Q3 2018 Update: 58.5% FI progress

Savings (~3.3 months + 66.9% of our down payment goal)

Last quarter, we got to 6 months of cash savings and made a bit of progress on our down payment goal. Instead of reporting the down payment fund progress as a % down on our target price point, I’m going to show the % towards our overall down payment fund goal. In this update, I’m showing the % towards our minimum down payment goal, which right now includes our earnest money and some CDs we each opened after selling some index funds. The actual $ amount of the goal will go up a bit as we do some upgrades, but we anticipate being able to get to 100% of our cash goal by the time we close and if we don’t, then we will take the rest of it from our remaining taxable index funds. (Our current plan is to sell the condo after we move and then use that “windfall” balanced between re-investing in taxable index funds and recasting the new mortgage, but we will see how that shifts as the year progresses.)

There was a lot of moving money between buckets this quarter. So far, we have paid 5% in earnest money on the new townhouse. I pulled half of that (so 2.5%) from my money market fund and the other half came from bringing our joint cash reserves down dangerously low (in my opinion with our current cash flow). I’m mostly out of cash now, but my husband has some more cash in his accounts, so we are probably okay-ish on cash, but I’d rather have more. We will, soon, also pay 20% for any upgrades that we choose to do on the new place and then I don’t think we should have any more outgoings related to it until closing or closer to closing.

I’m really excited for the 12 month CDs we found at 2.5%! I’ve always loved CDs. It’s just so fun to get interest payments every month and to watch it definitely go up in value!

Additionally, the 6 months reserve calculation is about 25% low based on current spending, so we will boost it next quarter with the non-salary income, including replenishing it.

58.5% FI progress (up from 53.0% last quarter or 45.0% in December 2017)

Most of the progress this quarter was from the wedding spending dropping off the rolling 12 months of expenses figure, rather than us adding much to our net worth, since it was a relatively flat quarter for net worth. That brings our coast age down to our early 40s, compared to early 50s at the end of last year. Our goal is to get to FI by age 40, so it looks like we are probably ahead of schedule with that at the moment and will see once we change the spreadsheet to use the house instead of the condo.

I plan to continue tracking this figure against the current condo value until we actually close on the new place, to show better continuity of progress. I expect that we will get past 60% by the end of this year. The expenses portion of this figure should only increase by about 10% with the new place – the main increase is from the larger property value than in the non-mortgage housing expenses.

I personally really love this chart! I find it to be much more meaningful than a net worth number.

I have a row in our net worth spreadsheet that estimates the amount needed for FI as the condo value in that column plus 25x the expenses for the last 12 months. This FI progress % is our net worth figure divided by that number. I find this helps to smooth out more expensive months with cheaper months since a lot of our expenses are irregular and also takes into account the fact that I don’t include the mortgage in the expenses, but I do assume the condo would be paid off in the total number we need. I like having this figure re-calculated in each month’s column in the spreadsheet to see how the $ needed for FI changes over time, as well as the progress.

Investments

 

So much activity in this bucket this quarter!

First, we finally opened the joint Vanguard taxable account this quarter! That increased the taxable line a bit and was really emotionally exciting, but then we found a house. Our current cash flow plan involves leaving that account alone.

We each sold some index funds to cover the part of the down payment on the new place. We’re really glad that my husband bought into the condo before we found a new place because that meant I had some liquidity in order to contribute to the down payment! Anyone who says I’m not contributing to this house because I’m not currently working can bugger off because I am bringing half the down payment and own half of our current condo, which I bought by myself when I was single. We picked out the shares to sell in the order of the least tax expensive ones and then set aside amounts we estimated would cover the capital gains taxes in savings, so that we aren’t surprised by the tax bill in April. (I’m not worried about paying a penalty because I know our income has gone up this year versus last year.)

Our taxable accounts are now smaller than our combined 401(k) or Roth IRA accounts. We will fix that again eventually! For now, this category continues to see regular contributions to my husband’s 401(k).

I’ve been debating cashing in one of my 5-year-old Series I savings bonds to make my 2019 Roth IRA contribution because it has a 0% fixed interest rate and I would rather do that than pay taxes on some index funds, except in writing this sentence, I realized I have some index fund shares in taxable that would cost me about $5 in capital gains taxes to sell to fund my 2019 Roth IRA contribution, so I should probably do that instead. I’ll see what things look like in late December. Our agreement with income is that we each get to max out retirement accounts before contributing to the joint cash flow accounts, so any income I find would go towards my retirement contributions first.

Mortgage

6/30/2018 balance: $112,504.52. 9 years, 11 months remaining.

July payment: $823.16 principal, $289.70 interest ($2.11 less than June)

August payment: $825.28 principal, $287.58 interest ($2.12 less than July)

September payment: $827.41 principal, $285.45 interest ($2.13 less than August)

9/30/2018 balance: $110,028.67. 9 years, 8 months remaining.

No extra principal payments this quarter, but that 10 year mortgage sure has a decent amount going to principal with each payment! We paid the mortgage down 2.2% this quarter. We plan to make no extra principal payments now that we know we plan on moving. Looking at our mortgage amortization schedule, the balance should drop to five figures (!!!) with the September 2019 payment and I assume we will still have this mortgage then. I look forward to that day even though we will end up with a new bigger mortgage on the new place! If we weren’t moving, we had planned on paying this off within the next five years, balancing with our investing goals.

Spending ratio – Portion of the ideal annual budget cumulatively

I calculate the spending ratio with expenses in the numerator and the denominator as 4% of our investments plus the value of any redeemed credit card points. The second figure is the cumulative spending so far for the year divided by our ideal annual budget, expressed as a fraction of 12. Both of these figures ignore the mortgage payment.

July – 29.0% – 9.48/12
August – 43.9% – 10.92/12
September – 25.3% – 12.78/12

Q3 – 31.7%

YTD – 44.3%

Q3 was about 85% more expensive than Q1 and about 24% more expensive than Q2. Thanks to not planning a wedding this year, we have spent about 3/4 of what we had spent at this time last year!!! We have spent about 64% of my “low-hanging fruit” “don’t spend more than this large figure” goal, which is awesome! I’ll set a better goal next year since our goal for this year was to have a “normal” year with minimal extra expenses and figure out what that looks like. My “ideal annual budget” figure was clearly far too aggressive though considering that we have spent more than it 3/4 of the way through the year. I expect Q4 to be similar in cost to Q1 and we are on track to spend 15.62 months worth of my ideal annual budget figure.

Our top spending categories this quarter were: housing, H’s personal spending, travel, medical, and my personal spending.

Why was Q3 so expensive? Q3 is when we pay for our big insurance bills: condo insurance, six months of car insurance, and umbrella insurance. We each had a personal trip, a weekend family trip and a week-long vacation. My husband spent 4 months worth of personal spending budget in one month this quarter (he previously had a big buffer). I hit the individual out-of-pocket maximum on our health insurance, which we almost entirely paid for in Q3. We had some legal fees related to the new house and commissioned a beautiful painting from a local artist. Of course, some baby, wedding, Christmas, and birthday gifts were thrown in there too for good measure.

One of our goals with our Donor Advised Fund is to make sure that we are using it to recommend grants on a regular basis. We’ve recommended grants for just about 40% of the amount we’ve contributed to it so far this year. We will add some more to it this year based on this year’s income and then likely not add anything until 2020.

Readers, how was your third quarter?

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