Financial independence – June 2019

Man looking at sunset

I am sharing my road to Financial Independence (FI) to help me get my shit together, or at least get you to think about where you are. The reality is that we all want to be financially independent. FI does not imply quitting your job and is not a synonym for retirement. It is the freedom to ignore finances when you make life decisions. It means choosing what makes you happy.

Savings rate

Your savings rate is arguably the most important metric to analyse where you are going financially. You rarely have a say in how much you are earning, but you have 100% control over how much you keep. You can read more about saving rate in my article how savings rate influences your retirement.

Our savings rate this month was 41.3%. We did not have any crazy expenses this month. We went to the bushveldt, but since the costs were split amongst the whole family and the getaway was affordable. I travelled slightly less this month and our claims are dependent on the amount of off-site work that I do. So, this lowered my income for the month.

July is a service month for my wife’s car, which always ends up being more expensive than we expect. This will be something we should budget for. Our savings rate can be seen below (3-month trailing average in orange).

I calculate our savings rate by adding me and my wife’s after-tax salaries and all other income. Then I subtract all the costs of generating the additional income and our monthly expenses to calculate our savings. I do not include debt repayments in the savings, although I know some people do. Our only debt is our home loan and the loan on the rental property, which I classify as good debt.

This month’s savings rate increased our average savings rate to 33.6% (40.7% trailing average). We hope to keep hitting this 40% savings rate sweet spot. I suspect this will get harder once little Alex joins the family.

Spending for the month

Your savings rate is completely dependent on your spending habits. Let’s look at what we spent our money on.

Transport costs were up as a result of travelling to the bushveldt. Our food costs were down since my inlaws are living with us while they home hunt. They are helping out with the food costs as a thank you for staying here. They retired recently and moved to Pretoria from Felixton (I had to Google it the first time as well). The rest of the costs are all in line with our typical expenditure, so I’m not going to bore you with the details.

Financial independence

I also track our progress towards financial independence. For this, I set a target using the 4% rule, which I tested in the article back-testing the 4% rule. The methodology can be seen in the March financial update.

I assumed an annual return of 12% on our investments, which could differ from year to year. Presently the math says we will retire in 2033 at which stage I will be 45. I see that a lot of people aiming to achieve FI is targeting 45. This feels like an ambitious target without being unrealistic.

We ended the month on a net worth of R1.594 million. This is a net-worth growth of R40 000 for the month. The markets climbed nicely this month, which increased our net worth nicely. At this stage, we are at 12.8% of our savings target. This is 0.6% behind where we should be, but going strong.

Investment allocation

Our portfolio is weighted towards property. I am in the process of reducing our exposure to this asset class. You can read more about this in my articles why I’m selling my real estate and 9 reasons why I don’t want to retire with property. At this stage, we still have two properties left. Our allocation can be seen below.

Any new savings goes predominantly towards share investments, as Exchange Traded Funds (ETFs). This month I invested all our savings in ETFs. We’ve stopped contributing to property altogether. This will see the weighting systematically shift towards equities.

I also started doing a breakdown of our equity investments. As you can see, the majority of our money is in global shares. I want to increase this even further to about 60%. The 9.6% in Real Estate Investment Trusts (REITs) are added to the property section of the previous pie chart. The three ETFs that I invest in are the Ashburton Global 1200, Satrix Top 40 and the Coreshares Proptrax Ten.

My blog reads in May increased from 4255 to 6637 (up 56%). I really appreciate the massive amount of supporting emails I’m receiving. Thanks for reading and if you have any specific topic requests please feel free to let me know.

Be safe out there,

Hendrik

June articles

Risk identification in your portfolio

The case for a mini-retirement

Public vs private schools in Pretoria

Quote of the week

"One of the funny things about the stock market is that every time one person buys, another sells, and both think they are astute." – William Feather Click To Tweet

Endnote

Thank you for reading to the end. Apparently, the average person spends 8 seconds on a page, so you are special. If you have any suggestions, feel free to drop me a mail on the contact page. If I missed anything or you have questions, don’t hesitate to comment below. I might even notice it and respond. If you enjoyed this article and really want to throw me a bone, please share it.

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