Review of Personal Finances for 2014

Expenses

Below is the breakdown of my expenses for 2014:

• Property (45%)
• Wedding/Wife related expenses (18%)
• Parents (10%)
• Household (applicances, furniture, maintenance) (7%)
• Food (4%)
• Vacation (4%)
• Clothing (3%)
• Tax (3%)
• Insurance (2%)
• Others (5%)

Expenses incurred this year were hefty. It was the first year since i started tracking expenses in 2012 that I incurred a deficit (i.e. expenses exceeding income). I'm happy to say however, this being the year I got married and bought a home with Mrs RetailTrader, that the two largest money bombs (which together with household related expenses added up to 70% of expenses) are not going to be recurring costs, so from an expense perspective I'm definitely looking to trim down on total spending for 2015. Assuming the bulk of these expenses fall away in 2015, I am looking to trim expenses in 2015 by half.

I however expect expenses for food to creep up as I'm no longer staying with parents (for most of us Singaporeans, staying with parents = free food lol!). I expect expenses for vacations to remain constant, and expenses for clothing to hopefully fall as well as some of these costs were wedding related (e.g. making up a wedding suit). Tax unfortunately is projected to increase; insurance should remain the same.

Passive Income and Financial Freedom

Given that 2013 was quite a stellar year for the portfolio, the percentage (and absolute amount) of my total income attributable to passive income fell in 2014 (as compared to 2013). Here's hoping things will pick up. 

I'm a follower of the great plan espoused in Your Money Or Your Life, where your financial journey undergoes the following stages (I'm paraphrasing very liberally so pardon me):

• Stage 1: In debt
• Stage 2: Income exceeds expenses, reducing debt
• Stage 3: Positive net worth, start to generate savings, which in turn generate passive income
• Stage 4: Passive income exceeds expenses - this is where you become "financially free" in that you can save 100% of your salary and can make the decision to "work for fun"
• Stage 5: Passive income exceeds expenses plus savings buffer (i.e. the amount of savings you want to achieve monthly/yearly) - this is where retirement becomes a realistic option.

Most of us in the Singapore personal finance blogosphere are conscientious savers and savvy investors who are in Stage 3. Everyday we build our savings moats, laying them brick by brick, waiting for the day we can hit Stage 4. As there is such a huge gap between Stages 3 and 4, it would be useful to have some parameters to measure progress as one works his way from Stage 3 to Stage 4. The parameter I propose to use is the fraction of one's passive income over his total expenses. Hence, for example, if a person were to generate $50k of passive income in a year, and incur $100k of expenses, that fraction would be 50% and if you think about it, it indicates that he is 50% of the way towards being financially free in Stage 4. I'm at 19% for 2014 although 2014 was a one-off anomaly due to wedding and new home. Just for purposes of comparison, i was at 85% for 2013 (another anomaly though because of the better-than-usual performance of the portfolio - I can't expect to be reliably generating that sort of returns every year). Where are you in your journey today?

My next expenses update (for the month of January 2015) can be found here.