Before I go into the results and numbers, I think I owe you a clarification. Not every pound that goes out of our account (or into it) in a specific month will automatically be accounted for in that month. For example, this month we got some money refunded for a cancelled flight we were supposed to take in October 2020. I already treated it as an expense in October 2020. Now, it’s like this expense never happened. For that reason, I categorised this money as a negative expense (which basically cancels the expense) in October 2020. I know I could have left the income in this month and improved the May 2021 savings rate. However, I think the way I chose gives a more realistic and accurate view of our results.
So not that we’ve covered this- let’s get on with our May results
May 2021 savings rate
Our savings rate for May 2021 was 22.04%. As a reminder, my long term target is 40% with 50% being an ambitious target. The main reason for the lower (than my target) savings rate is that this month we paid for childcare. As I explained in this post, we pay for our daughter’s childcare every 3 months. This will always cause fluctuations in our savings rate, which is why I also track our 6-month (weighted) average savings rate, which tends to smooth those fluctuations and give a better and clearer picture.
Our (weighted) average savings rate for the past 6 months is 47.54% which I’m pretty happy about.
What was different this month?
As you already know, every month is “special”, every month has one-off expenses and there will never be a month that is a perfect representation of our “normal expenses”.
As I mentioned, the big one was the payment to childcare, which occurs every 3 months. We also started going out more now that there are barely any restrictions and that the sun came out. This increased our expenses in the eating/going out categories and in the transport category.
Finally, both I and Lazy FI Mum visited the dentist this month. However, my medical insurance will reimburse me for this in June, which will then change the May figures. I will not update this post to correct the savings rate but it will affect the 6-month (weighted) average savings rate that I will share with you next month.
However, this is only the part that’s in our control. The market went down a bit and the GBP strengthened against the NIS (Israeli shekel). This means that our GBP investments went down a bit but our Israeli money got hit twice, once by the market and once by the FX rate (every NIS is now worth less GBP compared to last month).
In May 2021, our net worth decreased (“boo”) by 0.61%. The 0.61% is made of 2 parts:
- Our actual savings increased our net worth by 0.47%
- Our investments went down in value, which decreased our net worth by 1.07%
Yes, I know that sums to 0.60% and not 0.61% but that’s due to rounding.
So despite our positive savings rate, Mr Market once again shows us who’s the boss.
I am actually quite happy about that because we worked very hard to save and invest enough to get to this position.
Also, it’s good practice for when I retire, when Mr Market will be responsible for increasing (in the long term) our net worth.
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 May 2021, our net worth is 25.24% (April 2021:25.56%) of that number.
The 0.32% decrease in our FI journey (as a percentage of our FI number) from 25.56% to 25.24% means a real (inflation-adjusted) decrease of 1.24%** (25.24/25.56 – 1), which can be broken down into these two parts:
- Our nominal net worth decreased by 0.61% as mentioned above.
- The CPIH index increased by 0.64%, which also decreased our real (inflation-adjusted) net worth.
As you can see, there are 3 factors that aren’t in our control:
- The market performance (are our investments worth more or less this month?)
- FX rate (are our Israeli Shekels worth more pound or less compared to last month?)
- Inflation (Are things more expensive than last month?)
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 but I think next month will include a positive surprise in this section. I only look at full (tax) years so it takes a lot to move a full year.
Well, that’s our May results, have a great weekend everyone!
*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. You can see the changes in the index here.
**The calculation in the brackets gets you to a 1.25% real net worth decrease but that’s due to rounding differences. 1.24% is our actual real net worth decrease for May 2021.