February 2019 Journey to Financial Freedom update

Welcome to Passive Income NZ, my Journey to Financial Independence. Every month I share how I am tracking towards financial freedom by providing you with an update of where my portfolio is at and how far I am from financial freedom, and how my spending is tracking. My definition of financial freedom is not really the same as everyone definition. It’s not to just stop working, it is much more than that. It’s about living a more intentional life.

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In February, I had a look at some new data from statistics NZ about the average income and wealth of New Zealanders. It was quite interesting. What was concerning though is that 25% of Kiwis have a net worth of below $100,000, and 6% of Kiwis have a negative net worth.

House hold debt to income ratios climbed to over 160% in 2018. That means that if a house hold earned $100k, they had a debt of $160k. Now, it’s easy to say that this is not a problem, I mean, Australia’s house hold to debt ratio is 200%. And if you have a mortgage, like us, your debt to income ratio is eaily above 160%. Ours is currently around 190%.

But the thing is that the 160% figure is averaged over all the households in New Zealand! There must be many house holds with large mortgaes. The house hold debt to income ratio for just house holds with a mortgage is around 330%. So a house hold income of around $100k would on average have a debt of $330k.

So I thought I would write a post about how to deal with debt. I still believe that a mortage is a different kind of debt than consumer debt- you need somewhere to live. And if you don’t have a mortgage to pay you still need to pay rent. But you still need to treat it like debt and have a plan to pay it back. The quicker you pay the mortgage off the more you will save on interest.

I also looked into the cost of owning my car over the last seven years. Turns out that it’s been costing me around $7800 per year to own my car. That’s too high, more to come later on how I intend to lower this cost.

I posted on reddit to see how much other people where spending on thier cars to get a gauge if my expenses where normal. The AA motering report estimates a medium car to cost around $7000 per year- so not too far off mine.

Here are some responses from Reddit;

My 2003 Toyota Corolla (with about 140,000 km) cost ~$3100 for the year (including everything–petrol, servicing, brake rotors/pads, new tyre). I think I drove around 15,000 km, daily commute + a few trips.

I brought new in 2015. Servicing was included to 90k and I got a hybrid, so over 70k and 4 years I’ve only paid for fuel at 5l/100. Same pads with regenerative breaking. Future servicing is every 15k rather than 10.
Of course, depreciation is a kick in the teeth. 4K a year if I keep it for 10 years.

I’d say that’s about right. MrMoneyMustache talked about this and the IRA in the USA came to a cost of $0.51 USD per mile (about $0.46 NZD per km), a very cheap car at $0.17 USD per mile, or $0.34 USD per mile in between for an average person perhaps. Remember that petrol prices, taxes, registration etc will cost different though.

There was a mixed response- Some stated that my expenses were too high, questioning the high maintance costs, while others agreed that my expenses were about right. Others only included the price of fuel in their cost estimations.

And that was the point I was trying to make with my post on car ownership. That there are many more costs associated with owning a car than just the cost of fuel at the pump. But there are many other associated costs to think about!

Spending in February

We have been with the same power company for just over 2 years now. Our 2 year deal ended and I went to their website to see what they were offering. Turns out, all the deals were for new customers only. So I rang them to ask why they don’t give deals to their loyal customers.

Long story short, they do give deals to current customers but only one year after the initial contract is finished. So I have to wait another year before I can sign up for any deals with them. But they did give me a $250 credit in the meantime. And that is how I managed to spend nothing on power this month.

• Groceries $799.80
• Entertainment $438.50
• Mortgage $2000
• Investments $2300
• Eating out $81.86
• Petrol $497.37
• Power $0

Again, our food expenxes are up to $800 per month. We were getting by on $600 a month a year ago. And I read a thread online that suggeste that some people are getting by on $400 per month. Is our food budget the extravigent? That begs the question,

What is a normal monthly food budget?

Portfolio in February

For the month of February I’ve increased my investments by $4060- which includes a return of $1081 and deposits of $2979. This is nearly exactly the same as in January, but I didn’t hit the target I set last month of investing $3500 for February- short $521.

Goals

I have started a savings account for our trip to South America which will hopefully happen lateer this year. I took teh time to work out how much I think I need and then set up an automatic payment into a new account. That way I won’t be tempted to spend the money befor I need it. Automated finance is the way to go.

Total Portfolio >100K by December 2019

My goal of reaching $100k invested still stands. I’m now 66% of the way there. I now have only 9 months left to achieve my goal. That means I need to invest at least $3,777 per month. Since I keep missing my targets every month the amount I need to invest keep growing. I am determined to meet it for the month of March.

Rather than relying on voluntary investment depostis, I am going to increase my automatic deposits. Again, automated finance is the way to go.

I hope you enjoyed my financial update. I’m considering including my net worth in a future one. Let me know if you would be interested in that. I still suffer from the stigma of sharing financials with total strangers, it kind of feels like bragging- but in reality I want to help you out by showing how I’m doing, what I’m doing right, and what’s not working.