July 2016 Financial Update

Note: to get the most recent Financial Update take a look at the finances category of my blog 😉

Hi all, sadly July 2016 is over and summer here in Switzerland – I really love summer – is mostly gone.

Anyway, as a (hopefully) regular routine for every end of the month I’m posting the monthly update on my finances and the blog logo change that reflects the (hopefully positive) progress toward my FIRE goal. This is the first complete update, since last month – first end of the month for my blog – I just posted a logo update.

The reference document for the following considerations is my Net Worth spreadsheet, the one I introduced in a recent post. I’ll post a screenshot every month in these financial update posts.

Overview

This has been an incredible month for RIP family’s overall wealth, probably the one where we performed the biggest step toward our goals so far! We didn’t win a lottery or received unexpected windfalls or bonuses though, it’s actually a lower than average month, with no Hooli stocks vesting.

Main wins of July 2016:

• Stock markets (especially US) bounced very well after Brexit.
• Miss RIP finished her internship and she’s now getting paid a somehow decent salary.

Main losses of July 2016:

• Can’t manage to stay below 4K expenses (too many trips).
• Dollar dropped a little in last few days of the month and my portfolio is too much USD dependent.
• Tenant left my Milan apartment at the end of the month. The flat is now not rented.

Incomes

Income for the month was 12’961 CHF (row 51), a below average month due to no Hooli stocks vesting. Income components are:

• >9000 CHF my base net salary
• >2000 CHF my Swiss pension Pillar 2 contributions
• ~300 EUR Milan flat rent (leaving soon…)
• 1000 CHF MissRIP contribution to shared economy (New entry!)

I’m including in my “take home pay” the Pillar 2 contributions and not the Pillar 1 ones since I have total control over my Pillar 2 balance (I can check it online, they are my pre tax money) and there are situations where I can withdraw money from it (leaving the country, buying a house, starting a company).

Pillar 1 contributions are essentially a pile of money thrown in the thrash bin, a small portion of which I’ll get back when I’ll be 65 years old in form of monthly payments of roughly 35 CHF per year of contribution. In case I’d quit today, I’ll receive ~140 CHF per month from year 2042 from Pillar 1. Here a link to get the estimate. I don’t count these money in my NW, they will be a nice “surprise” (and yet another safety margin) later in my life. Here a wikipedia link to how the Swiss pension system works.

I’m including 1K CHF of MissRIP contribution to the shared economy as income too. This is because the shared account is in the Net Worth document and what I’m monitoring here is my economy plus the shared one. I know it may be risky a little bit, since “what would happen if the relationship ends?”. Well, in that case we’d split the shared account (that rarely grows above 5K CHF) and my individual NW will be hit a little bit by that. Just mentioning the bookkeeping part of the story here, I would obviously spend all my savings for a Ferrari in case we broke up! No problem though, this won’t happen in the foreseeable future. We are rock solid 🙂

How do we manager our individual and shared economies? Both I and MissRIP receive salaries on individual accounts and then transfer money in a shared one (row 24). It’s like if we “pay” our “community taxes”. We do this in proportion 3:1. I earn more, so I pay more taxes. Every month, starting from this one, I transfer 3K and she transfers 1K, in the hope of making it with the 4K target spending. If we need more, we do extra transfers.

Before July, for the previous 3 months during which she was working on her internship and getting paid less than half her current salary, I used to deposit 4K to the shared economy and then extra deposits were in proportions 3:1. It was like she was getting a 1K salary integration from me and then paying 1K of “community taxes”.

Before that, when she quit her job in Italy and followed me, I did the same plus I transferred on her individual account 1K per month. Essentially it was like she was getting a “salary” of 2K from me and then she paid “community taxes” of 1K. Extra taxes were on proportion 3:1.

Anyway, if we’d count the total family income it would be bigger than the reported value by [MissRIP take home pay – 1K].

Total income in 2016 so far is 103’458 (cell P51), very good!

Average is 14.8K per month, but I don’t think the average is useful for forecasts here. Too many factors to take into account: company bonus in January, 40 days of sabbatical in April-May, 13th month expected in December, stock vesting more dense in the end of the year, MissRIP contributions, random Hooli stock value at vesting time, discontinuity of flat rent,…

Manual forecasts for the end of 2016 is ~190K CHF. I took into account vestings, 13th month and MissRIP contribution.

Target for End of Year: well, I don’t want to set a target here, since it’s not something that I can actually control. My performances can impact my 2016 bonus (that will be accrued in January 2017) and my eventual promotion (that won’t happen this year since I recently changed team). So no target set.

When we’ll be closer to end of the year I’ll try to set an income target for 2017.

Spendings

Total spending for the month was 5’119 CHF (row 52). Another above average month, partially justified by a not so cheap holiday week in Apulia at the beginning of the month and 2 trips: Milan in mid July (regular monthly visit to MissRIP’s family) and Amsterdam end of July, a leisure trip to exploit the long weekend (August 1st is National Holiday in Switzerland).

Here an incomplete list of tracked expenses:

• 1440 – Flat rent and condo fees.
• 840 – Amsterdam Trip (4 days. Flights: 280, Hotel: 310, Other: 250).
• 700 – Apulia Trip (just the expenses on site. Flights: 700 and flat rent: 700 happened on June).
• 450 – Health Insurances.
• 370 – Milan weekend (train tickets: 220, other: 150).
• 230 – Day trip to Mount Rigi (train tickets: 130, Mineralbad SPA – awesome – tickets: 70, other: 30).
• 120 – Public Transports (MissRIP abo: 85, my spare tickets: 35 … I bike when it doesn’t rain!).
• 120 – Utilities.
• 110 – MissRIP new bicycle reservation (we’ll pay the remaining 430 when delivered).
• 100 – RIP Sr. (my father) flight tickets for his August visit.
• 80 – Amazing new Squash shoes for me 🙂

You don’t see groceries here since we never went for a significative (>100 CHF) grocery trip this month, due to its fragmentation. That doesn’t mean we don’t eat at home – we do it almost always – it simply means we spent small amounts daily. I’d say we spent ~300 CHF on groceries this month.

Total spending for 2016 so far is 33’299 CHF (cell P52).

Average per month slightly above 4’750 CHF. Too much.

Forecast for End of year: 65’000 CHF. Actual math says 57K but we’re planning a 2 weeks trip with a couple of incredibly-inflated-lifestyle friends on some exotic locations on the other hemisphere in mid November and I doubt it will cost less than 10K… Plus we are going to increase the number of Milan trips in the following months due to personal issues.

Target for End of the Year: 60’000. Last year we spend roughly 60K and we went 2 times to New York and 3 weeks in Japan. I still can’t figure out why we are going to spend more this year. Let’s pretend we’re able to keep up with last year’s RIPses!

Note: I’m going to clear RIP Sr. apartment debts (9K Euro) in September/October, but I don’t consider this an expense. I stick with MrMoneyMustache definition of spending, i.e. not counting principal payments of mortgages as expenses. Since my debt with RIP Sr. generates no interests, that’s not a cost!

Savings & Saving Rate

Total saving for July is 7’842 CHF (row 53). Yearly savings so far are roughly 70K and forecasts for end of year are 120K. I do not set target here, it’s not a metric I care much of.

Saving rate for July is 60.5% (row 54). Slightly below the current saving rate of 2016 which is 67.8% (cell P54). My saving rate would virtually be on top of the Mustachian Post’s ranking of European bloggers saving rate indexes. I submitted my score and I’m impatiently waiting for it to be published 🙂

Anyway, MP set 70% as target to get the Badass Savers Platinum award, so needless to say that my Target for End of the Year is 70%.

Sadly, forecasts says 65.8%. Even the optimistic ones, with spending = 60K says 68.4%…

Net Worth

Net worth at the end of the month is 508’073 CHF or 468’823 EUR or 523’886 USD.

Delta for July 2016 is +26’092 CHF (+5.41%) or +24’437 EUR (+5.50%) or +30’053 USD (+6.09%).

The best month so far for each currency. As I said this is due to amazing investments returns, in term of ETF per share value. I was able to invest extra 30K in the second half of June, after Brexit and the returns have been excellent so far.

The logo of this blog changed accordingly from

 

To:

With a jump of +2.3% in a month!

What does this percent represent? It’s just the progress toward FIRE. When the bar will be 100% we’ll be Financially Independent. What is 100%? Well, on its own post 🙂

Net Worth cumulative Delta in 2016 so far: +92’297 CHF (+22.20%) or +86’309 EUR (+22.56%) or +108’525 USD (+26.13%).

Forecast Net Worth for End of Year (CHF only): 570’000 CHF (+154K CHF, +37.10%).

Target for End of Year: linear forecasts looks pretty good, I’d be very happy in case investments will keep their run. An historical psychological number I’d like to reach is 1 Billion Italian Lira (516’456 EUR or 560’000 CHF). Obviously the Italian Lira is an expired currency, but still 1 Billion of it makes me Billionaire in the previous millennia 🙂

Forecast for FIRE – 100%: October 2020. Wow, that’s 4 years from now. I thought 5 or 6,… This is calculated with linear forecast based on 2016 performances (which are too good to be true), that doesn’t consider compounding and assumes jobs, salaries and expenses will stay the same. And, more important of all, it assumes the Financial Goal (my FU Number) will stay the same.

Target for FIRE – 100%: June 2021. I still stick with original “retired in 5 years” plan I had when I started this blog. I plan a smooth transition to FIRE, like working 80% in maybe 2-3 years that will slow down savings and will move FIRE date a bit later in the future.

Next Steps

I’ve invested heavily in last 6 months. I’m now running low on cash and I want to replenish it. Along with that, I have planned few major cash movements for the rest of the year:

• 9K EUR – Remaining RIP Sr. loan (October).
• 10k CHF – November Holiday (November) – this is an expense.
• 20K CHF – Pillar 2 Buy-in (December) – this is an investment.
• 6.7K CHF – Pillar 3 buy-in (December) – this is an investment.

These cash movements will roughly match savings for the rest of the year. Given that I also want to replenish cash (the “emergency fund“) I probably won’t invest more in stocks/ETFs this year. I’m actually going to sell vested Hooli stocks in August.

A Pension Pillar buy in is a lump sum you deposit pre tax on you Pension account (Pillar 2 and/or Pillar 3). Pillar 3 contributions are limited by law, Pillar 2 are essentially unbounded. The advantage of doing that are just tax saving (Pillars accounts have ridiculously low interest rates). In case one leaves Switzerland – or buys a house or starts a company – they can withdraw these buy-ins (Pillar 2 buy-ins are locked for 3 years) paying roughly a quarter of the taxes due on the equivalent income amount. Long story short: at my income level, marginal tax bracket is 30-35%. A buy in saves you 30-35% now, earns 1.5% interest (on Pillar 2, almost 0% on Pillar 3) per year and costs you 7-9% in taxes when withdrawn. There are even tricks that can lower the taxes to 5% (transferring your Pillar Accounts to a convenient canton like canton Schwyz before withdrawing). Compared to “don’t do buy ins and put everything in stocks”, the expected break even point should be in 3-5 years. Keeping money there longer means you’d probably be better of by investing them in stocks. Anyway, you can’t withdraw before 3 years and you can’t withdraw if not for leaving the country, buying a home or startupping. What did I say it was the FIRE target? 5 years and not in Switzerland. Bingo!

One thing i should do even if not investing much more is rebalancing. I’m too much USD dependent and not enough diversified. Yes, I said previously that I’m just a beginner investor (with an history full of mistakes). Actually, before even rebalancing – you need to have some target before doing it – I should take time to write my own Investor Policy Statement or IPS.

How was your July?