It’s been just over a year since I started tracking my journey to early retirement and with it a comprehensive log of all income/expenses and networth gains. Because of this, I am for the first time calculate with some accuracy how much we currently spend each year and what sort of networth pattern has emerged. I’m sure you’re all sick of reading through the bombardment of annual expenses posts people put up in January so perhaps this nicely spreads things out? I started tracking in July which means by starting point for Networth was as at the end of July 2014., therefore I’ll be counting all expenses and networth growth from August 1st 2014 – July 31st 2015.

One of the great things about tracking your income/expenses and ultimately compiling them into an annual account is that you can begin to calculate just how much you’ll need to accumulate in order to retire on a sustained level of lifestyle that you currently enjoy. If you’ve no idea how much you spend in a year, how could you ever know when you’ve got enough saved!

Income/Expenses Averages

Income: £2542.97

Income less pension: £2119.32

Mortgage/Bills: £711.54

Groceries: £272.01

Petrol (Gas): £10.65

Maintenance: £22.84

Eating Out: £71.04

Healthcare: £9.32

Entertainment: £107.89

Other: £156.01

Total Average Expenses: £1361.31

Average savings: £1181.66

Average Savings: 46.5%

An average savings % rate of 46.5%.. not bad! I was hoping to have crept over the 50% mark but still pretty pleased to have come so close. If we were to use the normal shockingly simple math of retirement, this would put me at a not-too-shabby 18 years until sailing off into the sunset in my mid 40s if all that were being invested (sadly, it’s not).

 

Networth Gains

House Equtity Growth: £8711.73

ISA Investments Growth: £2688.70

Pension Growth: £5348.44

 

July 2014 Networth: £43,539.21

July 2015 Networth: £60,317.41

Total Networth Gain: £16,778.20

Wow! It’s amazing to think that in one year I’m almost 17 thousand pounds richer with a good chunk of that in Pension/ISA investments. Often when making small day to day savings it can be difficult to see them adding up the much, however by keeping track and looking back over the year; it’s clear these small savings all add up!

Estimated Time Until Retirement

This is where it gets slightly more complicated to work out. Obviously there are an infinite number of variables and lifestyle changes which could happen, however for simplicity and to give a rough idea if I were to assume all average expenses remain the same and that we’re shooting for a 4% safe withdrawal rate. We also assume that the mortgage is paid off in the next 9 years (as forecasted to do so) when I’m 37 and that we have no sudden desire to upsize the housing.

At the end of the 9 years, we can estimate that ISA Investments will have grown to about £40,000 and Pension accounts to £100,000 given current contributions.

Currently about £525 of the £700 allocated each month to mortgage/bills is spent servicing my half of the mortgage and I make an additional £500 a month overpayment. So, current annual expenses without the mortgage are about £10,000 By using the 7% average return rule and taking into account a 3% inflation rate means I’d need £250,000 in investments to sustain this lifestyle. If I were to put that £525 plus the £500 monthly mortgage overpayments into ISA investments once the mortgage is cleared, I’d reach the £250k mark in just 10 years, giving a retirement age of 47! That’s 2 decades before most people my age will eventually quit the work place!

This is also ignoring the pension pot which continues to grow and should be around £220k by the time I reach that retirement age. Depending on my attitude to risk later in life, I might even make the retirement jump earlier than 47 knowing that the pension fund will kick in at 55 (and state pension, if still around, at 67).

 

So What Does It All Mean?

It means things are largely on track for my goal of Early Retirement in my 40s. Perhaps the economy will boom, I’ll receive some large pay rises and be able to retire even later.. or maybe my (wife?!) has triplets and our household expenses sky-rocket. Impossible to tell.. but things are certainly progressing nicely at the moment and I’m well on the way to becoming that Early Retirement Guy.