My favorite time of the year is the beginning of every year. It is a time of such positivity and energy. I try to make full use of it by making my plans for the new year and setting some goals to achieve.
My second favorite time of the year is the end of each year. I like the end because it gives me time to look at my financial freedom plan review and see what I have accomplished. But it is not always like that. The truth is some years its my favorite time because I just want to see the back of the past year. These times are few and far between but 2021 was such a year.
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. It was simpler in the beginning as my only objective was to pay off debt. So I put every extra cent into my debt. Each year I got a bit better at it and last year 2020 was my first proper review. So this year I will follow that similar format.
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 2021 ?
As mentioned at the start, 2021 was a year that I was happy to see pass by. I remember starting 2021 hoping that the worst of the pandemic was over. But it actually got worse and was more of the same. It also didn’t help that I went into 2021 with my Dad ill in hospital only for him to pass away at the end of Jan 2021.
I didn’t let any of that get me down but when I look back and reflect it was a bit of a shitty year.
Work and business wise it was good so no complaints there. The industry that I am in has bounced back and we have had some of the best business in years.
We had some big changes at home as my wife left formal employment to start her own accounting business. So income wise we took a bit of a knock and that is reflected in our savings rate dropping off a bit. Side hustles however did a bit better and we got two dividends paid out which was equivalent to one months salary. So that is not bad but still not a fortune.
Some of my highlights in 2021
- Published 14 blog posts for the year
- Grew my twitter account by over 4000 followers (200 in 2019 and 2000 in 2020)
- Exceeded financial freedom goals
- 262 days of exercise and 8300 km on my bike (282 days and 8800km in 2020)
- Received dividends from the side hustle
- Started Crypto mining and doubled my investment in less than a year
- Went on some great holiday trips again
Financial plan review
No major changes to the plan. Just had to maintain the investment momentum and achieve my monthly investment targets. The strategy remained unchanged.
Tracking expenses have always been a large part of my financial freedom plan review since my first steps to financial freedom.
In 2021 expenses were 8% higher than 2020 but were the same as 2019. Although one of my goals is to reduce expenses every year, the 2020 year was artificially lower with less travelling and going out. So overall 2021 was not a bad result.
Biggest overspends were on business costs (wifes business and side hustles) and vehicle expenses (my car is not cheap to run – very unfrugal I know but we all have our problems.) But we made savings on many other items like insurance, cellphones, home costs and entertainment.
Here is a comparison of the last 3 years as a contribution percentage
When you look at how the total expense budget is made up then you can see that food remains the biggest and education is the second biggest. Housing used to be the biggest when we still had a bond. The biggest change is the drop in investment or savings rate. The main reason for that is that in 2020 we delayed some home improvements which we then did in 2021. So we effectively invested that difference in our home.
FI Target Review
The FI target in my financial plan is how much we will need from retirement to cover 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. The achievable FI target jumped up again. This seems to happen every year as we do better than what we planned. When this happens I have 2 choices either I will reach my target sooner or I can increase the target to reach a higher amount in the original time period. At the moment I am choosing to increase the target so that I land up with a bigger amount.
The main reason is that my assumptions for my plan are conservative. So when we manage to either invest more than planned or market returns are better than planned then we see and increase. In 2021 it was the latter as the market performed well and all my investments did better than expected.
Updated spreadsheet and progress graphs
For my financial freedom plan review I am tracking my progress 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 36% 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 55% of my required FIRE amount.
This is the second year that I have a proper portfolio map that shows me all the investments that I have. 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. A change from 2020 in the inclusion of crypto and the local equities and TFSA have grown.
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 is a very important part of my financial freedom plan review that 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 still on equities and mostly on foreign equities. I have now reached my target for emerging market equities so that will just be maintained. I have also managed to reduce my cash balance which was and still is a bit high.
Check this post for how I created my investment portfolio.
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 2 years old.
In 2020 the returns were looking poor but 2021 was a fantastic year for the market with the JSE returning a 29% growth for the year and the S$P 500 27%. It is always interesting to see the relatively poor performance 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 from a financial freedom point of view it was a fantastic year as I moved even more ahead of my original targets. I have had some bad years in the past so its nice to have a good year. But it all averages out over the long term.
How was your 2021 and how is your financial freedom journey going? Let me know in the comments below.