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.
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.
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%.
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.
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
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