Simple Pound

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December has been a busy month and I have not found the time to post much as a result. I also accumulated a massive amount of receipts that I needed to enter into my spreadsheet in order to track my spending and not abandon my good efforts this close to the end of the year.

After all the paperwork was done, I am pleased to see that my net worth increased by 4.46% from November to December which translates into 33.8% of my next goal. The increase in net worth can be fully attributed to my decision to throw all my available funds at the credit card and hence pay down the entire balance in one go. All that remains now is the last interest payment of £41 which was only debited this morning.

Now that a full year is over, it’s also time to draw some conclusions which will go hand in hand with new goals for 2008. I started keeping track of my net worth in May 2007 when I first came across the NetWorthIQ website. Based on that, I would like to see my assets grow at a steady rate of 0.5% a month at least, ideally closer to 1% a month. Liabilities should ideally be reduced to zero, unless they are subject to 0.00% APR - I am thinking of taking out a 9-month interest-free loan in order to purchase a digital piano, but I consider this good debt as long as it remains interest-free.

After tracking my expenses for a full year now, it’s time to draw up a (hopefully realistic) budget. In doing so I have mainly focused on the expenses I incurred over the last four months (since moving to London, starting my job…) as I believe they best represent my new lifestyle and hence actual spending. I have slightly underestimated my income as I don’t know what January’s bonus round will bring yet. Moreover, since I can live off my current salary quite comfortably I’m hoping to put any extra money that might come my way straight into a savings account in the hope of ever being able to purchase my first London home

As a result of now “being on a budget” I have made a few changes to my original spreadsheet so that I can monitor whether I’m sticking to it or not. I will review the budget in 3 months’ time to see whether my estimates are still feasible. After all, for me the whole point of having a budget is to get a good picture of my living expenses while also ensuring I don’t spend more than I have…

Finally, there will be a slight shift in focus with regards to my savings goals (see Progress page): I have decided to abandon my pursuit of a car as well as the eye laser surgery in favour of aggressively saving towards a deposit on a flat or house in London. While everyone is afraid of a housing crash and recession (dare I say the word…), I’m absolutely optimistic as this means that both property prices and mortgage interest rates will hopefully become a little more affordable than they are at the moment.

Thus, in a nutshell my (financial) goals for 2008:

1. Increase assets by at least 0.5% a month

2. Stay on budget

3. Deposit, deposit, deposit

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My goal for November was to save up as much money as possible to throw it all at my credit card bill in order to bring it down to 0 before the end of the year. I’m quite pleased with the fact that I saved around 25% of my salary last month and this number would have been a lot higher (~ 40%) if I didn’t have to buy a return flight to Germany for Christmas.

Unfortunately I haven’t had a chance to actually transfer all the “spare” money to my credit card account yet, so it’s only down by 16% this month. My assets increased by 6% last month, largely due to the fact that I now officially have a defined-contributions pension through my employer as well as a stable performance of the funds that reside within my life assurance policy (you wouldn’t believe it!). Combining these two numbers results in a total increase of my net worth of 7.45%

If you have paid close attention to my progress page over the last few months, you will notice that my car fund has suddenly dropped by 10%. There is a simple reason for this - I decided to take much of the money I had put aside for a car and use it to reduce the outstanding balance on my credit card. The reason for this is simple and pretty straight-forward. As much as I like watching my money grow, I currently pay more interest for the credit card than I earn in my savings account - hence, the money is put to better use in the credit card account. Yes, I know, sometimes it hurts to be sensible…

On an equally positive note, Adam has managed to pay down his entire outstanding balance and take a first step towards saving for a downpayment on his first property. Congratulations!

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