It’s that time of the month where I disclose my finances to you in full and update you on my progress towards achieving financial independence and early retirement.
Still some big changes and sums of money shifting around while we go through the process of exchanging on our new house and selling our current home.
As you go through, you’ll see snapshots of the spreadsheet I use to track my finances. Everything you’ll see is from the same spreadsheet that I personally built and formatted to work specifically to help me get out of debt, track my spending, assets, debts and net worth AND calculate when I could retire based on my savings, allowing me to plan my early retirement.
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Lets get stuck in, shall we?!
Expenses for August
Living costs and Luxuries dropped by around £200 vs July’s report , which is great! Also, expected as my wife is currently on extended maternity leave without pay. So we’ve cut back significantly.
It’s been a good test of how frugal and stringent we can be with money when absolutely necessary.
Although, our 10-month-old daughter’s clothes are getting a bit tight now…
STILL riding that free internet wave that came as a result of my frugal super-win you can read about here.
Fortunately, no vet bills this month either 😅
For this tab, I basically take what my current expenses are from the previous tab and extrapolate out into this one based on what I think retirement will look like for my wife and I.
In summary, I’ve removed out mortgage and other debts, as we fully intend to be mortgage free during retirement.
I’ve also added on huge allowances for things like eating out, holidays and just making sure we have pocket money to do the things we want every month.
Moving to the right of the image, I’ve numbered the cells that I wanted to dive into in a bit more detail:
- This is the sum of the total yearly expenses for both my wife and I.
- I’ve then multiplied this by 1.25 to get a rough estimation for the combined, pre-tax income we’ll need in retirement to cover these yearly expenses.
- This is the pre-tax income required, divided between the two of us.
- I then multiply this by 25 to obtain my FI number which is my ‘perpetual money making machine’ (see The Trinity Study). This is the lump sum I need to have saved before I can retire. It will allow me to draw down 4% each year without ever running out of money.
- 4% of the FI number, which magically equals the number from point 3 🤯
So a couple of points, in case you were wondering:
Firstly, why am I accounting for only my FI number, rather than putting everything together in one spreadsheet and plan.
The reason is, my wife is a medical professional in the NHS in England and this institution has one of the last remaining great pensions schemes, which will be based on her average earnings over the course of her entire career.
We know for a fact that her pension income will be more than enough to cover ‘her half’, if you want to call it that.
There is the small issue that the she cannot access her pension before 55 without it impacting the amount she receives. However, her job is her passion and she wants to continue doing it for as long as she’s physically able.
The plan will be for her to reduce her house significantly at some point after I retire to give us the time we want to have together.
Secondly, you might be wondering how I can possibly withdraw over £25K per year without ever running out of money.
I’ve gone to a compound interest calculator online and input the numbers from my spreadsheet: My starting balance (FI numer), the compounding rate of 7% (my pot of cash will be invested in the markets across equities and bonds. 7% is the worst possible case growth rate average out over the retirement period. Markets usually see normalised growth of 9-12% and above), the calculation period (assumes I’ll retire at 45ish and live another 45 years), and lastly, my monthy withdrawals (4% withdrawal rate divided by the 12 months of the year).
Ready to have your mind blown?
This is what will happen to my money:
I’ll end up with nearly £6 MILLION, despite withdrawing nearly £26K per year!
Why don’t I live like a king and give myself a huge raise in retiremenet?
Because obviously I can’t predict what will happen in the markets during those 45 years.
As we know, things can get pretty crazy sometimes. So, this accounts for those years where I’ll be withdrawing from my fund even thought the markets are down 20, 30 or 40%.
But it goes both ways! If the markets consistently grow 12-15% for 3 years in the row, I may well give myself a pay rise, if I feel we need it!
This is means we can pass on a true legacy and ultimate financial freedom to our daughter!
This is how I’ve calculated the age at which I can retire.
I update it every month to ensure it’s accurate and accounts for when my portfolio is up, as well as down. This is to ensure I don’t retire too early, or worsae, work longer than I have to 😬
- Is the estimated value of my workplace pension at 57. This is the earliest point at which I can legally access this money. Which is a pain in the ass if you want to retire earlier than this, like I do!
- This is the estimated value of my personal investments, which are made within a tax-free wrapper called and ISA. This is what I’ll be reliant on to fill the gap between the age at which I wish to retire and when I get access to my workplace pension. I haven’t accounted for the state pension here, because god only knows if that will still be around by the time I get to 67.
- I needed to make sure the pot of cash in my ISA would cover me until I get access to my workplace pension at 57 and also leave enough of a remaining balance that the sum of this pot, plus my workplace pension still equals my FI number. So, number 3 is the outstanding balance at 57 if I begin taking withdrawals at 48 (9 years).
- I’m currently assuming I’ll have no additional income in retirement, but I’m working on a plan to make this happen!
- This is the total of my workplace pension at 57, plus my ISA after 9 years of withdrawals. IMPORTANT to note, I’ve also factored in that I’ll obviously stop contributing to my workplace pension at 48 and leave the final amount to continue growing until I can access it. The figure in number 1 accounts for this, which I calculated using the same compound interest calculator.
- This tells me the income I can draw down based on 4% of my resulting sum of cash pots. Of course, this is more than I actually need, which is great!
But I’m not getting ahead of myself. If this is still true as I approach retirement, I’ll consider this a tasty bonus! Maybe even retire a year or two earlier. But for now, I need to ride this out and see what happens after a few major market crashes and corrections.
Hopefully tat’s given you a bit more insight into how to calculate this for yourself.
The spreadsheet you see is available with my ebook if you want to check that out.
Needless to say I am VERY happy with the trend of this graph!
We have been a bit naughty with our regular savings towards our emergency fund and car maintenance fund though…
As we approach the exchange of contracts on our new house, and with my wife on extended, unpaid maternity leave, we’ve had to skip saving into these pots this month to ensure we can cover the costs associated with our move.
We plan to top these up in October, when my wife is paid again to bring them back to where they should be. Purely a temporary cash flow issue. It’ll save us having to borrow money when we don’t actually need to.
The little table you see on the right-hand-side is just to give me an idea of what my yearly income would be if I were to retire right now.
Nice to see this jumping quite significantly each month!
Equity & Assets
No major change on this for this month, other than a slight increase in equity after another monthly payment on our mortgage.
We’ve actually had to move onto a tracker mortgage temporarily, as we’ll essentially be paying the entire mortgage off on this house when we move. This allows us to avoid any over-payment fee’s.
Luckily our move coincided with when our fixed rate period ended, so we could do this quite easily.
Still moving down!
Although, when we move into our new home, this will jump rather significantly!
It won’t look great, but we still have a plan to over-pay!
Back to moving in an upward trajectory after a tiny blip last month when we sold our house for £2,500 under the max. market value.
This is an increase in net-worth of £24,604.88 in 7 months!
I’m VERY happy with that.
That brings me to the end of this months report!
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