So it seems traditional that at this time of year people take the time out to look back over the last year, assess where they are and look to make some New Years resolutions that they can break within the next month or two 🙂 For me, I don’t do resolutions at this time of year, after all why wait for one specific date to try and make changes to your life – surely it is better to constantly review and look for ways to improve it?
So, 2016 is the first year that I have a complete track of every single penny I spent over the course of a year (I started tracking mid / late 2015), and so this is the first opportunity to take a look back on costs over a full 12 month period.
Unlike most people I seem to be one of the few who is not fussed about New Year – I don’t make resolutions, I don’t do my years performance etc. now. I enjoy the extra time off but that is it, my new year I try to coincide with the tax year end for simplicity as it also keeps me focused on trying to optimise my taxes!
What I have taken from 2016.
So 2016 has been a challenging year personally, but I am taking this gap in work to look back on the year, the changes and challenges and to give me some practice time before my official new year starts! From a financial point of view it was a very good year indeed with some great performance, and starting to reap the rewards of investments that were sown some years ago. I know 2017 won’t live up to this year on that side as I haven’t had the available cash to invest (ok, I chose to spend it instead, not the point… honest!). From a personal point of view and very bluntly, 2017 can’t be any worse than 2016 🙂
So what are some of the key lessons I have taken away from this year?
Lesson 1: Tracking your expenses isn’t that hard.
So for over a year now I have tracked, to the last penny, everything I have spent. I’ve read a lot about tools that the US bloggers use to connect into bank accounts and visa cards etc. to track, but I wouldn’t trust them – the thought of something that can access all of my financial records? No thanks! I am also not sure they are even available here in the UK.
The most important thing is to get into the habit. Having now done it for so long it’s become easy – I get a receipt for everything, or email myself when I have spent or make a note. The trick for me is to not wait until the end of the month and try to do it in one go. I have a lovely spreadsheet to track all of my expenses, with the categories highlighted, automatic total calculations (and yes a pie chart to see where the money goes), as well as a countdown that shoes how much money is left to the month end, and what my predicted savings rate is. It also calculates how much money I therefore have per day. It really focuses the mind when you see you have say less than £3 per day to live on, or that you predicted savings rate drops every time you buy food. Go out for a few beers? £20 spent for a good evening, but it goes into the spreadsheet, my “Alcohol out” total ticks up, and my available to month end cell ticks down.
I do use a credit card for a lot of purchases, simply for the rewards, however I either transfer the money straight onto the account, or into another savings account specifically for the purpose of paying off the visa bill. This way the money is out of sight, out of mind and no nasty surprise at the end of the month when Mr. V. Bill lands at my door.
Lesson 2: Expect the unexpected.
I’ve always been used to having something come up that has caused me to spend more money than I expected in a month, and I always used to view it as a one off. Since tracking my expenses it has become clear that every month there is some form of one off. The problem is that this knocks down what I can put into savings as I then spend it on something else. Not only does this show the need for an Emergency Fund, but also by tracking I now have captured some of the one off expenses I may have “forgotten” about. This means I can also predict my expenses next year more accurately. I won’t change my budgeting approach, but does mean that I make sure things are setup and things I hadn’t thought about before. Having tracked for over a year there should be no unexpected bills or such like (other than maybe car maintenance etc.) that form part of the “normal” so it should truly be unexpected things.
Lesson 3: Never underestimate growth – but don’t bank on it!
According to my totals from the end of the last tax year, I have smashed where I thought I would be with another 3 months still to go. This is also despite having made lower contributions than my forecasts said I would and yet both my net worth and my dividends have grown this year way ahead of my expectations. I look at the dividends that have been paid out over the last year and it is also way over what I had expected. I don’t expect a repeat of this next year simply because I have not put much into my ISA this year, so I know I will be disappointed next year.
It’s not a steady increase as has been shown many times before, and in past years I have been hit with dividend cuts so I know its fickle, and that is where world trackers and ETFs will reduce your risk and make life less complicated.
Although I think that my target date in 2025 is still highly unlikely, the growth of both capital and dividends over the last 12 months does make me think that maybe, just maybe, it will work….
Lesson 4: I spent HOW MUCH?!?!
Having now tracked my expenses for the last 12 month, I can see in cold hard excel cells just how much I have spent across each area. I won’t go through every single item, but I will highlight a few things.
Expense 1: Mortgage. Not surprisingly in London the mortgage was the single biggest expense over the last 12 months. We aren’t moving any time soon, and the mortgage renewal isn’t up for a while so right now I will just keep chipping away at it in small amounts. Every £4 extra I pay off the mortgage saves me 1p a month in interest charges. I know a lot of people would just view this and probably not bother to change their habit or pay off, but that’s 1p of extra capital that is then being repaid. To date almost 1 year has been knocked off the mortgage term and this is just going to keep going down – the debt snowball reduction is starting to pay off. Never dismiss even the smallest amount.
Expense 2: Holidays. Ok, so this was an expensive year on holidays, but I do enjoy my holidays, and we had quite a few including some very special and memorable ones. Holiday’s are also one of the very few times I can switch off from work and everyday life – so it’s a great way to recharge the batteries. It also acts to remind me why I want to be FI – being able to do what you want when you want is a wonderful feeling. I don’t expect to spend anywhere near the same amount next year (partly the majority of the ski trip has already been paid for) so this should help boost the savings rate.
Expense 3: Alcohol. This was actually lower than I was expecting it to be given the year however it is still pretty high. It’s not healthy to drink too much too regularly but I know I wouldn’t cope not drinking, it’s part of my lifestyle! Seeing just how much I spent on booze was sobering (excuse the pun, I couldn’t resist!) – this could add further to the FIRE pile, however I know I can’t cut this completely, so see dry run 2 below!
As I have said before, I don’t do New Year’s resolutions, however I will use the next 3 months as ground work for the new tax year. This is a useful way to prepare and get setup for success for the new tax year. In particular this is going to help me get ready for the Go T’ Pub ISA that I want to run next year – this year not one month since April would I have been able to put in what I want to, so that is not a good start. A steep hill to climb.
Dry run 1: Savings. Each month I will aim to put into my current ISA the same amount that I plan to put into the Go T’ Pub ISA and see if it is realistic. With some holiday booked and a few other challenges I am already aware of this being a real challenge, but its important to setup for success as best I can. If it is unrealistic now, then I will start with a lower amount and if there is extra add it in. Not ideal, I would prefer to push hard to put the maximum I can in, but I want to be realistic.
Dry run 2: Reduce my alcohol expenses. This needs to average out over the months, as I tend to buy when the offers are on so it comes in peaks and troughs. I am going to aim to reduce my “Alcohol at home” budget by 25%. This really is going to be a challenge as the whisky collection has been hit hard over the Christmas break and so I do need to buy some more soon(ish) which will hurt.
Dry run 3: Reduce my “Other” expenses. This is going to be a lot tougher one as these really are other things (e.g. the Weekend FT, a taxi home from town etc.). There was a large one off expense in this category this year which won’t be repeated so this is a little bit of a cheat, but you never know what the future holds, so I will still focus on reducing this.
How about you? How was your 2016? Have you put in place your New Years resolutions, and if so, why do you do them now rather than around the tax year 🙂