2018 in Review

Another year and another review! After a number of stellar years with net worth increasing many hundreds of thousands of dollars each year, from a financial point of view this year has not been so good:

Headline Figures

	2019 dollars
	2018	2019	Planned 2019
Cash	$799,290.81	$615,513.66	$358,159.27
Superannuation	$980,465.39	$1,202,439.45	$618,957,60
Primary Residence	$1,692,756.74	$1,434,690.00	$1,104,167,18
Investment Property	$359,851.45	$366,700.00	$268,262.19
Total Assets	$3,832,364.38	$3,619,343,11	$2,349,546
Asset Change	12.64%	-5.56%

	Change from 2018 to 2019	Change from planned to 2019
Cash	-22.99%	71.85%
Superannuation	22.64%	94.27%
Primary Residence	–15.25%	29.93%
Investment Property	1.90%	36.69%
Total Asset	-5.56%	54.04%

Total asset growth was approximately -5.56% or -$213K.

This year has not been as good as other recent years. The reason for this is:

• The value of the family home, as assessed by the bank, has lost quite a bit of value. The Sydney housing marker is on the way down at the moment. It’s not a big deal as we won’t be selling up for a while if ever…!
• Our spend this year was much higher than other years, as we have spent on quite a few extraordinary items. More on this later.
• Superannuation has not performed well this year. I made about $225k in contributions this year (concessional and non-concessional and across two financial years) and growth has been about $220k, allowing for inflation. Which means Super went backwards slightly this year.

The good news is that we’ve made some nice house improvements and now have one less year to fund in retirement!

Spending and Income in 2018

Spending in 2018 was about $71K, which was much higher than other years and was broken up as shown below.

Per month spending is shown below:

If we take out discretionary and work expenses, and remove rent received, spending works out to about $41K, which is not too bad (but still quite a bit higher than living overseas!).

Medical expenses were high due to my wife’s medical insurance in March and requirement for a Crown in October.

In September we had to do some significant renovations on the rental property, hence the large negative income from the rental property this month.

Debt is often classified as as good or bad debt, and I’ve classify our discretionary spending as such in the table below:

Discretionary Costs	Amount	Value (1-10)	Comment
iPAD	-$1,250.93	2
Elec Mower	-$563.72	4	Reduces petrol cost.
Air Conditioner	-$1,443.75	3	Adds value to the house
Alarm Upgrade	-$950.00	4	Adds Value to the house and imporves security
Electrical upgrades	-$643.50	6	New lights. Adds value to house
Solar System	-$9,000.00	10	Reduces power bills. Short payback time
New Mirrors	-$1,130.00	3
Credenza	-$3,132.00	1	Nice addition to Study
Picture Framing	-$384.70	3
Outdoor Tiling	-$7,133.40	8	Adds Value to the house
New Couch	-$4,697.00	3
Fridges	-$1,487.00	N/A	Required after returning from O/S
Removals	-$1,720.00	N/A	Required after returning from O/S
Total	-$33,536.00

Moving forwards, discretionary costs should be more leisure related.

Income in 2018 was about $138K net of tax. Lower again from last year in high taxing Australia!

Total savings, including Super contributions, were about $65K, which represents about 47% of income; not a bad savings rate but a lot lower than previous years. Note that the rent from the investment property was lower than expected due to requirement for major renovations.

Updated Spending Patterns

I’ve retained the standard spending pattern from last year:

You can see average planned expense is almost the same as income this year.

Below is the spending pattern assuming we stay in the PPOR:

Average planned expense is about $90.7K, whereas last year it was about $85.1K, about a 6.5% improvement (or about 4.6% taking into account inflation).

And here are the planned spending levels compared with the plans back in 2015.

You can see that over the last few years expenses are going up and income is coming down! Not too much of a worry as additional expenses are mostly discretionary and income is not so important so close to retirement.

And if I had retired at the end of 2017…

If I retired at the end of 2017, the computed spending per year beyond 56 assuming we stayed in the PPOR until 90 would have been about $85K again, a slightly lower spend due to inflation. We might have expected this to go down due to the low Super growth, or up due to the lower spend (despite extraordinary items!) than planned in 2018. Seems like these two have almost cancelled each other out.

Conclusions

This year hasn’t been a good year from the point of view of asset growth. Still, another year has gone by which is no longer required to be funded by savings/super, we have made some significant house improvements and investment property renovations and, assuming we stay in the PPOR, our planned spending levels have increased by about 4.6%.

In our retirement our non discretionary expenses are likely to be about $41K per year, and our budget for expenditure will be about $90K per year if we stay in the PPOR.  Which means about $50K in discretionary expenses per year, which is quite high.

We also have a number of backup plans which should help if things go south (e.g. sell or move into investment property).

I’m thinking of retiring a the end of 2018 (i.e. in a few weeks!). The one thing that worries me a bit is the recent wobbles in the Stock market, and sequencing risk. I’ll do a post on sequencing risk shortly.