Savings rate challenge results – June 2020 and overall year

Well, this is it! My twelve months is up – achievement unlocked!

This process I’ve followed of running a proper budget and tracking everything I spend has been a really interesting, if sometimes tedious, exercise. It’s certainly brought sharply into focus those areas where I knew I was probably wasting quite a bit of money – it’s basically confirmed what I already suspected. The good thing is that having the self-imposed accountability that a budget provides has kept the situation under a certain level of control. I’m certainly not perfect when it comes to controlling my splurgy urges, but if I hadn’t had this challenge going I know I wouldn’t have been quite as careful.

June results were actually not too bad in terms of variance to budget. The only categories that were over budget were food/groceries and discretionary spending (no surprise with that one!), and some of the others were under – car expenses, for example, because I haven’t really been going anywhere so haven’t needed to fill the tank.

Regular readers will recall the recent dramas around my mortgage thanks to ME Bank’s absorption of additional funds sitting on my loan. As I mentioned last month, I’d been planning to clear some funds against it anyway, and I decided that I wanted to boost the extra that I’d been paying in over and above my scheduled repayments to $10,000, so that involved utilising some of my net cash flow to fund the difference between my regular extra payments and the $10k, hence my net cash flow for this month (and overall) is down on what it would have been, however I also amended the budget to account for the additional expenditure. Which sounds like cheating, but I consider it an adjustment based on circumstances – my budget is a living document, after all.

For those that might be interested, when I wrote my May update I’d already been waiting for the bank to set up my offset facility for almost four weeks. (Bear in mind that I had transferred my available redraw funds out of the loan to ensure nothing more got absorbed.) When nothing had progressed by mid-June, I messaged them again to ask them to confirm something that I’d been told when I rang them previously, and to give me an update on when I could expect the offset to be in place. This time I got told that it wasn’t as simple as it seemed due to my being on an old loan contract, and they needed to change it over to a different contract type. Plus the volume of requests coming through due to the pandemic had put the team a long way behind and that requests were now taking 60 days to complete!

Well, at this point I got cranky. I pointed out that every time I contacted them to find out where it was at, I was told that the projected completion date was further and further away, nor had they yet answered a specific question I’d asked. I also told them that I would move my additional funds back into ‘redraw’ until they’d got it all sorted out and that they weren’t to touch it. And what do you know – within a day or two, there was my nice shiny new offset account! So clearly they were dragging it out to make more money in interest charges from me. Sometimes you have no choice but to bitch. 😦

Overall result for June

Normal scheduled savings came to 35.86% of income, but net cash flow was down 17.47% (extra money on the mortgage), for a monthly final result of 18.39%.

Challenge wrap up

Just to remind you all, my figures are based purely on what I take home in my pay packet. I haven’t included superannuation in this challenge, nor have I factored in any difference between payment of mortgage principal vs. mortgage interest, although I’m aware that some people do consider principal payments to be an increase of your assets and interest to be a cost for the purposes of calculating savings rate. I thought I’d keep it simple for my first year! At some stage, perhaps I’ll go back and add these things in, just to see how it would change the results.

The primary budget categories are shown in these pie charts – these show what I budgeted for and what I spent as a percentage of my take home income in each category. It’d be interesting to know how my numbers compare to Australian households generally. My categories probably need a bit of tweaking, really – utilities should probably be included under household, but I did want to see them clearly as a subset of their own at least for this first year of serious budgeting. And although pet expenses were only relevant for four months out of the year, I suspect the percentage wouldn’t be all that different for a full year as there were quite a few veterinary costs in that four months that would probably convert to normal pet living costs had my cat not passed away when she did.

Looking at the whole year on a ‘variance to budget’ basis, household and utilities costs were the only ones that came in under budget, although dollars-wise only by a very little – most of these costs are easily predicted and I usually factor in a bit of an increase each year. Percentage-wise, though, 53% of income predicted compared to 40% of income actual for household and utilities combined is definitely a result that I consider to be a win. I also didn’t estimate for much in the way of additional income, so there were things like small lotto wins, interest, my tax refund, and the bonus $ that I get by way of my supermarket rewards programs that weren’t predictable. My tax refund in particular was five times what I budgeted for, though, so that addition to income has definitely changed the end result on a percentage basis.

On the expenditure side, food and groceries (this is a supermarket spending only area) was pretty close. Car costs – well, the extra that I spent in May on repairs and maintenance is basically how much over budget I was in that category, so technically speaking I think that means my estimates for expected costs were also about right, and the percentages bear that out. Really, the only areas that were what I would consider to be significantly over budget were the personal and discretionary areas, and those were always the categories that I couldn’t really predict as they can be very ad-hoc. Now that I have some figures to work with, though, I can hopefully produce better estimates for the next year. (Speaking of which, I’m tossing up switching back to calendar year for my budget so that my tax return is included in the same year that I’m working with. Or alternatively, factoring it in by managing my budget more like businesses do, where they produce their annual report after all the incomings and outgoings that relate to the financial year are able to be accounted for.)

For the annualised results, normal scheduled savings (i.e. my Smile, Fire Extinguisher and Mojo accounts) came out at 39.53% of income, and net cash flow was just 1.93%. That gives me an annual overall savings rate of 41.56%.

I’m actually really happy with that. Even though my Smile money is actually intended for spending (and some of it will be spent in the future – it’s intended to be used for holidays), at the moment it’s just sitting quietly in my offset account, saving me interest on my mortgage, so it’s working for me in a useful way. If I’d strictly followed the Barefoot Investor percentages of 10% to Smile and 20% to Fire Extinguisher I probably would’ve found things to spend the additional 11.56% on, so challenging myself to do better in this regard has definitely paid a dividend – not just in additional savings but also in encouraging me to be more disciplined.

That said, it’s also important to recognise the impact of the coronavirus pandemic. The subsequent significant reduction in being out and about, with the additional spending that tends to incur, has definitely had a salutary effect on my final results. The subcategories for entertainment, outings, hairdressing, movies, transport, parking and road tolls have been showing zeroes since physical distancing came in. (I finally just got my hair done a couple of days ago!) This certainly wouldn’t have been the case had coronavirus not come along.

As an aside, I have to say I have absolutely loved working from home! I know many haven’t, but it has worked really well for me. I’ve found it so much easier to be productive when I don’t have the constant interruptions of the workplace – phone calls, people coming up to talk to you, that kind of thing. And just the lack of noise makes a difference, too. My office is open plan, and some of my colleagues don’t seem to understand the concept of an “inside voice”! I am now giving serious consideration to making working from home for at least a couple of days a week a permanent arrangement.

So, what’s next?

Well, I can’t just leave it here. After the work I’ve done to get a better understanding of where my money goes, I intend to continue with the budgeting and working towards a better savings rate. I now have monthly average figures for my line items, so that will help with the creation of the next year’s budget. Having now clearly identified the main problem area (discretionary spending) my challenge to myself for the new financial year (or maybe through to the end of 2021, depending on how it goes) is to get that category under better control. And that means getting the eating out/takeaway line item under control, because that one is the primary culprit.

So, I’ve made up a sign for myself to remind me that takeaway is off the menu this year, except for a couple of things that I’m allowing myself as a regular thing so that I don’t feel completely deprived, and, of course, outings for celebrations of birthdays and such. I will have to get rather more disciplined about ensuring that I have things available to cook for dinner (or, at least, something available to nuke) – remembering to get meat out of the freezer to defrost, for example. I’m also planning to use my slow cooker more, especially over winter, and do more general ‘batch’ cooking. I also plan to introduce a bit more vegetarian cooking, as meat is the most expensive part of my grocery shopping. I have reduced my red meat consumption in the past several months, but have correspondingly increased my use of chicken, so I want to bring my total meat consumption down a bit. Plus, it’s good for the planet as well. 🙂

I’m still trying to decide whether to pay the mortgage off more slowly (I am pretty close to having enough in the offset account to fully offset the balance of the loan) and use my Fire Extinguisher savings to start investing, but I have to admit the psychological benefit of knowing that my home is fully and completely my own is very appealing! Plus I also need to revisit my superannuation investment mix and salary sacrificing up to the $25,000 cap, so there is definitely more work to do on my financial management.

I hope you’ve all enjoyed following me on this challenge. I’ll keep you posted on the new challenge as well.