After last month’s negative savings rate, it’s time to see if we redeemed ourselves.
In April 2021, we managed to achieve an impressive savings rate of 55.36%. I’ll explain the main reasons in the next section. Spoiler alert: it’s not because we were extra frugal. Our (weighted) average savings rate for the past 6 months, November 2020 to April 2021 is now 49.27%. So close to 50%! However, you’ll soon see why I don’t think we’ll get there next month. Regardless, anything over 40% is a win in my eyes, especially after last month’s negative savings rate.
As I mentioned last month, I think looking at a longer term (I use 6 months) can tell you more about how you’re doing than looking at shorter periods (one month). Monthly results fluctuate too much.
What was different this month?
Let me start with the big one, I got 2 salaries this month. I can already hear your “ah, that explains it” and I’m with you. My employer pays a salary every 4 weeks rather than once a month. As there are 52 weeks in a year, that means 13 salaries a year, which means one month has to have 2 salaries. April happened to be that month.
In addition, we’re finally back from Israel. Yes, we’re now vaccinated. So the answer to “What was different this month?” is we were abroad for the whole month. While flights were paid in March (which contributed to the negative savings rate), there were still some big expenses. The biggest one, I think, is all these COVID tests. We had to pay for a test to fly to Israel and another one to fly back. Then we had to pay for 2 more test in the UK (day 2 and day 8) and we chose to pay for another (!) test (day 5) to finish the quarantine early and be free for the long weekend with our daughter. Totally worth it (yes, I saw the weather forecast).
After all that, there was something different this month that had a much bigger financial effect on us. The market went crazy this month. VUSA (Vanguard’s GBP denominated S&P500 tracker fund) went up 4.88% (from 54.76 to 57.43) in one month, that’s a decent annual return!
In April 2021, our net worth increased by 5.98%. Now that’s an impressive number for one month. The 5.98% is made of 2 parts:
- Our actual savings increased our net worth by 1.28%
- Our investment returns increased our net worth by 4.70%
It is very clear who’s doing the heavy lifting here. As a lazy person whose dream is to live off passive income, my ego is just fine with that.
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?
Reminder: 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 April 2021, our net worth is 25.56% (March 2021: 24.18%) of that number which means we’re finally over the 25% benchmark! We will celebrate before Mr Market decides he had enough celebrations. When that happens (market crash), by the way, we’ll be even happier as our money will be able to buy more shares, which means our financial future would be on sale, great for us. In general, for young people**, crashes are actually a good thing***.
The 1.38% increase in our FI journey (as a percentage of our FI number) from 24.18% to 25.56% means a real (inflation-adjusted) increase of 5.69%**** (25.56/24.18 – 1) can be broken down into these two parts:
- Our increase in net worth increased by 5.98% as mentioned above.
- The CPIH index increased by 0.27%, which decreased 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 in 2030/2031 if we wish to. This is the same result as last month. The main reason is that I measure in years so it takes a BIG change to move a whole year. However, one more 5% month and I think we’ll be able to move the needle to 2029/2030.
I hope you all have an awesome long weekend and enjoy the bank holiday!
*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.
**When I say young people, I mean people who have a good few years until they want to retire. The technical term is people in their “Accumulation stage”. You can read more about this here.
***Of course, assuming you don’t lose your job/business.
****The calculation in the brackets gets you to a 5.71% real net worth increase but that’s due to rounding differences. 5.69% is our actual real net worth increase for April 2021.