step you’re working on ‘s a management role or not, but if it is, you’re being judged on your ability to enlist willing help and organise work of others as well as your technical skill. Even if it doesn’t, demonstrating that you can get buy-in and motivate others to put in extra effort when needed is a skill that’s attributed to future leadership material that companies want to retain. “I took on the job of the person above me and organised others in the team so we all, under my leadership, got {that difficult thing} done” sounds much better than “I took on the job of the person above me and worked myself to exhaustion while {getting that difficult thing} done”.
    Good luck.

    Reply
    1. Mr Zombie Post author

      I found in previous role, that quiet time in the office always led to day dreaming…which can be expensive.

      It is a management role and the advice is very much appreciated. Plenty of people take the second approach, of burying themselves with 70 hour weeks and that’s certainly not my preferred approach.

      I work in a technical field and so the step to management is one that quite a few people want to actually make (who starts a technical role because they just love management, haha).

      If I’m honest it’s not a huge team, and it’s still a fairly technical role, but it’s been a while since I’ve done any kind of people management (I retrained a few years back). So it’s been a shock just how much time managing just a few people takes up!

      Enjoy your summer schmoozing! 🙂

      Mr Z

      Reply
      1. WestCountryEscapee

        Does the step up offer any more options in terms of the company share scheme? Where I work there are many such schemes and it’s effectively risk free as you can choose not to exercise the option if the share price goes down.
        You could do worse than increase your salary sacrifice such that your take home stays the same but you pay a bigger chunk into the share scheme each month?

        Reply
  5. JoeCrystal

    Ouch, it is not nice to do lots of overtime. Hopefully you taking on more roles would yield better results, but the most important thing is not to work too excessively or you get too stressed out too quickly. And I agreed with HS, I know personally what it is like doing several jobs at the same time and it is painful to say, so try focusing on the most important part and ensure that other people can do them as well.

    As for my July, my Savings Rate is 30% so I am quite pleased with that although my savings is going to replenish my Rainy Day Fund.

    Reply
    1. Mr Zombie Post author

      Evening JC,

      It’s calmed down now, which is good. It was a combination of a busy time of back to back projects and normal work, a new role in a new area and the chance to act up. So the hours are partly as I settle in, so shouldn’t be quite that bad again!

      Good work. Got to keep it ticking over! 🙂

      Mr Z

      Reply
  6. weenie

    Congrats on the semi-promotion and hope it turns into a permanent one, if that’s what you want.

    Also, well done on the 3 passes this month and the massive 70% savings rate!

    All heading in the right direction!

    Reply
    1. Mr Zombie Post author

      Thanks OR. I’m pulling together something on just that, something around working it out.

      Mr Z

      Reply

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