Wow, what a year. We set goals, ended up having to go with the flow. Just like everyone else, living though a pandemic meant our goals were reduced to basic needs: stay well, be safe when outside the home, ensure we had enough food and toilet paper. Our net worth expectations for the year lowered, as did the stock market, and work opportunities.
As with our regular (non-pandemic) life, those curve balls still kept coming. Both cars broke down at the exact same time as our nine year old got his letter scheduling his next heart surgery – 300 km from home. This was exasperated as Melbourne was in lock down, a place we did not want enter, and when we did, we had to deal with road blocks and providing evidence of the need for our journey. It was not one journey, but many. Pre-admission, surgery, follow up appointments … To add to all this, our floppy eared dog was having chronic recurring ear infections requiring many trips to the vet (and bills).
Thankfully, we kept safe and heart surgery was successful.
Both Mr Hack and I kept our jobs throughout 2020, although two of our young adult children lost theirs, with another off work due to health reasons.
During 2020, I was working three days a week as a Year 3/4 classroom teacher. The plan was to top up my wages with casual relief teaching. The relief teaching dried up as students were sent home for off-site learning. Plus, my desire to do casual teaching work disappeared as the last thing I wanted to do was mix with hundreds of other people in a variety of different workplaces when my son was on the wait list for heart surgery.
As a result of this, my income was not as great as we had projected, but at least I still had a job. With our 6 and 9 year old at home, and myself remote teaching 28 students, it meant Mr Hack needed to be the educational support person for our kids. This was a steep learning curve for him. It also meant he could no longer renovate (increase the net worth of our house).
During the year, his factory workplace offered him the opportunity to only work the weekends, instead of five weekdays, for the same money. It was an offer he jumped on, and suited us perfectly.
At the end of 2020, I lost my job as my contract was up. I’m now unemployed. The last time I looked on the government job system Recruitment Online, there was one job for a teacher in my region and it was for a graduate – a new, cheap teacher – of which I am not.
Early in 2020, I could foresee that I would need to give myself an edge as a teacher. I started studying Mandarin Chinese as learning about our neighbours in Asia is a cross curriculum education priority, as is the need for students to be global citizens. However, now I am ready to gain evidence of language proficiency, the HSK test ( 汉语水平考试 – Hànyǔ Shuǐpíng Kǎoshì) is no longer being offered in my capital city of Melbourne. The test is available in Sydney, but as a Victorian if I go to Sydney I will need to go into hotel quarantine for two weeks on entering back into my own state.
Despite all this, our net worth still increased by $59,098 which was more than my wages brought in.
This gave me great confidence that we were on the right financial path, compared to in the past when we both worked full time and spent every dollar ending up with nothing to show for it. We didn’t even know what net worth was back then.
How We Increased Our Net Worth During 2020
The plan all along for 2020 was to live from one wage using the Barefoot Investor method, and invest the other wage. This was successful, however, with me only working part-time we were unable to invest as much as we projected. There were other times we needed to use the investment money (car repairs, hospital, vet, all in the same month) rather than invest the money as planned.
Our Barefoot buckets percentages (one income only): this is how we divide up our money:
- 70% Daily Expenses (regular bills, food, fuel, smaller costs, budgeted for gifts)
- 5% each, Splurge (personal do what you want, no questions asked money)
- 10% Fire Extinguisher (unexpected bills)
- 10% Smile (holiday fund – or what it is that makes you smile)
- Mojo: any money over $1,000 in the Fire Extinguisher gets funnelled into Mojo with the aim of reaching at least three months of living expenses
The other wage was for investments. It was used to pay the mortgage and to purchase shares in index funds via the dollar cost average strategy. This means that shares are purchased on a regular schedule (for us every two weeks) regardless of whether the stock market is up or down with the end result of the price paid over time being ‘averaged’. Although, with the share market dipping so low due to Covid, we were able to repeatedly buy shares at bargain basement prices. These shares recovered in value and gave a good boost to our portfolio.
We feel our strategy of combining the Barefoot strategies with a high savings rate to invest in shares is a system that works well for us. We still get holidays, some splurge money each, yet also have the reassurance that our bills are budgeted for and any unexpected costs can be managed.
Savings Rate During 2020
We averaged a savings rate of 39%, which fluctuated between 24% (that time we had lots of extra expenses all at the same time), and 61% when everything was going well.
Ideally, we were aiming for at least an average savings rate of 50%. If I was working full-time we could have reached that easily …
Our savings rate is based on money invested into shares and money paid on the mortgage. Some may argue that paying a mortgage on your PPOR (principal place of residence) is not an investment, as it’s not an income earning investment property. Nonetheless, we consider our PPOR as an investment as it is an asset we can sell at any time. I guess this attitude towards your PPOR depends on how attached (or not) you are to owning a home.
Money into the Mojo account was not included in the savings rate.
Net Worth By Category
Our share portfolio increased by $42,706 this year. Yay! Not too shabby based on 1.6 wages supporting four people, and at times six people. This increase includes shares purchased, capital gains and automatic dividend reinvestment.
Investments are in a mixture of Australian and international shares, as well as bonds: VAS, VEU, VTS, VAF. For more information about why we invest this way please read: Investment Philosophy and Strategy.
Investment Bonds for the Kids
Our six and nine year old have investment bonds. We only put $10 per week for each child into the bonds, however by the time they are sensible adults (might not be until 24 years old!) they will both have a tidy sum.
The two bonds increased by $963.
Technically, this is still our money to do what we want and thus we count it as part of our net worth until we hand the money over at vesting age. For further details please head over to Investment Bonds For Children.
Our Superannuation In 2020
Like nearly everyone else in 2020 with superannuation (which is commonly invested in shares) our super took a serious hit due to Covid. Both our balances plummeted.
I shudder to think how much money people actually lost when they took out $10K from their super at the same time that their super was reduced in value. Then add on to that the lost future income from compounding interest.
I digress …
We didn’t touch our superannuation funds. JL Collins‘ advice to ‘stay the course’ floated around my head. We kept our head firmly attached to reality, kept investing in shares and super, with a quiet confidence that things would be okay. And they were.
My super increased by just under $5K and Mr Hack’s just under $10K.
We’ve both made mistakes managing our super funds in the past. If you’d like to read about our (mostly my) mistakes have a look at 4 Common Superannuation Errors.
Cash: Daily Expenses, Fire Extinguisher, Mojo
Cash saved increased by $7,400. This is partly because 10% of one wage goes into a holiday fund and we couldn’t go on holiday (although, we did go away for a weekend at the beach once the restrictions eased off).
Another reason is our Mojo is quietly accruing every time our Fire Extinguisher tips over the $1K mark. It’s a fantastic system which really works effortlessly.
With mortgage interest rates so low we decided not to pay extra on the mortgage. Instead we funnelled as much money as possible into the share market whilst it was at those bargain basement prices. For example, we were buying VAS at $64 per share and now they are worth $85 each.
The decision not to pay extra on the mortgage was based on maths, and we used online calculators to confirm our results. Look up ‘should I pay off my mortgage or invest’ in a website search engine for more information on this topic.
Financial theory recommends that if your after-tax return on investments is greater than your after-tax cost of debt then you should invest.Caclxml
We are so glad to have followed the Barefoot Investor advice to never fix a home loan interest rate, especially as the interest rates kept going lower and lower.
Our mortgage balance decreased by $5,567. (Thankfully, it’s not a big mortgage.)
My HECS debt (Higher Education Contribution Scheme) increased by $190 during 2020 and I don’t care. I also did not make any payments towards this debt.
The reason is a HECS debt is indexed to keep up with inflation, rather than having an interest rate applied. This year the indexation rate was 1.8% of the balance as a once off fee.
Cars and caravan
Mr Hack assures me that his old Landcruiser Troop Carrier does not lose value. Obviously, I don’t have his eye for car valuation. However, my beloved Mazda has probably dropped about $2K in value.
The caravan and house are likely about the same as they were last year.
We are happy with the increase in our net worth this year, considering everything that has happened.
It is very encouraging to track and see our finances on paper as it makes an abstract concept more tangible.
As late starters heading towards financial independence, the financial path we have taken will allow us to be absolutely fabulous retirees if everything goes to plan, rather than broke pensioners relying on government money.
It’s all about having sustainable money. And, making eco-friendly choices with our money for a sustainable planet.
What will 2021 hold for us? We have no idea, but we do have a plan.
Do you have financial plans for 2021? Please scroll down and leave an overview in the comments box.