Dear Savings Diary…
Another month rolls by and another wedge of my earnings was piled into savings. Earn. Save. Repeat. That’s the cycle of the FI seeker in the accumulation phase.
I’ve set myself some financial goals around NetWorth growth and a targeted Savings Rate, the idea being they will be the carrot to ease me towards financial independence. That’s the real goal here, Financial Independence. Thing is, trying to aim for just one goal that is potentially over a decade away is exhausting and terribly demotivating. The progress is just too incremental for our recently evolved brains to comprehend.
Let’s see how old Mr Zombie got on in September.
The first goal for 2016 is to try and hit an average savings rate of 60% across the year. A lofty goal when the average savings rate for the US is just 5.7% (UK data seems a little sparse in this area).
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.
It seems that the last couple of years have really embedded some sweet frugal habits, the habit that just keeps on giving. Mr Z’s savings rate for September was 71.%, that’s a savings rate of around 70% for the last three months!
Heading over to the calculator at NetWorthify and plugging in a 70% savings rate gives me 8.8 years until Financial Independence is reached. Alright! And that’s assuming I’m starting from a NetWorth of £0. Playing around with the starting values gives me some timescales;
- Cash & ISA only: 7.6 years
- Cash, ISA & Pension only: 6.3 years
- Cash, ISA, Pension & House Equity: 4.8 years
Make of the differences in timescales what you will. One things for sure, they are all remarkably close for someone who is 34! 😀
Thing is, I think there is still a bit of fat that could be trimmed around the edges. If I updated the estimates above, to represent Mr Z absolutely scraping the savings barrel, it would reduce the middle estimate from 6.3 years to 4 years. That’s with a savings rate of about 78%. Incremental differences have huge impacts with saving rates above 50%.
Living at the saving rate limit I used above wouldn’t really be sustainable, it would just plain be miserable. Yet it shows how close FI could be.
Average savings rate for the year is slowly creeping back up, hopefully I can keep my savings rates around 70% for the rest of 2016 🙂
Target: 60% savings rate
Year to Date average: 51.4% FAIL
In month: 71.8% PASS
My second goal is centred around growing my NetWorth.
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 piling in hard earned cash each month.
Tracking NetWorth is my ‘savings diary’, and it will ultimately help me decide when the time has come to change employment. Be that to early retiree or into another career with the supple and supportive cushion of a weighty NetWorth.
My goal for 2016 is to increase my NetWorth by 45%, and I don’t include my home for the purpose of this goal.
To be on track I needed to increase NetWorth by 32.1% from the start of the year to the end of September. I actually saw an increase of 36.2%. So far so good.
Look at that graph. If I extended it further back in time it would show me taking about 10 years to get to the position I was in at August 2014. Then the FI light sparked into life and it’s been climbing steeply ever since. It’s the result of spending less than I earn and saving the difference. No get rich quick schemes, no fancy-pants investment strategy and no incredible 6 figure salary. Just a bit of hard work and some considered spending.
It looks like all this saving is actually fucking working.
Interest and dividends this month covered our mortgage payment on Chateau Zombie. Now, this needs to be with a pinch of salt. It’s the combination of a low mortgage payment and some annual/quarterly dividends coming in, but by the holy powers of Mr Money Mustache it looks like Mr & Mrs Z are on their way.
Target: Annual 45% increase in NetWorth.
Actual: Annualised projected growth of 51.0%.
Goal three is simply to overpay the mortgage each month.
Mrs Z and I carried on overpaying the mortgage this month, upping it slightly from £200 to £250 each.
Target: Overpay mortgage each month.
Actual: £200 overpayment each.
Keep on saving people, FI is just around the corner. Admittedly the corner is a few years away…
All of my prior months updates are here, if you just. Need. More!
Spend Less, Save More & Escape the Horde
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