Why you can’t always bank the increase in your salary

Over the last couple of years I’ve read a lot on the FI approach. I mean… a LOT! There is always a constant challenge of reducing expenses and increasing earnings. I went for increasing my earnings, but not by a side hustle, but by investing in myself.

I’ve put in the work, learnt stuff, pushed to go on courses and get professional qualifications and built up as much as I can to be an expert in my field (non financial services before you ask). This has meant that over the years my salary has continued to trend upwards which has been great, although I haven’t done so well at keeping my lifestyle inflation in check.

A lot of what I have read out there is as soon as the pay rise comes in, it’s immediately banked into the savings collection somewhere. I have even done that myself over the last few years which is helping, but I have found there are challenges in banking 100% of any increases. I am fully expecting a whole bunch of comments (assuming people still visit!) rubbishing this post and saying of course you can bank it all, but it’s simply not my experience, and I will explain why. I could argue that this is investing in myself for all of them, and to a degree this is true, but it is what it is.

One of the key things for me is networking – basically going down to the pub / coffee shop / a meal out etc. with current and former colleagues and friends you know and catching up. It may seem odd that you end up spending a few rounds of beer, and nothing much happens, however you never know. I haven’t had to look for a job in years, they have all come via my contacts, so in a sense it works very well compared to the effort of updating a CV, dealing with headhunters etc.

On a reasonably regular basis then I often find myself stumping up some cash for a round or three with people, but it is worth it. If you are just starting out in the work, and your aim is more career than side hustles, the one piece of advice I will give is this…. Network. Network, network network. People get to know you, and you become front of mind for things. I’ll do a whole post on networking at some point!

The second challenge is the inevitable team drinks. It is not only expected that I will go out with the teams, but that I will also always buy the first round, regardless of if I can expense it or not as a thank you for the team and the work they have done. You always expect the most senior person to pick up the tab, and these days that is normally me. It’s great if I can put things on my reward credit cards as I get something back, but there are things I can’t claim back (e.g. a tip) and sometimes not even the round of drinks, it comes out of my own pocket. As such, especially in a fast paced environment, compared to years ago, I couldn’t bank everything.

Sure – I could not go or not buy the first round, but that would impact on me professionally. You get far more out of people if you can build that relationship, reward them for the work they have done. I do know people who take the approach of not ever going out, but then you find people won’t want to work for that person or be part of their team, it makes it much harder for the day job.

Have you been able to bank all of every pay rise you have received?

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Aug ’17 – Go T’ Pub Performance

So some have you may have noticed that it has been a little quiet here of late – things have been very busy with both family and work going on, hence the lack of posts. I am a little disappointed with myself on this as I do want to keep a volume of posts up, and even have some almost ready to post, but time just doesn’t allow. With multiple work and networking evenings leaves less than enough time to sleep let alone anything else.

Anyway, enough of the excuses… on with the show!

For the full details over all of the portfolios as a summary please refer to the full month end report – this is specifically looking at what has happened on the Go T’ Pub portfolio only.

So the key bullet points for this month:

• New Funds added. As always, the regular contribution of £1,100 has gone in
• This month the VWRL generated no dividends, so no income to help me through. However, the CTY kicked out a dividend of 4.3p per share, or a total of £51.72
• No withdrawal was made.
• Left over cash is ambiguous at present (see below)

Overall performance: The starting value was £8,448.30, with £1,100 in new funds added, and £0 withdrawals, meaning total starting value was £9,548.30. We finished the month on £9,664.77, so the total performance across the whole portfolio was 1.22%.

VWRL ETF

So, no extra funds added, but meant that I added in another 18 units – giving me a total of 73 units there now. The average price now paid for each unit is £60.44 – slightly higher than last month. Despite all the noise over the last few months, the grand difference of price paid over time has hardly changed much, showing that for all the up and down noise over the months, it really doesn’t make a lot of difference.

So, how does that make the pretty picture of contributions vs. value look?

So for the first time the value of my purchases are worth slightly more than my contributions – which includes the cost of the transactions, so not too bad. It will only take one minor blip in the market for things to reduce. Despite all of this, still in not a bad position with a good chunk of change there. If I use my “bag of fag packet” numbers, £4.5k should be just over £10 a month already. I wait to see what the dividends do.

Cash vs. Investment Trust

So now the fun part, the cash vs. stocks for the emergency fund. Remember… you really SHOULD NOT DO THIS. I can’t say that enough. I have a higher risk tolerance than most in some sense, but it is not something you should do.

So, how is it looking?

Cash	Now stands at £5,127.02
S&S ISA IT	Now stands at £5,148.84*

* This excludes the income from the dividend as it came on the last day of the month

So stocks are slightly ahead (excluding dividend), as we can see from the pretty picture below

So why did I not include the dividends? I have dividend auto investment turned on, so the funds will buy some more CTY shares during September, and at that point it will come into its own.

So the cash ISA gave 4p of interest in a month, the stocks over £16 (averaged per month for the previous quarter) which shows the difference of the returns for stocks compared to cash. Having said that – I need stocks to be much higher than cash so that I can cope with a crash should I need to sell for the cash.

Conclusion

Overall nothing of much interest going on here – the CTY I just forget about. It’s there, Selftrade automatically reinvest the dividends, and so it just ticks along doing what it will. The VWRL keeps getting topped up each month and so helps growing my overall total net worth / retirement levels.

One very positive side I have found is more psychological. To date I have been fanatical about tracking things, and trying to outperform, to the extent I check my portfolio as often as I can (read a minimum of once a day). Now, with the GTP ISA I really don’t. It doesn’t matter what the markets are doing I am matching it, so I can fire and forget. I really can’t express just how great a feeling this is. Yes, I have had some out sized returns in my other ISA, but at the same time I have had some massive drops as well. Using the VWRL means that I just don’t care – bliss!

August ’17 Performance

So the month has ended, and so its time to take stock of the performance across my portfolio, and compare it to the usual index of choice. This enables me to see how I am doing. As I covered in my “How I measure performance” – basically I take the value of the portfolio at the end of last month, add on any contributions for the month, and that was my starting value. End value is the value at the end of the reporting period. Simples 🙂

Portfolio	Performance	Notes
Company Pension	0.86%	No income generated as all funds are in growth or reinvested
Personal Pension	0.02%	No income generated as all funds are in growth or reinvested
ISA 1	-0.1%	No income generated as all funds are in growth or reinvested
ISA 2	-0.01%	The performance does not include the income that was paid out into my account, but is covered by the income so really need to consider both in conjunction
ISA 3	1.32%	Although dividends are paid out, they remain in the ISA wrapper, and will get reinvested for growth. The performance figure includes both the Capital growth, and also income received which will get reinvested. The Income is the %age paid out by the portfolio but remains inside the wrapper to buy more goodies
ISA 4	1.22%	Just tracking along
FTSE-100	0.8%	This excludes any dividends
FTSE-250	0.11%	This excludes any dividends
FTSE-All	0.66%	This excludes any dividends
S&P500	-0.19%	This excludes any dividends
Dow Jones	0.04%	This excludes any dividends
VWRL	2.58%
VHYL	2.49%
GBP/USD	-0.93%

So what surprised me most here was the jump in the VHYL and VWRL – but then when you look at the drop in the pound that explains a lot of it!

The disparity between VWRL and the tracker ISA (#4) I put down to the fact that I am still putting in a huge percentage of the portfolio in cash each month so will take some time to track closely together, but the main thing is…. they are going up in value!

It also seems that my IFA is better with larger pots given the difference, however my other half’s ISA is still having considerable contributions being added which distorts the performance.

Overall, total values are continuing upwards and at a reasonable rate overall, so I am happy.

Notes:

Company Pension: This consists of a number of actively managed funds – I don’t have any choice of trackers etc, but I will take the matching, that will more than cover the fees, and I will just live with it.

Personal Pension: This is managed by my FA and contains Actively Managed funds. I continue to contribute each month and the contribution is included in the performance – before my FA has taken their cut (e.g. if I put in £100, and they charged me £5, so only £95 went into the account, I would still class that as £100).

ISA 1: This is also managed by my FA, but no new contributions going in (nor planned).

ISA 2: This is also managed by my FA, however its slightly more complicated than that. There are 3 sub portfolios within, each of which have funds added each month, but each portfolio has different levels of contribution.

ISA 3: This is the ISA I manage myself. The last contributions added to it will be this tax year, 2016 – 2017 until some of my other ISAs  have grown to a similar size

ISA 4: This is the Go T’ Pub ISA

Aug ’17 Income and Expenses

So it’s that time of the month yet again – how time flies! It’s taken me a bit longer this month with everything going on, but better late than never! So how was August? Well this leaves me in a very interesting place I have to be honest, so this is going to be a similar duplicate statement!

Firstly, August’s pay cheque (at the end of the month) included the reworks from the HMRC changes, however for this post, the money I had to spend in August came from July’s pay cheque, so it won’t feature in this month. Why the confusion? I always have my pay cheque covering my next months expenses so that will be commented on next month. However the difference against my normal income has just been shifted into savings so it really doesn’t make that much difference.

Secondly, some home improvements I mentioned here. We had to pay a significant deposit (70%) of the total cost (roughly) so this is going to have a major impact on the finances. Now as the money for this came out of cash accounts, this doesn’t impact my retirement plans at all – I just need to up my savings rate to restock the cash reserves!

This does leave me with a little bit of a dilemma as to how I should track and report this – should I ignore the cash expense as it won’t affect my retirement planning? If I do that then I can’t claim the extra savings I will be trying to make to restock the savings. Would I have spent this money if I were retired? No I would have saved up to get it first – so to assume that this is normal spending also isn’t really fair.

In the end, I will be tracking it as I had spent the total. Worst case is if I have to spend that every 4 or 5 years on home improvements then it is factored in, and if I don’t – we can have a really rather nice holiday!

Income

So as always I had my steady Salary drop into my bank account, always nice.  I don’t include any of my personal ISA dividends in my income statement, that’s just part of the growth of those portfolios. The income thrown off by my other half is included. A little bit of a pain, but the rolling 3 month average from it still continues to tick up – for tracking I am going to change this to 12 month rolling to even out any blips. Going forwards this will be restocking my cash reserves rather than paying down the mortgage, but either way still savings in one form or another.

So, steady as she goes on income – very slowly creeping up.

Expenses

So – expenses take 1. This is what the month would have been like had we not had the large deposit to pay.

Item	Notes	Amount
Things I choose not to avoid*	Mortgage, Insurance, shared bills etc. – yes, we could move somewhere cheaper, not have insurance, reduce our bills a bit and so on, but we are where we are.	41%
Groceries	All the food and other stuff needed for home	3%
Alcohol for home	Home alcohol consumption only	4%
Bicycles / Car related	Any costs related to either the bikes or the car	0%
Alcohol Out	Generally, its the pub….	3%
Eating Out	I include purchased lunches in this as well as meals out etc.	1%
Other	My catch all for anything I may have missed….	6%
Holidays	Any spending related to holidays, flights etc.	0%
Savings	Anything left over! This includes money into ISAs, mortgage payments and non relief pension contributions. My company pension comes out before it hits my bank account so isn’t included, nor do I include the “top up” of money when my money goes into my personal pension (i.e. I put in £100, I register it as £100, not the £125 that gets credited in my pension)	42%

 

* This covers a number of things that I would class as essential for me. Yes, I could move to somewhere cheaper to reduce the mortgage (which in turn would reduce the insurance I have to pay), yes I could reduce my bills by switching energy supplier etc. but it comes down to what I am happy with. There are a few other things in there that are classified as essential that others may object, and so I have just lumped it into there.

Digging in

So, what to make of all of this? Not much to be honest – I spent far too much on alcohol this month but then there were some offers on at Majestic again so it would have been rude not to 🙂

The other was a little high, but that is explained by some direct payment for the home improvements, and also I needed some new work shirts, and there was an offer on TM Lewin non iron shirts, so I bought some! I am slowly trying to replace my normal shirts with non iron to save on time and effort. Lets face it, by the time I have got into work after walking and train rides, they are never going to be pristine!

So – a savings rate of 41%. Now the big question – what does this look like if I take into account the home improvement budget?

Well, then my savings rate falls to -35%. Despite the ouch – I still contributed money into the market – my ISA, my other half’s ISA, my company pension and my private pension so they continue to tick up. I now need to knuckle down and get that savings rate over 50% to start repairing the cash balance!

So my official declared savings rate will be -35% 😦

How was your August?