I took a bit of a break at the end of 2020 to have some time off and review the year. Here is my update on my financial freedom plan progress for 2020.
If you want to go anywhere you need a plan. My financial freedom plan is my road map to early retirement. Once you have a plan, you action to execute. When you are executing you need to review and monitor your plan. I started in 2015 and have done a review every year.
Initially the review was very basic, just to check if I was on track or not. Each year I got a bit better at it and this last year I have done a lot more to understand exactly how I am doing.
Check this post to see how I created my personal financial plan. Here you will find exactly how I setup the plan and all the calculations etc.
The process of reviewing my plan consists of the following
- Review the actual plan to see if it still makes sense
- Review annual expences to see how we did
- Review the FI target
- Update the financial plan spreadsheet and progress graphs
- Review investment performance and portfolio plan and allocations
How was 2020 ?
Well as you would well know you can literally write a book on this topic.
Where do we start?
The Corona virus that completely upside downed 2020? The US election fiasco? All of which made BREXIT a nonevent? The massive drops and rises of the equity markets? The growth of Gold and Bitcoin? The massive negative GDP growth rates, budget deficits and recession economies?
Yes those all happened but none of us could influence them. We just had to work with them. Thats exactly what I did. The pandemic and inevitable lockdowns gave me a reality check that anything can happen anytime. It created time and focus to get this blog going properly. That in turn lead me to spend more focus on @wealthyhealthyl on Twitter, read blogs and read books. With all this new info I am refining the plan.
Some of my highlights in 2020
- Published 30 blog posts since April (2 in 2019)
- Grew my twitter account by over 2000 followers (less than 200 in 2019)
- Read 6 books and 4 ebooks (1 in 2019)
- Exceeded financial freedom goals
- 282 days of exercise and 8800 km on my bike (246 days and 7500km in 2019
- Doubled the size of the side hustle
Financial plan review
The initial plan was very basic with debt repayments, a pension, preservation fund and TFSA. At end of 2019 the debt was paid off so I started the emergency fund and more focused investments were started. So these were then included into the plan.
I also started a net worth tracker and a portfolio management tool. Check this post for how I created my investment portfolio.
Tracking expenses have always been a large part of my annual review since my first steps to financial freedom.
In 2020 expenses were lower than in 2019 by 5% which was a pleasant surprise. One of my goals is to reduce expenses every year. Normally you would expect expenses to increase with inflation so this is great . We underspent in almost all the categories and saved the most on vehicle expenses, fuel and holidays & travel.
2020 was also the first full year being debt free so all those bond payments went straight into investments
FI Target Review
There were no major changes to the FI target. I have revised it up over the last few years as I got a better grip on expenses and worked out how much we will need from retirement. The FI target is a huge number that seems daunting but it is something to aim for. It guarantees around 60% of our current expenses. It may seem tight but I think it is still generous with room to cut some more if need be.
Updated spreadsheet and progress graphs
I am tracking my progress to the plan in two ways.
The first is against my original FIRE plan from 2015 that I revised in 2018 when I had a better idea of what my retirement expenses would be. This is on a spreadsheet that calculates my cumulative value, details here. The graph below shows my progress against that original plan. I am tracking 24% ahead of this revised plan.
The second tracking is against my FIRE number as of today. So if I was to retire today and live off my retirement expenses I would have 41% of my required FIRE amount.
For the first time I have a proper portfolio map to see what I have invested where. From the graph below you see the bulk of it is sitting in my pension and provident fund. As I increase my equities investments this ratio will decrease to about 50/50 pension vs discretionary investments.
Review Portfolio Allocations and Investment performance
Now that I have started investing seriously I have had to consider the portfolio and how it fits with my strategy. This I need to review regularly and make adjustments where necessary.
You will see from the table below that I have a target allocation and then my actual allocation. This tells me that my main focus is on equities. My cash amount is high because I have boosted my emergency fund. As my total portfolio grows this percentage will decrease relatively.
I have also been measuring the performance of the different investments. The older ones like pension, provident and TFSA show growth rates since 2015. The newer ones like the local and foreign equities are only one or 2 years old.
The disappointing observation here is the relatively poor performce of the pension and provident funds. This is not unexpected as these funds are low in equities and much more stable. But it also highlights how important it is to grow my equity contribution to increase the diversity and hopefully the performance.
Overall I am very happy with my progress in a very difficult year. I suspect that 2021 may will be more of a challenge. But who knows.
How was your 2020 and how is your financial freedom journey going? Let me know in the comments below.