A few weeks ago, I explained how I calculate our savings rate in this post. But what is our savings rate? How far are we into our FI journey? When do we expect to be able to retire? This post will answer all these questions (and more) by sharing our February 2021 results. Without further ado, it’s time to reveal our savings rate and net worth change!
In February 2021, we managed to achieve a whopping 71.95% savings rate!
This brings our (weighted) average savings rate for the past 6 months, September 2020 to February 2021, to 52.40%.
I am very happy with this result as I was expecting a figure closer to 40%. Achieving a six-month average savings rate of over 50% while having a daughter in childcare is an achievement we do not take for granted.
What was different this month?
Every month something unusual happens, this means that February 2021 results might be different from other months. Sometimes it’s a one-off expense and sometimes it’s a one-off income. The fact that this happens every single month amuses me but also makes it harder to analyse the savings rate and draw conclusions. That’s why I also use the 6-month average figure to “smooth” the data.
Anyway, what happened this month that helped us get such a high savings rate?
We own a rental property through a limited company and we withdraw a dividend once a (tax) year. This tax year we decided to withdraw it in February. This dividend increased this month’s income figures a lot so although our expenses weren’t especially low this month, these expenses are a smaller % of the now-larger income.
For example, if you spend £1,000 a month and earn £2,000 a month, your savings rate is 50%. However, if one month your income goes up to £3,000- now your £1,000 spending is only 33.3%, meaning your savings rate is 66.7%.
In February 2021, our net worth increased by 2.77%. This is made of 2 parts:
- Our actual savings increased our net worth by 2.47%
- Our investment returns increased our net worth by 0.30%
Another month of us doing more of the heavy lifting than our investments (excluding our rental property).
On one hand, you can look at it as a good thing- we have more control over our net worth than the market does.
On the other hand, to be in a position where our money earns more than us means a lazy efficient utopia. We’ll get there one day.
Let’s see how we’re doing on the journey to that lazy utopia and when we think we’ll get there.
Achieving FI– how far are we into our journey?
I set our FI number (how much we need to retire) in July 2020 and update it every month for inflation (I use CPIH* index).
At the end of Feb 2021, our net worth is 23.55% (January 2021: 22.90%) of that number which means we’re very close to the 25% landmark.
The 0.65% increase in our FI journey (as a percentage of our FI number) from 22.90% to 23.55% means a real (inflation-adjusted) increase of 2.86%**(23.55/22.90 – 1) can be broken down into these two parts:
- Our increase in net worth increased by 2.77% as mentioned above.
- The CPIH index actually went down by 0.09%, which increased our real (inflation-adjusted) net worth.
When can we achieve FI (and possibly retire)?
Based on my current calculations, I and Lazy FI Mum should both be able to retire (not saying we will, it’s about having the option) in 2030/2031.
Wow, I just realised this is less than 10 years, we can see the light at end of the FI tunnel!
- A real (inflation-adjusted) return of 4% on our investments.
- No more children and no more pay increases. This does not mean we will not have more kids (we plan to have a few more). It also does not mean we will never get pay increases. It only means I can’t reliably forecast these numbers so “assume” they will net each other off.
- I treat all our net worth as one despite some of the money (LISAs and pensions) being “locked up” for 20+ years.
- Our expenses stay the same as today. This causes one major issue- moving back to Israel someday. I have no idea what the cost of raising a child is in Israel as I’ve never done it. I will reassess our position and update our model once we do decide to make this move.
- No income once we retire- this is my main safety cushion. Lazy FI Mum has no intention of retiring (I wish she will be as happy in her job as she is now) but I would like her to have the option. In addition, as mentioned in the past, I plan to teach/tutor once we achieve FI which will also provide additional income.
- No taxes. I explained the reason for this in this post.
I’m really happy with our February 2021 results and see we achieved a 50% savings rate over the past 6 months. That’s incredible for us, I thought it would be somewhere in the 30%-40% region.
Less than a decade to FI! ***
*CPIH- “Consumer Price Inflation including owner-occupiers’ Housing costs”. As we are consumers and we do, partly, own our home- I think this is the best inflation metric for us.
**The calculation in the brackets gets you to a 2.83% real net worth increase but that’s due to rounding differences. 2.86% is our actual real net worth increase for February 2021.
***If the market gods smile at us.