November 2011 update - ($165,000, + $9,000 or +5,3%)

I achieved  my annual savings goal - $ 40, 000 accumulated! At the moment I keep them in EUR and following my diversification and asset reallocation idea I will invest them at the beginning on the next year.

No striking good results, but I am on target.

Inflation influence

Inflation. There is so many articles written about inflation, explaining benefits and downsides of it. 

What does it mean for an investor?  Part of the budgeting is  not only see how are you doing now and where the money goes to, but to have vision how to get from A to B.

Using my portfolio I will demonstrate clearly how does it mean an additional 10 (ten) years of work. The prospects and planning without taking inflation into account are rosy and glamour:

 

This means, that should I keep my contributions at $40 K a year, I will reach my target of financial Independence ($60 K a year from my investments at 3% interest) between 2033 and 2042, depending on the stock market performance.

My emergency fund and precious metals are not contributing towards growth - I use interest rate for the savings account at the inflation rate. It does not exactly right, but it simplifies.

This is a bit disappointing but let's have a look at the inflation adjusted scenario:

Diversification 2012

My current and future asset allocation is represented in the following table:

It seems that I am overexposed to cash. I know that the stock markets all over the world are mostly disappointing and not encouraging at all.Quite frankly the only incentive to invest in stock market is that interest on savings accounts (deposits) at the banks very low. The most I could get out of mine is 2,5% gross annually. This does not even cover inflation.

This is what I want to do at the begging of next year - to re-balance my portfolio in terms of cash and various currencies.   Portfolio diversification:

October 2011 update ($ 156,000 , +$ 9,000 (+7.6%))

My goal for this year was to accumulate $40 K USD a year and invest them.  

 I will be concentrating on stocks (mutual funds).  Yes, ideally I should do in small increments, every month. So I will do a one off lump sum transfer next year and then in equal  portions afterwards.

Observations:

Relocation

We have to follow the jobs, so after four years, we moved.  It took some time and money.  Luckily new employer is going to compensate all expenses up to $12,000 but still there is a lot  we had to pick up ourselves.

New car, eating out every day for  first month, while searching for accommodation and living in a hotel.  We will be residing in one of the most expensive areas in the country.

A few practical tips for relocation:

- Do research for new property in advance, contact real estate agents.

- If you know what car you want - put down payment, so the car will be ready for your arrival.

- Collect references from your current landlord, if you are going to rent.

- If you need school / child care - apply as much in advance as possible.

In short it is all about preparation and investing your time in planning and getting to know.  Be ready, open minded and enjoy time with the family. 

Family budget 2011 – US $71,5 k – above target of US $65 k.

Results for year 2011 are a bit early, but for one simple reason – we are on a move, hence there is a lot of expenses associated with it (luckily most of them picked by new employer).

Pictures tell thousand words, so I simply present all information in a table and a graph with some notes to them:

If we would continue to live like for the rest of 2011 we would end-up spending US $ 71,5 k this year, which is way above targeted US $ 65 k.

Durable goods - 10 year period.

I have been heavily involved in closing out a contract at work last month, hence 13-14 hours a day, for a month was a norm.  In our industry competition is fierce, hence no overtime, no bonuses, just hard work.

Thinking about family finances made me realize that every new appliance means that sooner or later it will require a replacement and you have to start saving for it straight away.

Current story:

#	Item	# per family	Cost per Item	# replacement every years	Over 10 years, USD
1	Mobile phone	2	750	3	4,500
2	Camcorder	1	2,500	5	5,000
3	Camera	1	2,000	5	4,000
4	Laptop	2	2,500	5	10,000
5	Car	1	35,000	10	35,000
6	Miscellaneous				10,000
	Total				70,000

It means that to replace them we have to save about 600 USD a month, just to maintain current position. This is just a reminder that every new buy will cost you over the lifetime, just to keep it the same.