A correction to last month’s results

Before we go into the June 2021 results, I need to make another (*sigh*) correction.

Old approach

In last month’s results I wrote:
“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.”

I even wrote “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.”

Oops, I will stick to my word and not correct that post.

New approach

However, after a second (or tenth to be honest) thought I am changing my approach because I realised the approach above created an issue (explained below).

The steps in which I calculate the numbers for these posts are:

1. Calculate our savings amount (and then savings rate of course)
2. Calculate our net worth
3. The movement in the net worth is then attributed to savings and market performance

Let’s say our income (actual money coming in) for May was £1,000 and our expenses (actual money going out) were £700. Now, let’s also assume our investments grew by £200. Our net worth (I sum the value of all our assets monthly) grew by £500. Our savings of £300 (1,000-700) plus the market performance of £200 should account for a £500 increase in net worth, right?

However, if I now allocate a £100 expense to another month, my model will show the following numbers. Income £1,000, expenses £600 (as 100 out of the 700 was allocated to another month). That results in a savings of 400. As our net worth increased by £500, my model will assume that £400 is due to savings and the remaining £100 (500-400) is due to market performance.

As you can see, the approach of allocating current expenses to other months distorts the market performance results in my model.

A quick correction to May 2021 results

Category	Posted (May 2021)	Updated (May 2021)	Comment
Savings rate	22.04%	52.69%	Mainly due to childcare coming out of our bank account in early June instead of May
(weighted) average savings rate for the past 6 months	47.54%	54.23%	Same as Savings rate
Net worth decrease	-0.61%	-0.61%	No change as the net worth is not affected by this issue
Change in net worth due to savings	0.47% (positive)	1.11% (positive)	Due to increase in the savings rate
Change in net worth due to market performance	-1.07% (negative)	-1.72% (negative)	Also due to an increase in the savings rate. See how this category changes due to the change in savings. This category and the one above have to sum up to -0.61%.

Let me know in the comments section which approach you would take- the old one or the new one.

Ok, let’s leave May in the past and move on to June 2021 results.

June 2021 results- savings rate

Our savings rate for June 2021 was 57.72%. As a reminder, my long term target is 40% with 50% being an ambitious target. There are so many reasons for the higher (than my target) savings rate, I will list them in the next section.

After all of the one-offs listed below, our (weighted) average savings rate for the past 6 months is 60.33% which I’m, obviously, happy about. Funny enough, the main reason for this is actually the exclusion of December 2020, where we only achieved a savings rate of 5.01% (this was the month before I started this blog).

June 2021 results- What was different this month?

Oh my god, this month had enough one-offs to last a whole year.

One-off income

First of all, we got a very nice amount due to a settlement of an old legal case. This distorted all our numbers and also offset all the one-off expenses. It will also mean that June 2021 results will have a much bigger weight in the 6-month (weighted) average savings rate. It will take at least 6 months to get back to normal. Although, I am expecting a few more one-off incoming amounts due to side hustles.

I got some money from one of my side hustles (private tutoring).

Lazy FI Mum sold some items that she no longer uses.

I also finally submitted the claims to our health insurance for the treatments I had (back pain) so they finally got paid back.

Another (permanent) income change is the raise that Lazy FI Mum got (proud of you!). Not really a one-off but still a change from last month.

One-off expenses

As I explained in this post, we pay for our daughter’s childcare every 3 months, we paid it this month. 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.

I also booked a flight to Israel for August (depending on COVID of course). It will be a very short visit and it is to attend a happy family event.

Another one-off expense we incurred in June 2021 was some legal fees for Lazy FI Mum’s visa (she does not have a UK passport).

June 2021 results- Net worth

In June 2021, our net worth increased by 6.60%. The 6.60% is made of 2 parts:

1. Our actual savings increased our net worth by 2.99%
2. Our investments went up in value, which increased our net worth by 3.61%

Mr Market once again shows us who’s the boss.

It’s kind of absurd if you think about it. The more we save and invest, the more control Mr Market has on our net worth compared to us. It seems that as we get closer to FI (Financial independence), we become more dependent on the market performance. Not sure if we’re becoming more dependent or less. The important thing is we become less dependent on our salaries.

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 June 2021, our net worth is 26.74% (May 2021:25.22%) of that number.

The 1.52% increase in our FI journey (as a percentage of our FI number) from 25.22% to 26.74% means a real (inflation-adjusted) increase of 6.02%** (26.74/25.22 – 1), which can be broken down into these two parts:

1. Our nominal net worth increased by 6.60% as mentioned above.
2. The CPIH index increased by 0.54%, which 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 because, despite a big increase in our net worth, I had to update my future savings based on our latest expenses, which were higher than usual. I only look at full (tax, April-April) years so it takes a lot to move a full year.

Well, that’s our June 2021 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 6.03% real net worth decrease but that’s due to rounding differences. 6.02% is our actual real net worth decrease for June 2021.