theFIREstarter

No fluffy intro needed here, we have a lot to cover so let’s cut straight to the chase! 🙂

This is the first part of (hopefully) a two part series in which we are going to be putting 5 different categories of financial performance under the microscope today, which are: expenses, income, savings rate, investments and net worth increase ¹. In each category I will be looking at averages where necessary, along with comparisons to last year or some other baseline where figures for last year are not available. Vamos!

expenses

The most important category deservedly comes first in part (i) and we’ll look at the other lot in detail in part (ii). It doesn’t matter if you are earning a six figure salary, if your expenses are not under control you will never reach Financial Independence!

Unfortunately I don’t have the full figures for 2014 so can’t do a year on year comparison, so instead we’ll be comparing that to the budget that I set out here nearer the start of the year. A non scientific comparison of the £24,375 we spent in 6 months (!!!) in the arse end of 2014, compared to the £36,792 we spent in 12 months in 2015 reveals that in all likelihood we spent a lot less this year!

Let’s start off, as I did in the budget post, with the overview. As usual I provide the table plus some numbered notes for my comments below…

1. Perhaps unsurprisingly we overshot the fun stuff budget by quite a margin! Find out exactly where in the more detailed breakdown below
2. Getting some green on the board somewhere feels good, even though it doesn’t cancel out the first line
3. OK so we are “under budget” for the bathroom refit, but realistically have a few more bits to buy so it will probably come in slightly higher than this figure
4. It’s probably worth pointing out that the original budget included £6,500 for an Air Source Heat Pump ² which we never ended up buying, and £1,000 for a mini Kitchen refurb which is still happening but I never got round to doing it. So I took those items “off the budget” so to speak, so the comparison is fair (otherwise we’d have come in about 6 grand under budget which would have totally been cheating!)
5. I thought I would include the yearly figures broken down into monthly averages
6. I think the interesting thing here is that £149.98 per month over budget doesn’t sound all that much, but that is nearly 2 grand a year when you add it all up. Imagine if our budget was based on what we were earning and we were in the red by this much per month. It is easy to see how bad budgeting can lead to debt spiralling out of control!

So on the top line figures, I think we did OK but as always definitely could have done a lot better.

I really like the idea of eventually trying to live tax free and we are not that far off of the £34K figure that we would (theoretically) be able to pull in from various investments and part time work to live off of that, and that is including a mortgage and doing some pretty large scale home improvements. I think this years budget will be largely based on hitting that £34K figure, for want of a better target.

Right, now let’s break it down and see where we passed and where we failed!

the boring stuff

This includes mortgages, bills, food and so on… Stuff we’d be hard pressed to get by without basically and so if the sh1t really hit the fan this could theoretically be our properly stripped down, most basic of basic budgets.

As shown above the total for this section was £19,695 and, interestingly if we’d have led the spartan lifestyle and not spent any money on anything else, this would have led us to achieve a 72.4% savings rate which would catapult us FI in just 6.26 years from this point in our journey. I think we’d all agree that is really rather chicken oriental when you think about it.

Quickly back to the real world, here is the breakdown… 🙂

1. Not sure how I managed to get that one wrong!? We’ll call it a rounding error 🙂
2. I was basing that off our old flats council tax (not sure why). The house is slightly more
3. The winter has been kind to us this year, I can see this being slightly higher in ’16 but not by much
4. Considering we actually bought a new car this year I am pretty happy we only blew this budget by the £300. It was no doubt helped out by me having a crack at a few repairs myself
5. Cost more due to consolidating buildings and contents. This year should be back down to around the £100 mark
6. Going to look at transferring this to a cheaper provider now we’re out of the minimum BT contract
7. I totally forgot I actually budgeted £250/month on Groceries! I was always aiming for £200, so I thought we’d blown that category but in fact squeaked in under what I originally budgeted for at £248/month. This is a neat psychological trick which I may employ this year. Say budget for £220 but aim for £190 or something like that. It could work across many categories and not just Groceries of course!
8. Will budget this lower this year as Mrs T is on a decent contract now
9. Nice to come in under on this one, although no doubt helped out by plummeting oil prices!
10. Probably the worst offender for a mis-budget on this section. Noted for this year!
11. Outside of the garden and bathroom projects we haven’t really done much to the house (and luckily not much has broken) so I was way out on this one. I will probably drop it to £50/month this year so £600 per year in total and see how we get on, considering I’ll factor in the kitchen refurb as a separate item.
12. Grand Total is green! Whoop! Although this in entirely down to a mis-budget on the Home maintenance, so I won’t get too excited but the real win for me is that that I’ve got a fairly good handle on what our regular outgoings are and have budgeted accordingly.

the fun stuff

Uh oh… lot’s of red on this one as we shall see…

The big takeaway here is that I just didn’t budget for many spending categories, which was a bit dense really! I didn’t even have a catch all “miscellaneous” category which would have been prudent given this was the first proper year I did a budget and tracked everything. The plus point is that it’s an easy lesson to learn and now I have more data then I would hope that “Budget 2016” is far more realistic.

Here’s how it all breaks down with some more notes:

1. Clothes – On one hand this looks like not a great effort from Mrs T on reining back the clothes spend but considering it was £1,191 in just 6 months in 2014 then it is still a pretty big cut. I’m certain I made this budget without involving Mrs T all that much either which was a bit unfair, so I will definitely involve her more this year. You can’t run a 2 person budget properly without both partners being fully involved, it takes two to tango as they say! As a great example of this, I just added up all of my budgeted items and all of hers. Mine came to £5,960 and hers came to £5,692. Not only was this slightly unfair, both of those figures are under the £6,000 per year we gave ourselves as a target spend in our spending challenge, so the figures didn’t add up ³. This year I will make sure the budgeted amounts for the fun stuff tally up with our spending challenge targets, at the very least!
2. Hair cuts and pampering – Mrs T has drastically cut back on this category this year, so kudos where it’s due! (£916 for haircuts and personal care in just 6 months in 2014 (!!!) compared to £570 for the whole year in 2015)
3. Charity – One area where it’s ok to blow your budget IMO 🙂 ! I will be looking to increase this again in 2016 though.
4. Medication – And so starts the one of many areas where I just didn’t even budget in a cost for. Yes, medication is certainly not “fun stuff” so is possibly in the wrong section but it was not budgeted for anywhere. As you can see anywhere where the budgeted column is “£0.00” means that I have completely overlooked that area of spending, and there are quite a few of them. What a dolt! Did I really think we’d get through a whole year without getting ill!? 😀
5. Admin/Postage – This is mainly posting stuff off we sold on eBay so ultimately would have been making us money, but it’s still an expense so needs to be accounted for.
6. Gifts Other – Again I just didn’t account for this. And it’s quite a large category! We had only one wedding this year but many, many babies have been born plus a few big wedding anniversaries for our parents. So I guess it was a bit of an outlier year and this year should be a bit less. We also came in well under budget on birthday presents so I am thinking a few of those may have just got tagged up under this category.
7. Christmas presents – Woefully underestimated this one! D’oh!
8. Booze/Cruises – We didn’t actually go on any booze cruises ourself this year but put in a few orders for others. Also includes random alcohol bought from boring old British shops.
9. Gambling/Gaming – Seems a bit harsh including this as I know I made more than this on gambling over the course of the year, but that will be included on the income side of the equation so it will all balance out. We stopped doing the lottery around October time as well, and I am going to have another look at the matched betting front in 2016, so I am confident this category will be zero this year (actually it will be a net positive due to matched betting profits but again, no need for it to be budgeted as an expense)
10. Music – Seriously considering going with Spotify ⁴ which is £120/year for all your music needs, at least the cost will be fixed then. Our car stereo has bluetooth so we can just stream all music from our phone and we have bluetooth speakers at home to do the same.
11. Cash – Bah. Basically untagged spend. This goes into the ether and we will never know what it got spent on (So basically it means pointless crap!)
12. Takeaway – Probably works out as 1 takeaway per month on average, which doesn’t seem so bad!
13. Children – One category I can be forgiven for not foreseeing expenses on, I think! 🙂
14. Sub Total – So you can see this is the section where we fell down but it was mainly due to me missing out whole swathes of expense categories.
15. Going out/Golf – We came in under on going out and I came in under on golf. I will probably trim the budget for both this year as I will be playing more golf in the week (which is cheaper), when I can, and due to the baby coming we won’t be going out and getting smashed every weekend, that’s for certain! Whatever I trim from these sort of things will no doubt get ported straight over to the baby category though!
16. Holidays – We didn’t end up going to Dublin for our anniversary but we did loads of other short breaks instead (such as the FIRE Escapes!) which near enough balanced themselves out for the holidays category. We plan no foreign trips this year but will do lot’s of mini breaks over here again, and so overall will be looking to trim this category for 2016.
17. Grand Total – And so there you have it, we bust the budget by over 2 grand on the fun stuff! Whoops! I have full confidence I can budget better in 2016, and our frugal muscles have started to flex now rather than being the limp flabby versions of themselves at the start of 2015.

final words

Well it may well have been boring for you lot but I feel like I’ve learned a hell of lot by doing this process 🙂

I feel like next years budget will be a lot more accurate and (hopefully) will be a tad less than this years. I will publish a new budget some time near the end of this month.

At the very least I hope I’ve given you a laugh and/or a cheap thrill of voyeurism into our spending habits, something to compare against etc…!

Who else has a yearly review of their finances out there?

Are there any other “metrics” that I’ve missed off that you’d like to see in future? Let me know!