Loading...

Follow Dividend Life on Feedspot

Continue with Google
Continue with Facebook
Or

Valid


The last monthly update of 2017. Not great considering it’s already February 2018 and this is old news. But better late than never, so here’s my December 2017 review following on from my December income fund update. It’s almost like a balance sheet statement, but different!

My Score for December
Living Expenses Budget $3,970
Freedom Ratio 20.8%
Expenses 38.0%
Savings 15.5%
Investments 46.5%
Wet Worth $302,480
Work Freedom Day 29-Sep-17
Cash Reserves 3.5 months

Lots of sunglasses this month despite the freezing temperatures outside as December broke new records since I’ve started tracking my finances. Expenses are at a record low percentage, my Wet Worth is at a record high and my Work Freedom Day ended up sliding forward into September.

Living Expenses Budget

This is my monthly budget for living expenses and it includes both essential (e.g. groceries, mortgage, insurance), and non-essential (e.g. music, travel) purchases. $3,970 is the amount from my Budget 17.5.

The amount is more of a spending goal than a strict budget as I over/underspend each month. The budget is calculated from an estimated yearly spend divided by 12, so it’s normal for some months to be over or under the target amount.

Freedom Ratio

My Freedom Ratio is the percentage of my monthly living expenses budget that my Income Fund ‘withdrawals’ pay for. The current payment is $825 a month which is 20.8% of my current $3,970 monthly budget. So I’m 20% of the way to Financial Independence!

Living Expenses %

The percentage of net income that’s spent on living expenses. Lower numbers are better here.

This month’s 38.0% is the lowest ever and better than the previous record holder June 2017 with 40.4%. This is all caused by the large investment income I received this month. I save or invest any income that I don’t spend on Living Expenses so my effective “Savings Rate” this month was 62%.

Like the Freedom Ratio, any change in this number is caused by a change in either income or budget. However this metric takes total monthly income into account including actual investment income. This means it jumps around more, especially in the third month of each quarter.

The average percentage value should gradually decrease over time. This is because salary and investment income will hopefully increase faster than living expenses as I try to limit lifestyle creep and personal inflation.

The Living Expenses % metric and the Work Freedom Day metric (see below) are both good incentives to avoid increasing the budget since both numbers are impacted by a higher budget.

Living Expense History

Last December I spent 40.9% of my income on expenses, so I’m 2.9% points better than this time last year. This year’s budget is $70 more at $3,970 but I had significantly higher investment income this month than last year.

The chart above shows the trend in my Living Expenses % since the start of 2014. For the first part of 2014 I was paying two mortgages. In June 2014, I introduced Budget 1.0 after selling my first house and I made some minor tweaks in Budget 2.0 from October onwards. In January 2015 I started Budget 3.0 which I updated to Budget 3.5 in July.

Budget 4.0 started in 2016 with an increase to the monthly amount which I held constant in the mid-year review of Budget 4.5.

This year I’ve adopted Budget 17.0 which increased monthly spending to $3,970 and tweaked it a little to Budget 17.5.

Savings %

The percentage of net income spent on Savings (excluding Investments). Savings represents cash plus a long-term holding in Vanguard’s Wellington fund (VWELX).

I’m now putting aside $1,500 every month for unexpected and mid / long term goals (any large expense or purchase due a year or more in the future). $100 of this goes into a ‘sinking fund’ towards paying down my mortgage and other long term savings. This month the savings percentage was 15.5% of my month’s income compared to 13.9% last year, because I saved more this December.

Last month’s saving rate was 19.9%. The percentage decreased this month compared to last month because of higher income – the amount of Savings was pretty much the same.

Investment %

The percentage of net income that I invest.

All spare money left over after savings and living expenses are paid goes into my Income Fund. This month it was 46.5% of my income.

I’ve written about my December portfolio income and gains in a separate post, so I won’t repeat all of that here again.

Wet Worth $

My liquid assets minus all debt (excluding retirement and non-liquid assets).

My Wet Worth increased $8,379 in December from $294,101 to $302,480, a new all-time high. There’s a more detailed breakdown of this amount further below.

Work Freedom Day

The day in the year that my dividend income could pay for the rest of the year’s expenses.

The final Work Freedom Day ended up at 29 September 2017. The exact date isn’t known until the end of the year since the final index fund dividend amounts aren’t known until the middle of December.

Note that based on a $3,970 budget, one Work Freedom Day requires about $132 of dividend income which in turn requires about $4,400 of capital. Financial Independence then requires about $1,588,000 at a 3% yield.

Cash Reserves

This is a new metric I’m reporting to keep a closer eye on the account balance of my Living Expense account. I’m tracking the number of months of monthly expenses currently in my Living Expense account. Cash stored in other accounts such as Savings and Investment is not included here.

I spent a total of $4,069.12 in December which means I overspent my budget by $98.72. Spending was higher than usual and I spent some savings to buy some winter clothing and pay some medical costs.

My account balance at the end of December is to 3.5 months of living expenses, compared to 3.2 months last month.

Wet Worth detail

I’m showing my Wet Worth in this post – this is the cost of my liquid assets minus debt, I exclude assets and retirement accounts from this number. I prefer this over Net Worth since the equity in large assets (house, car) and retirement funds is hard to get at and not always predictable. I find this is a more honest view of where I’m at on my journey.

The change in Wet Worth is caused by

Cash +$1,192 I used some Savings to buy some larger purchases so Cash ended up increasing this month.
Debt +$2,295 Debt increased this month due to higher charges on my credit card.
Savings +$825 VWELX gained $600 in capital gains in addition to the $100 I added to it. Plus I spent some Savings.
Income Fund +$8,656 My Income Fund market value increased this month. See my earlier post for details.
Total +$8,379 Total change in Wet Worth
December 2017 Summary Cash Flow Forecast

Cash will be hit hard in January as I splurged on buying tickets for going back home to the UK in December. The charges are why Debt increased this month and they will reduce Cash in January when I pay the bill. I’m excited though as it includes a surprise for Ms. DL.

In other news

Christmas and December isn’t a very expensive time of the year for us as we don’t exchange presents. We usually just go out for a nice meal over the Christmas holidays and it’s nice to just stay home and relax when it’s so cold outside.

All in all, it’s one more step in the right direction towards Financial Independence!

Quote of the Day

You may delay, but time will not.

Benjamin Franklin

The post December 2017 review – a look at my finances for the month appeared first on Dividend Life.

Read Full Article
Visit website
  • Show original
  • .
  • Share
  • .
  • Favorite
  • .
  • Email
  • .
  • Add Tags 

Alrighty I’ve finally reached the end of the year! Here’s a look back to last year’s December 2017 Income Fund update, following on from my November update.

Dividend Income

Total income from my Income Fund this month was $2,697, a 46% increase compared to the $1,838 I received in December 2016. This is the highest income ever, just beating out $2,673 from June 2017.

The following chart shows the cumulative dividend income this year compared to previous years.

So I beat my 2017 target of $9,925 this year by quite a bit! I think that deserves an exclamation mark at least.

The increases for the last quarter are different from the first three quarters because I’ve eliminated all monthly-paying bond dividends. So most of the increases show up in the last month of the quarter thanks to the distributions of low-cost index funds.

Income breakdown

The chart below shows a breakdown of my income this month.

The largest contribution came from my index fund holdings – together they paid 81% or $2,458.

Individual stocks contributed $238 or 9% as most of my individual stocks pay out in the third month of the quarter.

Finally, interest from the Income Fund cash reserves made up the remaining $1.40; I keep a little cash aside to smooth out ‘withdrawals’.

Dividend income from stocks

18 stocks paid dividends this month as detailed below for a total of $238.11.

Last December my individual stocks paid $216.13 from nineteen stocks. Since then, I’ve sold out of TROW and AWR and put the proceeds into VHDYX instead. I’ve also added DAL plus  $800 in LB and $400 in INTC.

Dividends increased by a simple average of over 2.5% over last year all on their own. DAL and HD had the biggest increase with 50% and 29% respectively. EMR, CVX had increases under 2% and LB held their dividend constant.

Income from funds
Fund Income ($)
High Dividend Yield (VHDYX) 1,361.15
International High Dividend Yield (VIHAX) 711.09
Total Stock Market (VTSAX) 385.42

VHDYX, VTSAX and VIHAX pay out on a quarterly schedule (March, June, September and December). VIHAX being an international fund has a tendency to pay higher dividends in June and December as some international companies pay on an annual or bi-annual basis. Distributions from both funds are usually qualified which means they are taxed at the lower 15% dividend rate.

None of the funds paid out capital gains in December.

Asset Allocation

My Income Fund asset allocation is shown below.

I’m now holding 100% stocks in my Income Fund which is held entirely in Taxable accounts. This is a much more tax efficient than before when I was holding bonds.

Cash is virtually zero as I just have a small amount left to manage cash-flow.

Detailed Allocation

The following table shows the details plus the new asset allocation for my Income Fund.

Individual and International stocks (VIHAX) are a little over my target and US Total Stock is a little under. I’m not that worried about getting them exactly in line; I’m just putting a bit more money to the under-target assets each month.

Changing allocation ratio via new capital takes a lot of time because of the size of my contributions vs the total value, so I’m not in a particular hurry to meet these targets. I won’t be selling any assets to re-balance faster unless there’s really a big opportunity for tax-loss harvesting.

Fund Purchases & Sales

I added $2,850 of new money to my Income Fund in December. $2,300 of this was the standard contribution I make from my salary. I’m confident this amount is at least always left over after paying for Savings and Living Expenses. I also added a further $550 which was left over from my salary after paying living expenses and savings.

Fund purchases

Total purchases this month were $300 in VIHAX, $2,450 in VHDYX and $300 in VTSAX which included using $200 of Fund Cash.

I continued to ignore my target asset allocation in December.  Reaching for higher yield is too tempting – bad DL!

Funds sold

None.

Stock purchases

None.

Stock Sales

None.

Distributions

I transferred $825 from Fund Cash into my Living Expense account. This is an automatic payment and represents about 20% of my Living Expenses that my Fund pays every month.

Money is fungible, so a dollar in one account is no different than a dollar in another account. The distribution from the income fund allows me to invest $825 more of my salary than I otherwise would be able to. Withdrawing money gives me experience in managing cash-flow from the Income Fund. One day I won’t have a salary after all.

Fund Cash

Fund Cash is now at $2,834 and held in the VMFXX money market account which is where all dividend distributions are paid into. $2,726 of this is reserved for future distributions of $850 a month.

Cash has increased by $1,672 since last month due to the dividend income less the $825 withdrawal and $200 of purchases. $107.29 remains uninvested.

Portfolio Performance

My Income Fund increased in value from $412,246 to $420,903 this month, a new record high. This increase of $8,656 includes $2,850 of new capital.

Outlook

Starting next year I’m going to increase my monthly cash withdrawal to $850. This money pays some living expenses and allows me to invest more of my paycheck.

Improved tax efficiency

As a result of clearing out all bonds in my Income Fund, it’s now more tax efficient since the majority of distributions are now taxed at the 15% Qualified Dividend rate. Previously the bond income was taxed at my marginal rate of 28%. This doesn’t show up during the year but I’ll be paying it in this year’s tax filing.

I’m also moving slightly away from VHDYX with a 25% allocation to the more efficient VTSAX.

Both of these changes have lowered the overall yield of the portfolio however.

Shifting focus

If I receive a bonus next year, I’ll put some of it towards a new position in Vanguard’s Total international Fund (VTIAX) and stop funding VIHAX. This will possibly be around March next year.

Ultimately I will move towards a total market portfolio with a small tilt to high-yield (value) plus some individual stocks.

Simplification

I also plan on consolidating my stocks currently held at Capital One (now E-Trade) over to my main brokerage at Vanguard, where I have lower trading fees. This will be a transfer in-kind, although some of the partial shares will be liquidated.

The move will eliminate some cash transfers that I currently need to make and help with tax filing.

Summary

My 2017 goal of $9,925 is well and truly beaten and it’s nice to end 2017 with some good news! Although this is largely due to a very conservative target in the first place. I’ve taken the first steps to improve the tax efficiency of my portfolio which is held in taxable accounts.

How was your latest month? Are you one step closer to Financial Independence?

Quote of the Day

It is a terrible thing to see and have no vision.

Helen Keller

The post December 2017 Income Fund Update (!) appeared first on Dividend Life.

Read Full Article
Visit website
  • Show original
  • .
  • Share
  • .
  • Favorite
  • .
  • Email
  • .
  • Add Tags 

Almost caught up to December’s numbers. But first, here’s my November 2017 review following on from my November income fund update. It’s almost like a balance sheet statement, but different!

My Score for November
Living Expenses Budget $3,970
Freedom Ratio 20.8%
Expenses 51.7%
Savings 19.9%
Investments 28.4%
Wet Worth $294,101
Work Freedom Day 04-Oct-17
Cash Reserves 3.2 months

I’ve now passed my work freedom day so the rest of the year is (technically) all paid for! Another single this month as November reached yet another record Wet Worth.

Living Expenses Budget

This is my monthly budget for living expenses and it includes both essential (e.g. groceries, mortgage, insurance), and non-essential (e.g. music, travel) purchases. $3,970 is the amount from my Budget 17.5.

The amount is more of a spending goal than a strict budget as I over/underspend each month. The budget is calculated from an estimated yearly spend divided by 12, so it’s normal for some months to be over or under the target amount.

Freedom Ratio

My Freedom Ratio is the percentage of my monthly living expenses budget that my Income Fund pays for. The current payment is $825 a month which is 20.8% of my current $3,970 monthly budget. So I’m 20% of the way to Financial Independence!

I’ll change this amount once or twice a year as dividend income increases. I aim to keep this number as a sustainable number, so it’s a little below the maximum dividends from the Income Fund.

Living Expenses %

The percentage of net income that’s spent on living expenses. Lower numbers are better here.

This month’s 51.7% is about the same as last month’s 51.4%, due to similar expenses and slight higher income last month. But it’s still better than the average 52% I’ve been getting in ‘off-months’, so it’s all good! I save or invest any income that I don’t spend on Living Expenses so my effective “Savings Rate” this month was 48.3%.

Like the Freedom Ratio, any change in this number is caused by a change in either income or budget. However this metric takes total monthly income into account including actual investment income. This means it jumps around more, especially in the third month of each quarter.

The average percentage value should gradually decrease over time. This is because salary and investment income will hopefully increase faster than living expenses as I try to limit lifestyle creep and personal inflation.

The Living Expenses % metric and the Work Freedom Day metric (see below) are both good incentives to avoid increasing the budget since both numbers are impacted by a higher budget.

Living Expense History

Last November I spent 48.3% of my income on expenses, so I’m 2.4% points worse than this time last year. This year’s budget is $70 more at $3,970 plus I had higher investment income this time last year because of the bonds I held back then.

The chart above shows the trend in my Living Expenses % since the start of 2014. For the first part of 2014 I was paying two mortgages. In June 2014, I introduced Budget 1.0 after selling my first house and I made some minor tweaks in Budget 2.0 from October onwards. In January 2015 I started Budget 3.0 which I updated to Budget 3.5 in July.

Budget 4.0 started in 2016 with an increase to the monthly amount which I held constant in the mid-year review of Budget 4.5.

This year I’ve adopted Budget 17.0 which increased monthly spending to $3,970 and tweaked it a little to Budget 17.5.

Savings %

The percentage of net income spent on Savings (excluding Investments). Savings represents cash plus a long-term holding in Vanguard’s Wellington fund (VWELX).

I’m now putting aside $1,500 every month for unexpected and mid / long term goals (any large expense or purchase due a year or more in the future). $100 of this goes into a ‘sinking fund’ towards paying down my mortgage and other long term savings. This month the savings percentage was 19.9% of my month’s income compared to 21.3% last year, because I saved a bit more this time last year.

Last month’s saving rate was also 21.3% however. The decrease this month compared to last month is due to higher income this month and a bit higher savings last month.

Investment %

The percentage of net income that I invest.

All spare money left over after savings and living expenses are paid goes into my Income Fund. This month it was 28.4% of my income.

I’ve written about my November portfolio income and gains in a separate post, so I won’t repeat all of that here again.

Wet Worth $

My liquid assets minus all debt (excluding retirement and non-liquid assets).

My Wet Worth increased $15,814 in November from $278,284 to $294,101, a new all-time high. There’s a more detailed breakdown of this amount further below.

Work Freedom Day

The day in the year that my dividend income could pay for the rest of the year’s expenses.

The current estimate of my Work Freedom Day moves forward to 04 October 2017. This number includes some very conservative estimates of fund income, so the final date will be known next month. It’s nice to think that I only need to work 10 months of the year before investment income takes over.

Note that based on a $3,970 budget, one Work Freedom Day requires about $132 of dividend income which in turn requires about $4,400 of capital. Financial Independence then requires about $1,588,000 at a 3% yield.

Cash Reserves

This is a new metric I’m reporting to keep a closer eye on the account balance of my Living Expense account. I’m tracking the number of months of monthly expenses currently in my Living Expense account. Cash stored in other accounts such as Savings and Investment is not included here.

I spent a total of $3,354.49 in November which means I underspent my budget by $615.81. Spending was fairly usual with no large items.

The over-spend meant my account balance at the end of this month is now back to 3.2 months of living expenses, compared to 2.9 months last month.

Wet Worth detail

I’m showing my Wet Worth in this post – this is the cost of my liquid assets minus debt, I exclude assets and retirement accounts from this number. I prefer this over Net Worth since the equity in large assets (house, car) and retirement funds is hard to get at and not always predictable. I find this is a more honest view of where I’m at on my journey.

The change in Wet Worth is caused by

Cash +$950 Usual spending this month plus I offset some medical expenses with $300 from my Savings.
Debt -$326 Debt increased this month as I charged more to my credit card than I paid the mortgage.
Savings +$2,447 VWELX gained $1,300 in capital gains in addition to the $100 I added to it. Plus I saved cash as noted above.
Income Fund +$12,746 My Income Fund market value increased this month. See my earlier post for details.
Total +$15,816 Total change in Wet Worth
November 2017 Summary Cash Flow Forecast

Cash flow should be increasing again in December as all large yearly expenses are now paid, and most spending on my credit card now won’t be paid until January. It looks like this year will largely be a wash in terms of cash reserves.

In other news

My Wet Worth increased again this month by over $15,000. Most of this came from the market via paper capital gains. It’s all good though as I could still pay off all my debts with liquid assets tomorrow and have over $290,000 remaining.

A positive Wet Worth lets me consider myself to be debt-free. I chose not to aggressively pay my mortgage down because I can get better returns in the market and I prefer more liquidity.

All in all, it’s one more step in the right direction towards Financial Independence!

Quote of the Day

An investment in knowledge pays the best interest.

Benjamin Franklin

The post November 2017 review – a look at my finances for the month appeared first on Dividend Life.

Read Full Article
Visit website
  • Show original
  • .
  • Share
  • .
  • Favorite
  • .
  • Email
  • .
  • Add Tags 

I’m behind on posting updates on my Income Fund, so here’s a look back to last year’s November 2017 Income Fund update, following on from my October update.

Dividend Income

Total income from my Income Fund this month was $99, a 74% decrease compared to the $387 I received in November 2016.

The following chart shows the cumulative dividend income this year compared to previous years.

With cumulative income of $9,461 I’m still far ahead of 2016’s yearly total, but there’s still a little way to go to my 2017 target of $9,925.

The year-on-year decrease for this month is again because of my changed asset allocation – most of my holdings now only pay out in the third month of each quarter.

Income breakdown

The chart below shows a breakdown of my income this month.

Individual stocks contributed $98 or 99% since some of my stocks paid dividends this month.

Finally, interest from the Income Fund cash reserves made up the remaining $1; I keep a little cash aside to smooth out ‘withdrawals’.

Dividend income from stocks

Seven stocks paid dividends this month as detailed below for a total of $98.60.

Last November my individual stocks paid $95.89 from nine stocks. Since then, I’ve sold out of CLX and VZ and put the proceeds into VHDYX instead. I’ve also bought additional shares in T ($700) plus a small ($100) addition in GIS when moving the shares to Vanguard over the last year. On the plus side, I still earned more dividend income from stocks than the same month in 2016.

Dividends this month increased by a simple average of over 3% over the last year all on their own. JPM had the biggest increase with 10%, and T had the lowest at 2%

Income from funds

I didn’t receive any income from Vanguard funds in my portfolio this month.

VHDYX, VTSAX and VIHAX pay out on a quarterly schedule (March, June, September and December). VIHAX being an international fund has a tendency to pay higher dividends in June and December as some international companies pay on an annual or bi-annual basis. Distributions from both funds are usually qualified which means they are taxed at the lower 15% dividend rate.

Asset Allocation

My Income Fund asset allocation is shown below.

I’m now holding 100% stocks in my Income Fund which is held entirely in Taxable accounts. This is a much more tax efficient than before when I was holding bonds.

Cash is virtually zero as I just have a small amount left to manage cash-flow.

Detailed Allocation

The following table shows the details plus the new asset allocation for my Income Fund.

Individual and International stocks (VIHAX) are a little over my target and US Total Stock is a little under. I’m not that worried about getting them exactly in line; I’m just putting a bit more money to the under-target assets each month.

Changing allocation ratio via new capital takes a lot of time because of the size of my contributions vs the total value, so I’m not in a particular hurry to meet these targets. I won’t be selling any assets to re-balance faster unless there’s really a big opportunity for tax-loss harvesting.

Fund Purchases & Sales

I added $2,900 of new money to my Income Fund in November. $2,300 of this was the standard contribution I make from my salary. I’m confident this amount is at least always left over after paying for Savings and Living Expenses. I also added a further $600 which was left over from my salary after paying living expenses and savings.

Fund purchases

Total purchases this month were $1,100 in VIHAX, $450 in VHDYX and $1,200 in VTSAX.

Funds sold

None.

Stock purchases

None.

Stock Sales

None.

Distributions

I transferred $825 from Fund Cash into my Living Expense account. This is an automatic payment and represents about 20% of my Living Expenses that my Fund pays every month.

Money is fungible, so a dollar in one account is no different than a dollar in another account. The distribution from the income fund allows me to invest $825 more of my salary than I otherwise would be able to. Withdrawing money gives me experience in managing cash-flow from the Income Fund. One day I won’t have a salary after all.

Fund Cash

Fund Cash is now at $1,162 and held in the VMFXX money market account which is where all dividend distributions are paid into. $1,015 of this is reserved for future distributions of $825 a month.

Cash has decreased by $575 since last month due to the $825 withdrawal above less dividend income. $95 remained uninvested.

Portfolio Performance

My Income Fund increased in value from $399,501 to $412,246 this month, a new record high. This increase includes $2,900 of new capital.

Outlook

I’m keeping monthly ‘withdrawals’ at $825 a month through December. These withdrawals pay some of my monthly bills allowing more of paycheck to be invested.

Beating my 2017 goal of $9,925 income this year is guaranteed since I’m so close, and income in December will be significantly higher because most holdings will be paying dividends.

Summary

November was another good but uneventful month. Which, when investing, is a really good thing.

How was your latest month? Are you one step closer to Financial Independence?

Quote of the Day

What I am looking for is not out there, it is in me.

Helen Keller

The post November 2017 Income Fund Update appeared first on Dividend Life.

Read Full Article
Visit website
  • Show original
  • .
  • Share
  • .
  • Favorite
  • .
  • Email
  • .
  • Add Tags 

One month closer to catching up to January! Here’s my October 2017 review following on from my October income fund update. It’s almost like a balance sheet statement, but different!

My Score for October
Living Expenses Budget $3,970
Freedom Ratio 20.8%
Expenses 51.4%
Savings 21.3%
Investments 27.3%
Wet Worth $278,284
Work Freedom Day 08-Oct-17
Cash Reserves 2.9 months

Continuing with a single this month as October reached a record Wet Worth after last month’s increase.

Living Expenses Budget

This is my monthly budget for living expenses and it includes both essential (e.g. groceries, mortgage, insurance), and non-essential (e.g. music, travel) purchases. $3,970 is the amount from my Budget 17.5.

The amount is more of a spending goal than a strict budget as I over/underspend each month. The budget is calculated from an estimated yearly spend divided by 12, so it’s normal for some months to be over or under the target amount.

Freedom Ratio

My Freedom Ratio is the percentage of my monthly living expenses budget that my Income Fund pays for. The current payment is $825 a month which is 20.8% of my current $3,970 monthly budget. So I’m 20% of the way to Financial Independence!

I’ll change this amount once or twice a year as dividend income increases. I aim to keep this number as a sustainable number, so it’s a little below the maximum dividends from the Income Fund.

Living Expenses %

The percentage of net income that’s spent on living expenses. Lower numbers are better here.

This month’s 51.4% is much worse than last month’s 41.3%, due to the large drop in investment income. But it’s still better than the average 52% I’ve been getting in ‘off-months’, so I’ll take it! I save or invest any income that I don’t spend on Living Expenses so my effective “Savings Rate” this month was 48.6%.

Like the Freedom Ratio, any change in this number is caused by a change in either income or budget. However this metric takes total monthly income into account including actual investment income. This means it jumps around more, especially in the third month of each quarter.

The average percentage value should gradually decrease over time. This is because salary and investment income will hopefully increase faster than living expenses as I try to limit lifestyle creep and personal inflation.

The Living Expenses % metric and the Work Freedom Day metric (see below) are both good incentives to avoid increasing the budget since both numbers are impacted by a higher budget.

Living Expense History

Last October I spent 49.9% of my income on expenses, so I’m 1.5% points worse than this time last year. This year’s budget is $70 more at $3,970 plus I had lower investment income than this time last year.

The chart above shows the trend in my Living Expenses % since the start of 2014. For the first part of 2014 I was paying two mortgages. In June 2014, I introduced Budget 1.0 after selling my first house and I made some minor tweaks in Budget 2.0 from October onwards. In January 2015 I started Budget 3.0 which I updated to Budget 3.5 in July.

Budget 4.0 started in 2016 with an increase to the monthly amount which I held constant in the mid-year review of Budget 4.5.

This year I’ve adopted Budget 17.0 which increased monthly spending to $3,970 and tweaked it a little to Budget 17.5.

Savings %

The percentage of net income spent on Savings (excluding Investments). Savings represents cash plus a long-term holding in Vanguard’s Wellington fund (VWELX).

I’m now putting aside $1,500 every month for unexpected and mid / long term goals (any large expense or purchase due a year or more in the future). $100 of this goes into a ‘sinking fund’ towards paying down my mortgage. This month the savings percentage was 21.3% of my month’s income compared to 15.4% last year, because I’m saving more this year.

Last month’s saving rate was 15.0% however. The increase this month compared to last month is due to lower income and not because I’m saving significantly more.

Investment %

The percentage of net income that I invest.

All spare money left over after savings and living expenses are paid goes into my Income Fund. This month it was 27.3% of my income.

I’ve written about my October portfolio income and gains in a separate post, so I won’t repeat all of that here again.

Wet Worth $

My liquid assets minus all debt (excluding retirement and non-liquid assets).

My Wet Worth increased $11,679 in October from $266,606 to $278,284, a new all-time high. There’s a more detailed breakdown of this amount further below.

Work Freedom Day

The day in the year that my dividend income could pay for the rest of the year’s expenses.

The current estimate of my Work Freedom Day moves forward to 08 October 2017. This number includes some very conservative estimates of fund income, so hopefully it will move forward again later this year. It’s nice to think that I only need to work 10 months of the year before investment income takes over.

Note that based on a $3,970 budget, one Work Freedom Day requires about $132 of dividend income which in turn requires about $4,400 of capital. Financial Independence then requires about $1,588,000 at a 3% yield.

Cash Reserves

This is a new metric I’m reporting to keep a closer eye on the account balance of my Living Expense account. I’m tracking the number of months of monthly expenses currently in my Living Expense account. Cash stored in other accounts such as Savings and Investment is not included here.

I spent a total of $5,219.48 in October which means I exceeded my budget by $1,169.54. My yearly home insurance bill was $920 of this, plus another $1,200 in medical expenses. Spending otherwise was fairly usual.

The over-spend meant my account balance at the end of September is now 2.9 months of living expenses, compared to 3.2 months in August.

Wet Worth detail

I’m showing my Wet Worth in this post – this is the cost of my liquid assets minus debt, I exclude assets and retirement accounts from this number. I prefer this over Net Worth since the equity in large assets (house, car) and retirement funds is hard to get at and not always predictable. I find this is a more honest view of where I’m at on my journey.

The change in Wet Worth is caused by

Cash -$880 Some large payments were due this month. I offset some of the expenses with $300 from my Savings.
Debt -$3,079 Debt decreased this again month as I paid off the credit card bill and charged less to it than last month.
Savings +$1,296 Savings increased as I started saving a bit more this month, despite withdrawing some. VWELX gained $600 in capital gains in addition to the $100 I added.
Income Fund +$8,185 My Income Fund market value increased this month. See my earlier post for details.
Total +$11,679 Total change in Wet Worth
October 2017 Summary Cash Flow Forecast

Cash flow should be increasing again for the rest of the year as all large yearly expenses are now paid. Hopefully the 2.9x expenses in my cash reserves this month will be the low point of the year, otherwise I’ll need to start investing less so I can build up more cash reserves.

Higher net salary

This month I reached the social security contribution limit, so my net monthly income increased. I’m continuing to pay 12% of my salary into my 401(k).

In other news

My Wet Worth increased again this month by nearly  $12,000. Most of this came from the market via paper capital gains. It’s all good though as I could still pay off all my debts with liquid assets tomorrow and have over $275,000 remaining.

A positive Wet Worth lets me consider myself to be debt-free. I chose not to aggressively pay my mortgage down because I can get better returns in the market and I prefer more liquidity.

All in all, it’s one more step in the right direction towards Financial Independence!

Quote of the Day

Tell me and I forget. Teach me and I remember. Involve me and I learn.

Benjamin Franklin

The post October 2017 review – a look at my finances for the month appeared first on Dividend Life.

Read Full Article
Visit website
  • Show original
  • .
  • Share
  • .
  • Favorite
  • .
  • Email
  • .
  • Add Tags 

I’m behind on posting updates on my Income Fund, so here’s a look back to last year’s October Income Fund update, following on from my September update.

Dividend Income

Total income from my Income Fund in October was $37, an 89% decrease compared to the $327 I received in October 2016. Crikey!

The following chart shows the cumulative dividend income this year compared to previous years.

I’m still far ahead of 2016’s yearly total for this time last year, but there’s still a little way to go to my 2017 target of $9,925.

The drastic decrease this month is because of my changed asset allocation – most of my holdings now only pay out in the third month of each quarter.

Income breakdown

The chart below shows a breakdown of my income this month.

I made significant changes to my Income Fund last month, selling all of the bond funds I held in my Taxable account. The bond funds paid monthly distributions and provided a significant income “floor” of ~$200. But no longer.

Individual stocks contributed $35 or 96% since only a few of my stocks paid dividends this month.

Finally, interest from the Income Fund cash reserves made up the remaining $2; I keep a little cash aside to smooth out ‘withdrawals’.

Dividend income from stocks

Four stocks paid dividends this month as detailed below for a total of $35.

Last October my individual stocks paid $33 from five stocks. Since then, I’ve sold out of CB and put the proceeds into VHDYX instead. On the plus side, I still managed to earn more dividend income from stocks than the same month in 2016. This speaks more to the small number of CB shares that I owned, which paid about $1.6 in dividends.

Dividends this month increased by a simple average of 7% over the last year all on their own. JPM had the biggest increase with 11%.

Income from funds

I didn’t receive any income from Vanguard funds in my portfolio this month.

VHDYX, VTSAX and VIHAX pay out on a quarterly schedule (March, June, September and December). VIHAX being an international fund has a tendency to pay higher dividends in June and December as some international companies pay on an annual or bi-annual basis. Distributions from both funds are usually qualified which means they are taxed at the lower 15% dividend rate.

Asset Allocation

My Income Fund asset allocation as of October 2017 is shown below.

I’m now holding 100% stocks in my Income Fund which is held entirely in Taxable accounts. This is a much more tax efficient than before when I was holding bonds.

Cash is virtually zero as I just have a small amount left to manage cash-flow.

Detailed Allocation

The following table shows the details plus the new asset allocation for my Income Fund.

International stocks (via VIHAX) are a little over my target and US Total Stock is a little under. I’m not that worried about getting them exactly in line; I’m just putting a bit more money to the under-target assets each month.

Changing allocation ratio via new capital takes a lot of time because of the size of my contributions vs the total value, so I’m not in a particular hurry to meet these targets. I won’t be selling any assets to re-balance faster unless there’s really a big opportunity for tax-loss harvesting.

Fund Purchases & Sales

I added $2,860 of new money to my Income Fund in October. $2,300 of this was the standard contribution I make from my salary. I’m confident this amount is at least always left over after paying for Savings and Living Expenses. I also added a further $560 which was left over from my salary after paying living expenses and savings.

Fund purchases

Total purchases this month were $1,860 in VIHAX and $1,000 in VTSAX. To be honest, I don’t remember now why I bought VIHAX since it’s over my target allocation. I was probably reaching for the higher dividend yields in the international sector after seeing the low income this month.

Funds sold

None.

Stock purchases

On 10/2 I bought 12 shares of INTC for $459.32 and another 15 shares of DAL for $727.25. The totals include a $2 trading fee. I like both companies and they both had relatively low P/E values at the time of purchase compared to the rest of my portfolio. The purchases were made from Fund Cash resulting from September’s higher dividend payments.

Stock Sales

None.

Distributions

I transferred $825 from Fund Cash into my Living Expense account. This is an automatic payment and represents about 20% of my Living Expenses that my Fund pays every month.

Money is fungible, so a dollar in one account is no different than a dollar in another account. The distribution from the income fund allows me to invest $825 more of my salary than I otherwise would be able to. Withdrawing money gives me experience in managing cash-flow from the Income Fund. One day I won’t have a salary after all.

Fund Cash

Fund Cash is now at $1,723 and held in the VMFXX money market account which is where all dividend distributions are paid into. $1,650 of this is reserved for future distributions of $825 a month.

Cash has decreased by $1,883 since last month due to stock purchases and my $825 withdrawal.

Portfolio Performance

My Income Fund increased in value from $391,316 to $399,501 this month, a new record high. This increase includes $2,860 of new capital.

Outlook

I’m keeping monthly ‘withdrawals’ at $825 a month for October through December. These withdrawals pay some of my monthly bills allowing more of paycheck to be invested.

Beating my 2017 goal of $9,925 income this year is guaranteed since I’m so close, although income in November will again be very small because there will be no more monthly bond income.

Summary

October was good but uneventful. Which, when investing, is a really good thing.

How was your latest month? Are you one step closer to Financial Independence?

Quote of the Day

What I am looking for is not out there, it is in me.

Helen Keller

The post October 2017 Income Fund Update appeared first on Dividend Life.

Read Full Article
Visit website
  • Show original
  • .
  • Share
  • .
  • Favorite
  • .
  • Email
  • .
  • Add Tags 
Dividend Life by Dividendlife - 1M ago


There are many ways of filing your taxes this year, some free and others…not so free. Here’s one new method to file your taxes that’s free: the Credit Karma Tax service.

2017 Tax Filing

If you’re  like me, then you’re still waiting on various 1099, 1098 and W2 forms to arrive so you can file your taxes. The earlier you file, the better because:

    1. You’ll get any money back sooner.
    2. You lower the risk of someone fraudulently filing in your name.

While waiting, it’s worth researching how you’ll file taxes this year. There are some free services for filing, especially at lower income levels. Check out the IRS free services site for more details.

And of course there are the usual suspects from TurboTax and HR Block. Here however, the free part usually comes with an (*) stating that it’s only for the 1040EZ form, or excludes state filing or whatever. Itemized filing or using the Schedule D form, used with investments, can cost extra.

New Credit Karma Tax Service

This year brings a new service from Credit Karma. Well-known for their free credit monitoring service (well I’ve heard of them so that’s something), they’re now offering a tax-filing service that’s 100% free. It follows the same free business model as their main credit service: they receive payment from third-party services and products they offer on their web-site.

They offer 24/7 support, maximum refund and interest-free advances on your refund if you’re so inclined. If your tax-filing situation is more complex, here’s a list of forms they support.

It’s always valuable to have options, and this seems like a good option to keep in mind.

Disclaimer

I’m not paid by Credit Karma, nor do I earn any income from any of the above links. This post is informational and not an endorsement: I do not currently use the Credit Karma service nor do I use their tax service at this time.

Quote of the Day

How people treat you is their karma; how you react is yours.

Wayne Dyer

The post Credit Karma + Taxes appeared first on Dividend Life.

Read Full Article
Visit website
  • Show original
  • .
  • Share
  • .
  • Favorite
  • .
  • Email
  • .
  • Add Tags 

I’m behind on posting updates on my Income Fund, so here’s a look back to last year’s September Income Fund update, following on from my August update.

Dividend Income

Total income from my Income Fund in September was $2,534, a 77% increase compared to the $1,432 I received in September 2016.

The following chart shows the cumulative dividend income this year compared to previous years.

This month’s results put me ahead of the 2016’s yearly total, but there’s still a little way to go to my 2017 target of $9,925.

The big increase this month mostly results from a switch in my asset allocation – the higher dividends this month will be offset by lower dividends in October and November.

Income breakdown

The chart below shows a breakdown of my income this month.

I made significant changes to my Income Fund in September, selling all of the bond funds I held in my Taxable account, and buying stock funds with the proceeds. I also added a Total (US) Stock Market fund (VTSAX).

The Bond income of $51 shown is pro-rated income from the beginning of the month until I sold the shares.

Individual stocks contributed $211 or 8%. The majority of my individual stocks pay dividends in September so this is higher than normal.

Likewise with the stock funds, which combined paid 62% ($1561) from US stocks and 27% ($697) from US stocks.

Finally, interest from the Income Fund cash reserves made up the remaining $14; it was higher than normal because it held cash from the Bond fund sales for a short time .

Dividend income from stocks

18 stocks paid dividends this month as detailed below for a total of $211.

Last September my individual stocks paid $195 from 20 stocks. Since then, I’ve sold out of NHC and TROW and put the proceeds into VHDYX instead.

Dividends this month increased by a simple average of 9% over the last year all on their own, although the average is distored by DAL and HD’s increases. DAL and HD had the biggest increases with 50% and 29% respectively. LB, EMR, CVX and WMT all did poorly with dividend growth of under 3%.

Income from funds

I received income from five Vanguard funds in my portfolio this month.

Fund Income ($)
High Dividend Yield (VHDYX) 1,254.61
International High Dividend Yield (VIHAX) 696.67
Total Stock Market (VTSAX) 306.06
High-Yield Corporate (VWEAX) (now sold) 38.04
IT Investment-Grade Bonds (VBILX) (now sold) 13.40

VHDYX, VTSAX and VIHAX pay out on a quarterly schedule (March, June, September and December). VIHAX being an international fund has a tendency to pay higher dividends in June and December as some international companies pay on an annual or bi-annual basis. Distributions from both funds are usually qualified which means they are taxed at the lower 15% dividend rate.

Asset Allocation

My Income Fund asset allocation as of September 2017 is shown below.

I’m now holding 100% stocks in my  Income Fund which is held entirely in Taxable accounts.

All Bonds are now held in my Tax-advantaged retirement accounts and there is sufficient space that I don’t need to hold any bonds in my taxable accounts. I’m not including my retirement accounts as part of my Income Fund report, and will write seperately about my overall allocation.

Cash is virtually zero as I just have a small amount left to manage cash-flow.

Detailed Allocation

The following table shows the details plus the new asset allocation for my Income Fund.

I still believe that individual stocks are too risky to hold as a high-percentage of my portfolio, so I continue to limit them to around 10%.

The move out of bonds was to improve the tax-efficiency of the portfolio. If I don’t really need income now in the accumulation stage, then why hold bonds paying higher-taxed dividends in my taxable accounts. Likewise, why hold higher dividend-yielding funds when VTSAX is much more tax efficient and is likely to perform better in the long-term.

So I ended up with a target allocation of 25% to VTSAX as a move towards tax efficiency. I’m keeping international exposure to around 20%, 10% in individual stocks which leaves 45% for VHDYX.

Changing allocation ratio via new capital takes a lot of time because of the size of my contributions vs the total value, so I’m not in a particular hurry to meet these targets. I won’t be selling any assets to re-balance faster unless there’s really a big opportunity for tax-loss harvesting.

Fund Purchases & Sales

I added $2,815 of new money to my Income Fund in September. $2,300 of this was the standard contribution I make from my salary. I’m confident this amount is at least always left over after paying for Savings and Living Expenses. I also added a further $515.04 which was left over from my salary after paying living expenses and savings.

Fund purchases

Total purchases this month were $3,910 in VHDYX, $17,163 in VIHAX and $70,624 in VTSAX for a total of $91,697.

Funds sold

I sold $51,837 of VWEAX for a capital loss of $816 and $38,051 in VBILX for a capital gain of $800.

Stock purchases

I bought 10 shares of DAL on 9/14 for $491 and another 10 shares on 9/25 for $486.20. I think Delta is a well-managed company and this was really just an irrational / loyalty purchase since I’m in their frequent flyer program.

Stock Sales

None.

Distributions
I transferred $800 from Fund Cash into my Living Expense account. This is an automatic payment and represents about 20% of my Living Expenses that my Fund pays every month.

Money is fungible, so a dollar in one account is no different than a dollar in another account. The distribution from the income fund allows me to invest $800 more of my salary than I otherwise would be able to. Withdrawing money gives me experience in managing cash-flow from the Income Fund. One day I won’t have a salary after all.

Fund Cash
Fund Cash is now at $3,607. $2,475 of this is reserved for future distributions of $825 a month in a sub-account which is being filled by dividend income.

The remaining $1,132 is un-invested, and will be fixed in October.

Cash has increased by $2,083 since last month since incoming dividends this month are so high. I keep three times the monthly withdrawal in reserve at the start of the next quarter to smooth out the uneven payments.

Portfolio Performance

My Income Fund increased in value from $379,408 to $391,316 this month, a new record high. This increase includes $2,815 of new capital.

Outlook

I’m increasing monthly ‘withdrawals’ slightly to $825 a month for October through December. These withdrawals pay some of my monthly bills allowing more of paycheck to be invested.

Beating my 2017 goal of $9,925 income this year is guaranteed since I’m so close, although income in October and November will be very small because there will be no more monthly bond income. The final FI destination is still looking far away however.

Summary

September represented a big shake-up in my Income Allocation in a move towards being more tax-efficient. Income as a whole might be a little lower going forward because the stocks replacing the bonds have lower yields. But I believe this was the correct move to make.

How was your latest month? Are you one step closer to Financial Independence?

Quote of the Day

Optimism is the faith that leads to achievement. Nothing can be done without hope and confidence.

Helen Keller

The post September 2017 Income Fund Update appeared first on Dividend Life.

Read Full Article
Visit website
  • Show original
  • .
  • Share
  • .
  • Favorite
  • .
  • Email
  • .
  • Add Tags 

I finally had a light bulb moment after more than four years of learning about personal finance. I’ve been making a fair amount of changes to my portfolio during my blogging absence. And while I’ve yet to post my new asset allocation, here’s one change I’m making which is long overdue. Drum roll, please…

This year I’m going to be maxing out my 401(k) contribution to the full $18,500 allowance in 2018.

There. So what does this all mean and why didn’t I do it earlier?

What is a 401(k) in the first place?

The 401(k) is a retirement savings plan in the US. 401(k) contributions are deductions from your paycheck and which are typically paid “pre-tax”, so they lower your taxable income. Plus your employer usually matches some of your contributions which is free money. Once the money is in the 401(k) account, the investment growth and dividend payments aren’t taxed until when you start to withdraw the money upon retirement.

The downside is that when you start making withdrawals, it’s treated as income and so taxed higher than dividends or capital gains are currently taxed. There are also restrictions on when you can access the money and forced withdrawals once you reach a certain age.

My 401(k) plan

I’m very lucky with my employer’s 401(k) plan. Not only are the investment offered include insanely cheap index funds, my employer contributes 4% of my salary and then matches the next 4% of my contributions. So to get a total of 12% of my paycheck, I need only contribute 4% of my salary.

Now the $18,500 contribution limit for 2018 applies to your individual contributions, and not to your employer’s matching contributions. You can also pay additional individual contributions up to a combined maximum of $54,000, although your contributions after $18,500 are “after-tax”.

How I’ll reach $18,500 this year

I’ve estimated that I need to pay 14% of my salary into the 401(k) to reach the $18,500 limit. Together with the employer matches, this should end up with total contributions of about $28,000.

Over the last four months or so, I’ve been slowly increasing my contribution amounts to see the overall effect of each increase. I started 2017 contributing 8% of my income, then increased it to 12% at the end of September. Over the Christmas holiday I increased it to 14% for the start of 2018.

The effect on my monthly income

Each 1% increase lowered my monthly income by about $75. So this year my monthly net-pay after withholding taxes will drop by about $450 or so. I’m paid twice-monthly and I’m still waiting to see the final monthly amount since there have been changes to the amounts paid for other company benefits.

But essentially, I’ll be investing less each month in my Taxable accounts and increasing the investments in my Tax-Advantaged accounts.

So why wasn’t I doing this before?

Here is the more psychological discussion which I think is more interesting.

Previously I was contributing 8% of my salary, my employer was paying another 8%, for a total of 16%. This felt like “enough”. I then invested the rest in Taxable Accounts using “after-tax” money.

There were several reasons for not contributing more and for investing in Taxable Accounts instead.

  1. I liked the liquidity of having money available if needed in my Taxable Accounts.
  2. I could invest the after-tax money in any investments I chose, including individual stocks.
  3. I justified the “tax-drag” of paying taxes on dividends by comparing the tax-rate on those payments to the tax-rate I’d pay on a cash savings account (15% for qualified dividends vs 28% for regular interest).
What changed?

Each of the three reasons above now have a more rational answer.

    1. I now have enough money in my Taxable Accounts to entirely pay off the mortgage, so I’m not as worried about liquidity any more.
    2. I’m still not convinced owning individual stocks is worth the risk (but I do like buying some from time to time).
    3. Why pay any more taxes than you need to?

plus

  • I’m looking at the bigger picture of my portfolio across all taxable and tax-advantaged accounts, and improving the tax efficiency of my taxable accounts.
Other valid reasons for not contributing more to a 401(k)

If your employer 401(k) plan offers very expensive investments or a poor selection of investments, it may be better to put any extra money into a Roth or T-IRA instead. But always at least pay enough to achieve any matching employer contributions since that’s free money.

What about the higher taxes paid for withdrawals?

As I mentioned above, to actually start accessing money in the 401(k) the money is treated as income and taxed accordingly. I’ll have to do some calculations to show the differences but I believe it’s a choice between paying a higher percentage on a large number (pre-tax investments), or paying a lower percentage on a much smaller number (after-tax investments). That’s because $10,000 of pre-tax money is the same as $7,200 after-tax – the additional $2,800 of pre-tax money should result in a much larger sum in the future, assuming the same investments are being used.

Plus if I do reach FIRE and am able to live for a couple of years without needing to touch retirement accounts, I can convert some 401(k) money at a much lower tax rate. Assuming the tax laws don’t change in the future anyway.

I also expect that over time, the assets in my 401(k) will shift more towards Bonds which will grow less than stocks and so total taxes will be less.

What’s next?

A logical extension of this line of thought, is to continue contributing after-tax money into my 401(k) plan instead of my Taxable Accounts. This isn’t the same as a Roth 401(k) however. For now I like the flexibility of the Taxable Accounts more.

And in case you were wondering…

Where have I been for the last four months?

I’ve not really been in a mood to write or do much of anything lately. I even lost interest in tracking my finances for a while. Maybe it’s the cold winter. I get that happiness is a state of mind, but for some reason my mind can’t be convinced. But I’m slowly reaching out to the light again and I hope 2018 will be a good year.

Quote of the Day

Walking with a friend in the dark, is better than walking alone in the light.

Hellen Keller

The post It finally clicked – my light bulb moment appeared first on Dividend Life.

Read Full Article
Visit website
  • Show original
  • .
  • Share
  • .
  • Favorite
  • .
  • Email
  • .
  • Add Tags 

Separate tags by commas
To access this feature, please upgrade your account.
Start your free year
Free Preview