I’ve just uncovered a mistake in my Expenses Spreadsheet. It tracks all of my Income, Outgoings, Assets, Liabilities and Transfers. I’ve been keeping it in some form for 17 years and if I spent as much time as I have working on it, learning the piano, I’d be a maestro!
Anyway, this mistake goes to show why it’s important to have financial control and to understand what’s going on with you moneyI’m not a fan of cars and I hate them! But one thing that is difficult with cars is how to accomodate them within my spreadsheet. Are they an asset? Well, my last car cost £8,000 – so yes. But it’s actually a liability because it costs me money to run and it deprectiates too! Also, that £8,000 is actually not an investment, it’s just spending – so that month I must have spent an extra £8000 on the car. See what I mean, it’s a bit complicated.
What I thought made sense was to say the car cost £8,000 and that is a transfer from my liquid asset to “HPSO” where the “O” means Other and that includes cars. I’d then depreciate the £8,000 by 2% a month to cover the drop in value – so it ends up as about £6275 after a year. If I sell it for more or less than it’s “book value”, I can adjust the rate of depreciation to match the final value.
So far so good – but a few months ago I was concerned that I wasn’t including car depreciation as an Expense. That £8,000 was not only costing me opportunity cost but also it was dropping in real value. Now, I don’t put a value on opportunity cost but I should on the depreciation. Owning that car is making me poorer every month. So in my Expense Tab I created a separate Car Depreciation Line and added that to Household Costs – a sexy term for things like the utilities, council tax and the like. So my monthly costs are made up of:
- Childcare costs – for the nanny/childcare
- Car Depreciation – for the cars (2 at the moment)
- Household Expenses
- Mortgage Interest
- Flex and Other spending – day to day spending from current accounts/credit cards
Where’s the problem? I added in the Car Depreciation as a separate line as well as including it in the Household Costs – meaning I double counted!
Once I spotted this, it meant that I could have another look at my spending. The impact is that I’ve been spending around £150 a month less than I had thought – which is good! It also means some of my FIRE metrics change for November (November / November’s six month average)
- Savings Rate 62% / 41% goes to 65% / 43%
- PWR 3.3% / 5.9% goes to 3.1% / 5.7%
- Pre-Pension Funds PWR 7.8% / 13.8% goes to 7.4% / 13.3%
Those might not seem significant but it really is. To get an extra £150 a month would require an investment of £43,000 in a FTSE100 tracker to generate the same income. And I’ve been looking at my spreadsheet and humming and haaing over how doable is FIRE when I’ve been double counting £150 a month (which is about 7% of our post-FIRE budget) – how amateurish of me!
So the lesson is; be careful when you put together your spreadsheets. You should be tracking these things – but mistakes are easy to make especially when you leave things alone (I don’t have my car revalued every month so didn’t think much about it). In this case, I was overstating my spending but it could have easily been the other way round and I was spending more than I thought.