What an absolutely stellar year 2020 🎉 has turned out to be so far. Well at least in one aspect, namely the SAVINGS RATE 💯 for the Minimal5 family.
I just sat down, and did an overview of the first 4 months of 2020, in order to sanity check if we are still trending on the right path. I know, it is quite boring sitting down and size up your expenses, so I don’t do it every month. It seems like it would be a good idea to do now though, as it looks like we are slowly coming out of the lock-down period here in Denmark, and it would be quite interesting to see what effect the last 2 months have had on our overall expenses.
So if you have been following this blog, you will know, that for the year 2020 the goal is not to exceed monthly expenses in the order of just below 5.000USD pr. month for the year on average. Compared to last year, this will be a reduction of roughly 1.000USD pr. month.
So far we are on a really good path to achieving this. For the first 4 month of the year, we are at 5.100USD pr. Month, mainly due to February being hit by car repair 🚗 and additional insurance costs, as we switched insurer. Not really something I am overly concerned about, and for the last 2 months we have been below the goal. For April we have even been almost 1.000USD below the goal.
But, for the personal income statement to make sense you cant really just look at expenses and save yourself to death. Luckily there has also been some personal income this year, (yes, I am still employed and so is the misses, thank you for asking) and so far we have been averaging around 12.000USD for the first 3 months, and then BOOM April – Bonus time; Almost 25.000USD which off course has resulted in Yyyuuuge savings in April, both in absolute terms as well as percentage.
All in all, for the first 4 months of the year, we are looking at 41.663USD in savings. All of which (or most of at least) have been added to investment portfolio and Net worth of the Minimal5 family. What is even better, is that this number is even excluding any passive income from dividends or AirBnB renting.
Exactly how the proceeds have been utilized in the first 4 month of 2020, I will return to in a later blog post where I will be doing a full overview of all my personal finance investing decisions during Covid-19. So far though, we are down, but it is not looking that bad, on a total net worth basis, but more on that later.
As I mentioned in the headline the sum of all of above results in a 67% savings rate for the first 4 months of 2020, excluding passive income and dividends.
In terms of how our savings rate has developed over that last couple of years, I have done the below chart, displaying the 12 month moving average savings rate, and as you can see, we have experienced a gradually increasing savings rate going from a level of around 52-53% in beginning of 2018 to almost 60-61% currently on a 12 month moving average basis.
Going from a savings rate around 50% to 60% or even up towards 70% is when your journey towards financial independence really starts taking off. At 50% savings rate, it will take you one year to save one years worth of expenses. At 75% it will take you just 4 months to say one years worth of expenses.
So if you want to become financially independent, there is almost no other way – at some point in your life then to bump up that savings rate. The earlier you can do it, the sooner you will be on your way towards utopian state of ultimate freedom.
There is no freedom without economic freedom.
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