Thoughts on financial freedom and doing what you want

Having recently watched Annie, the musical, it struck me as to how out of one’s control life can be. Those made destitute by the Great Depression despite being skilled workers resonated. It would seem this shouldn’t happen and with the best of intentions cannot get back to normality.

It seems it situations like that, there is very little that can be done. Perhaps nowadays it would be easier to move to another country, but a global crisis would limit even this possibility. It just feels like it’s a wake-up call for everyone to do more of what they want, live your life now as things are not in your control and not to work to the exclusion of all else.

I’ve bumped into a number of people lately that say you cannot have time to spend time with their kids due to work committments. Things like making costumes, or attending children’s plays etc are not possible when working and also you have no alternative to working and getting them into private schools. I wonder if people assume they need to work in order to have nice things – there is a mismatch between wants and needs and this causes us to believe you have to work more. I’m pro gender equality, but I think children get a better upbringing with parents that are present. I want to be able to spend time with kids rather than being an ATM. If that requires less consumerism, so be it. Better than financial slavery tied to a desk.

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Financial update August 2016

It has been a while since the last update!

In the interim been through a few changes on the personal front. We’ve had some new beginnings on the earnings front as well as cutting out some long-standing big expenses.

Furthermore, a windfall from the sale of some businesses has resulted in a lump sum of additional capital that needed to be deployed. Together with currency volatility it has made for some interesting investments over the past 10 months.

Where are we now?

Well, in terms of net worth we have killed the home loan debt and no are sitting in the position of no debt on the balance sheet. However, we cannot really invest that capital so from a purely liquid capital point of view we’re sitting at around 21x average annuallised expenses and getting close to the major 25x. My chart as at August 2016 relative to my expenses now looks like this:

expenses-passive-income-2016-aug

passive income of 4% of investments versus monthly expenses

income_expenses-2016-aug

Rolling 12m average of income versus expenses

That purple line tracking my 4% theoretical withdrawal versus expenses is getting very close to my expenses now, and I reckon within 12 months will start to see the monthly red line dipping below it. Once the 12m average line starts to dip below the purple line in the second diagram then I know that it is official in terms of financial independence.

Then I’m definitely crossing that off of the bucket list. I then will make a call as to whether it is to start a new business, carry on and get more of a buffer/increase some expenses, or to just take a break for a while.

May 2015 net worth update (+0.40%) 15.65% ytd

We haven’t done an update for some time, in fact since November 2014, oops!

First of all, 2014 ended up being a reasonably good year with ~24% net worth growth in Rands, about 9.5% in US$. The difference? Rand currency and Dollar strength did not help the cause here.

Anyway, so far 2015 has been a good year, we’re up 15.6% YTD in Rands, ~11% in US$ so it’s been going well.

Onto the actual figures:

Assets: R5.7m (+13% ytd)

Cash: R400k

Property: R1.8m

Retirement annuity: R500k

Shares: R2.9m

Vehicles: R100k

Business investments: (not recorded)

Liabilities: R922k (-1% ytd)

Home loan: R884k

Tax: R38k

Net worth: R4.7m (+15.6% ytd)

On to what the individual accounts represent:

Cash

Primarily just cash sitting in savings accounts for planned expenditure for the house, or vacation. However, a decent chunk of this (bit more than half) is sitting in the share trading accounts as we rand-cost average recent cash received. I haven’t pulled the trigger as I still feel the share market is quite high, but it isn’t enough cash to justify buying a property or business. I will probably invest this over next 2-3 months, depending on what happens with additional cash coming in from side business ventures.

Property

This consists of our investment property (house) and our personal residence. Not much has changed here in ages. I grow these by small amounts each year from their original value, but they’re still tracking over 30% below current market prices, so it feels quite conservative.

Shares

Decent split between international shares and local shares. I’ve been steadily buying shares over past 10 years.

Vehicles

Two cars, 3-4 years old each now. I am writing these down to zero over 5 years.

Business investments

These are not recorded at a value. They may or may not pay off, but we did receive a reasonable amount of cash from them this year so far.

So overall it was a good month of May. Most of the growth this year has come from savings and cash received, growth has been approximately 1/3 from capital growth and 2/3 from savings/dividends.Next few months should be interesting as to whether we get some more cash from the business investments. Still on track to achieve the target of R5m by year end.

Net worth update November 2014 +5.04% (22.23% ytd)

November was a particularly good month in terms of performance as both the share markets recovered from the September and October slump and additional cash came in from the business venture. So overall the net worth target for the year was achieved (R4m), hopefully December continues to play ball from a markets perspective and doesn’t drag us back below the goal. Total net worth now at R4.04m ($365k).

So overall, due to the cash in from the business, savings for the month was at ~80%! and around 55% for the year to date so far of take-home income. So for the monthly increase, bit more than half related to additional savings and the rest from the improvement in the share market. The problem now is that we have a bit too much cash that hasn’t been invested – will look to put a decent amount of cash into local and international shares in the coming weeks before year-end.

 

 

 

October net worth update (-0.03% month) 16.36% ytd

October was an interesting month, we had a continued pull back in the share markets that offset any additional cash placed into savings. Overall savings rate for the month was ~45% of take home pay. Net worth target for the full year still on track with two months to go with a potential cash dividend coming from the business to assist with achieving the goal before year end.

If the market continues to fall will look at acquiring more shares than just the normal monthly investment.

Net worth update August 2014 (+0.76%) 16.30% YTD

Most of the return for August was driven through contributions to RAs and share investment accounts. August savings rate was lower than prior months at ~25% of take home pay. This was primarily due to pre-purchasing a few items for year-end at decent discount rates (around 50% off on travel fees), so my savings rate will pop back up for the rest of the year. For the year to date, savings still at 50% of take home pay. Goals are still on track for the full year, it will be good to reach a 20%  growth in net worth by year end. With quite a significant portion of wealth now stock-market linked, it could be a bit bumpy.

In terms of discounts for year-end, it seems in SA you can get very good deals if you plan and shop around. The only problem is my wallet is getting too fat with all these loyalty cards. Hopefully the iPhone 6 will make NFC payments a reality in the US, then in a few years we’ll be using our phone or back to a single card for everything again.

August wasn’t an exciting month for dividends, especially after the bumper one in July.

I have some cash that is building up from the savings and not too keen about any investment ideas at the moment. Stock market is still high (locally and offshore) so not too fond about putting my savings every month in there, but am still doing my quarterly investment for cost-averaging. Haven’t bought the JSE for quite some time, and am currently just managing my offshore exposure with my contributions. Anyway at least trying to automatically invest every quarter and not think too much about it. Am getting close to my target allocation – quite excited to start looking at property or fixed interest again, especially once interest rates have gone up a bit more, maybe we’ll even have a stock market correction… Anyway, for now am just staying with target asset allocation and saving as much as possible – time will do the rest.

Net worth update July 2014 (+2.67%) 15.43% YTD

 

July was a good month – total net worth grew to R3.8m ($360k). Still on track for the R4m target by year end.

Growth this month came from some cash back on tax return filing, savings towards shares and RAs – this pushed our savings rate to just under 65% this month. There was little growth in the market value of existing shares in July and the exchange rates were mostly flat.

Have managed to increase savings for the future due to finally switching to Discovery Insure and its excellent 50% cash back on fuel expenditure from BP (capped based on their points system, go read about it on their site if interested). So that’ll probably drop our expenses by a further R600 ($55) per month with the aim of increasing this over time.

Also, made some changes on life policies to reduce the monthly expenses here slightly and hopefully switching to annual cash back rather than every 5 years. Based on our Discovery Vitality status we could get back to 50% of our premiums which always helps.