The Cheesy Index took a hit in July, just as expected. The main reason is the costs for the closing of the home purchase. This caused the total cost of the house to become more than the assessed value of the property. No surprise here. And, as shown in the post on the July Saving Rates, we had several expenses in July that affected the Cheesy Index as well (as in, we did not add as much to the portfolio as we normally do in a month).

The Cheesy Index up to July 2016 is as follows (still a solid 47% complete):

201607 CI

A bit more detail on how our assets have developed over time in 2016 can be seen in the two graphs below. The first one provides the distribution of the income, non-income and depreciated assets. The first category includes all real estate, stocks, index funds and loans. The non-income assets include the house (the portion we are living in), cash and some valuable personal possessions (art/jukebox). The depreciating asset is our car. Side note, the asset allocation does not include debt or debt corrections (i.e. the mortgage).

There is clearly an uptick in non-income assets in July, but this can be explained by the fact that we now own a house again, which obviously currently does not generate any cashflow (its an expense so to say). However, if we were to move, we would rent it out and make it into an income asset (it’s a non-activated income asset).

2016-08 Asset Allocation

In the second graph provided below, you can see the more detailed distribution of the above income asset columns above. Again, you see an uptick in real estate, which is because we added 3 rentable units to our portfolio. As a result the percentage of the other groups fell, despite small additions to some of these group (dividend stocks, crown funding and index funds) in July.

2016-08 Income Asset Allocation

How is your FI number doing, and your portfolio? Let us know!

With almost all of our cash pile now reinvested into dividend stocks, we have very limited ways to do more purchases (we also still purchase index funds, invest in crowdfunding and invest into real estate with new incoming funds). Most stocks are now on autopilot with various dividend reinvestment plans happening automatically. We will have the occasional purchase, but not many more than three to four per year (at around €1000-2500 each). The total dividend for July came in at just over €450. We also found a small error in the calculation for June dividend, which was corrected with a new total just under €700 (instead of above).

20160801 Monthly Dividend

Here is an overview of our dividend stocks (we currently have 40 different stocks):

20160801 Dividend Overview

We sold Ahold, Unilever and Shell already in both June and July, but do plan to buy back some of the stock in the coming months once we have a clear picture on the finances after our real estate transactions (we still have a few things to sort out).

If you group the above dividend stocks by sector, the distribution of our portfolio is as follows (based on market value at close of markets on July 31, 2016):

20160801 Dividend Stock by Sector

No new purchases were made in July.  How did you do last month?

As expected, July was a “horrible” month from a Savings Rate perspective (compared to our previous months, all is relative of course), but still a good one considering all that happened in July! This months was rather expensive for several reasons:

  • We moved so had moving expenses and costs associated with the new home (think paint, supplies, etc.);
  • We bought a new washing machine (we borrowed one up till now). We bought it refurbished for 50% of the retail value (yes, it has scratches but also 2 year warranty) for €544 (it can load 12kg!);
  • Maintenance and road tax for our car; and,
  • We had double day care costs (due to the move and associated timing of payments) and also had to pay funds back to the government for benefits received that were slightly too high.

On the upside, we got double expense claims and income from our new rental property! Yay. The SR for the month ended up being 39.6%

201607 Savings Rates

Below you can find an overview of our expenses in percentage. As noted prior, transport is low for us as both Mr. and Mrs. CF have their commutes paid for (one company car and one public transportation card. However as noted above, this month we had some additional expenses for gas, maintenance and road tax, therefore the relatively high number. The “Kid” category was very high this month due to aforementioned reasons. The other category includes the washing machine and a spare bed. Groceries were slightly higher due to some inefficiencies with cooking during the move.

201607 Expenses

No leisure this month, had to work hard to get our stuff setup on the new house 😉

How did you do this month??

For another post on the frugal-licious series we take on of our favorite (albeit not very heathy) snacks: the Samosa!

As you may be aware, we try to follow a plant based whole foods lifestyle as much as possible (why? because your body will thank you now and when you are older). This recipe ain’t it, but we try to make it as healthy as possible by not using salt and oils.

What do you need?

  • 1 large potato finely diced (5-10mm cubes)
  • 1 large carrot finely diced (as above)
  • 2 cloves of garlic (crushed)
  • 1 lage Onion finely chopped
  • 1.5 cup of (frozen) peas
  • 1 table spoon of vegetable oil (optional, a bit of water also works fine)
  • 2-3 teaspoons of curry powder (or any spice mix that you want/prefer)
  • Salt/peper to tast (we actually don’t use any salt)
  • 100ml of vegetable stock (but you can also replace with water and up the spice mix a bit)
  • 1 package of 10 square phyllo-dough sheets (preferably with the least amount of ingredients and additives)

Heat the oil/water in a frying pan, add the onions and garlic, mix in the spices and fry until soft. Next, add the vegetables, seasoning and stir will until coated. Add the stock/water, cover and simmer for about 30 min until cooked and a bit mushy.

Next (and this is the easy route), open the packed of phyllo-dough and place on a large oven plate. Make sure that they, if they are just out of the freezer, are warmed up and flexible. Add as much of the mixture in the phyllo-dough as you can (but you are still able to close and seal the sides, see picture below). Put the plate into the oven and bake for about 15-20min at about 200 degrees Celsius (about 390-400F).

Samosa

sorry for the crappy resolution, we don’t have expensive phones with good cameras (go figure!).

Enjoy!

Oh, and you can also make “appelflappen” in exactly the same way. Only insert a mixture of about 3-4 large apples, a cup or two of raisins and table spoon of cinnamon. Make sure you first cook this mixture until tender in a small pan to make sure it shrinks less in the oven. Gives you a appelflap with much more filling.

 

June 2016 was a fairly uneventful month (one purchase), but a winner from a dividend perspective! We have been able get another record month with well over €700 in dividends. The total dividend for the first half of the year is almost €2600, nice! (if we may say so ourselves).

20160701 Monthly Dividend

Here is an overview of our dividend stocks (we currently have 40 different stocks):

20160701 Dividend Overview

We currently don’t own any Ahold, Unilever or Shell anymore, but will again in the future, see more details below.

If you group the above dividend stocks by sector, the distribution of our portfolio is as follows (based on market value at close of markets on June 30, 2016):

20160701 Dividend Stock by Sector

In light of the recent property purchase we had set automatic triggers for various dividend shares in our Dutch brokerage account, which surprisingly all triggered the Thursday before Brexit. We bought back a bunch of shares on Friday morning and sold them again just before the end of June. We still received all dividends for June and made another 10% or so in capital gains. Now we are waiting to see how much money we will have left after reno’s and other moving as sales expenses before we start buying new dividend stocks (now we are just waiting for another buying opportunity).

We bought 450 shares of AAR.Un to increase our REIT portion of the portfolio. We also received 4 shares of Prairiesky Royalty Ltd, as a payment from Canadian Natural Resources (about $100 in cash that was used to purchase the shares). Not sure what we will do with these shares, but will keep for now (low dividend yield and not a company in which we would invest ourselves, so will keep for capital gains for now).

 

It is really reassuring to see that the Cheesy Index keeps climbing! A very small correction was applied to the previous 4 months in 2016 as we reassessed our depreciating asset: the car. We found that the value was slightly overestimated by about €500, and corrected for that. Fortunately no major changes in the overall numbers (only May dropped by about 0.1%). We have now arrived at a Cheesy Index of 47.6%, which is a very promising development and is making us confident that we may be able to make the 50% target this year! The only thing that could affect this target are the final assessed values of the new (and existing) properties, which we have just bought a couple of days ago. More to follow next month!

The Cheesy Index up to June 2016 is as follows:

201606 CI

 

Despite the (for us) relatively low Savings Rate for June, it still was a vey good month at 52.4%. The main reason for this below average month is the fact that an anticipated expense claim from Mrs. CF’s work has not arrived yet (looking forward to next month, were we will have two!). However, if we look at the core expenses and incomes, it actually was a very good month, so we are happy campers!

201606 Savings Rates

Below you can find an overview of our expenses in percentage. As noted prior, transport is low for us as both Mr. and Mrs. CF have their commutes paid for (one company car and one public transportation card), this month we some expenses for gas. A small service is scheduled for next month. The “Kid” category was normal this month with both expenses and the refunds/benefits form the government.

201606 Expenses

Similar to last months, most of the leisure events for this month were “free” with the exception of a bachelor party in Utrecht and the following Wedding. Fortunately, costs were offset by the same of a few items on marktplaats.

How did you do this month??

Full of enthusiasm and motivation did I (Mr. CF) start with the Amber Tree Leave Running Challenge (see here). After about a month progress was pretty good (see here). But then disaster struck several times (ok, bit melodramatic, but it felt that way). Initially an old injury re-emerged. This took a couple of weeks to disappear, so you start again from scratch…..sigh.

Next, after we had switched to summer time, little Miss CF decided that she did not want to change to summer time. So since that day, she now (still!) goes to bed an hour later (however, she does start the day at the same time and thus sleeps an hour less and does not seem to be bothered by it). We have tried endlessly to get her to go to bed early, but to no avail.

Side note, she is also getting to the point that her afternoon sleep is not always required, so if she sleeps well during the day she can stretch is to about 21:00 before going  to bed.10km run

The problem is amplified because Mrs CF often comes home late from work (around 19:00-20:30). The main reason for this is that Mrs CF takes the morning “shift” with Miss CF before going to work, and I take the afternoon/evening “shift” with Miss CF after getting home from work (we have staggered our working hours to get around day-care limitations/traffic jams). Bottom line. I don’t have time in the evening anymore for workouts.

Add in the occasional cold, lack of motivation/tiredness and you have a very much failed running challenge. Motivation and discipline. It seems so easy, but it turns out to be very hard 😉

The good thing is that I was able to do regular workouts, but not enough to jack it up to run 10km in under 45min. At this time, I have had another 3 week interruption due to lack of time, preparations for moving, and many other things that are happening in one’s life.

Reality is that with the upcoming move, the running regime will still be under pressure. Likely to start again in full force in August….. may need to set another running challenge to keep going as I still want to run a PR on the 10km on of these days.

Moral of the story……if life is hard and throws you curveballs…..just keep going!

The title question can actually also be combined with “should I pay of my house faster?”, which is a very popular topic that is debated endlessly on many personal finance blogs. Being in the process of buying a house, we did some calculations to find out what amount of down payment (and/or accelerated mortgage payments) would provide us with the best Return On Investment (ROI) for our available cash.

As per usual, we need to identify a few boundary conditions and assumptions to be able to assess the various scenarios, which are as follows:

  • Assumed property value €200.000;
  • Fixed term annuity mortgage (albeit this assessment also applies to linear mortgages and variable mortgages, as the principle is the same);
  • Mortgage based on 5 year fixed rate, 30 year amortization period with the ING Bank;
  • ROI assumed at 3%, 4% and 5% for funds invested (in whatever assets that rock your boat);
  • The missed investment income or “Opportunity Costs” is defined as the lost ROI on the equity being locked in your property; and,
  • Appreciation of the property is not taken into consideration, as you would need to sell your house to materialize the profit.

Mortgage

Before we continue, a quick explanation on why we selected the ING Bank with regards to the mortgage provider for this assessment. The ING is the only banks that has 12 classes defined for its mortgage interest rates (most banks only have up to 3 classes). This means that your mortgage rate changes depending on what percentage (ratio) of your home value is mortgaged.

For example, if your current mortgage value is €150.000, and the value of the property is €200.000, your mortgage ratio is 75%, However, if you have just bought your house, with a down payment of say €10.000, your mortgage would be €190.000 and the mortgage ratio is 95%. As you can see in the table below, depending on what term your mortgage is defined, you are looking at about 0.35% difference in mortgage interest rate. That is considerable on a mortgage percentage around the 2% mark!

ING Interest Rates

The point here is that you benefit from paying off your mortgage faster (or putting a down payment on the property at purchase) by paying less interest as well as getting lower monthly payments. That is a double win!

Team CF Top Tip (with a hat tip to one of our readers), if you have been living in the same house for a few years, doing a new price evaluation may help you lower your interest costs/monthly payment as, due to the price increase the newly calculated mortgage ratio may drop you into a lower interest rate class.

The Assessment

As noted earlier, a smaller mortgage means lower monthly payments and less paid interest. But on the other hand you are also losing the opportunity to invest your money into assets that generate you (cash-flow) income or create capital gains (i.e. the “Opportunity Costs”). As you can imagine, there must be a sweet spot in the amount of equity in your home, but as you would expect, it depends on the interest rate paid and the assumed ROI.

In the figure below we have tried to show, for three assumed ROI’s, at what Mortgage Ratio your will find the tipping point between benefitting from paying off your mortgage faster or better invest into assets (stock, bonds, ETF’s, rental property, etc.).

Interest vs Opportunity Cost

So how should you interpret this graph?

The orange, green and red lines indicate the theoretical ROI (being 3%, 4% and 5% respectively) on the funds that are “locked” into your home (i.e. the “Opportunity Costs”). For example, if you have a Mortgage ratio of 90%, 10% of the property (in this case €20.000), could have been generating income. At 5% ROI this would have been €1.000 a year.

The blue line is showing the reduction in the amount of interest  (expenses) you are paying, on a yearly basis for this scenario and the ING interest rates shown above. As you can see this is not a linear line, which is caused due to the reduced interest rates you get for owing an increasingly larger portion of your house.

At the tipping points (as shown at ~44%, ~78% and ~90% for the 3%, 4% and 5% Opportunity Costs options respectively) the return you make on your investments become larger than the reduced (or saved) interest costs. Beyond these points, you are better off investing the funds than using them to pay off your mortgage faster. Another benefit is that you maintain the mortgage interest tax deduction (aka “Hypotheekrenteaftrek”) as large as possible for as long as possible.

What Does This Mean In Reality of You?

This completely depends on your situation, firstly you would need to know (or at least assume) an ROI that is applicable to your assets. Next, check your mortgage interest rates and classes to see how additional down payments affect your monthly payments (or reduction in interest).

The next step is just doing the math, depending on the results you can start to evaluate your options. For some of you it might be worth paying down the house, for others it may mean that you should start to divert as much cash as you can towards investments/assets.

RE 09

What Does This Mean In Reality of Us?

Considering our current portfolio is generating about 4% per year (after taxes/inflation), and we still can decide what to do with our available cash, it seems most logical to put the available cash into the mortgage (which currently sits at 102%). Simply because the reduction in interest expenses at this stage is far larger than the potential income from the funds when invested (we would need a ROI of about 27% on the available cash to compensate the increased interest expenses…). Theoretically, when we get to about 85-75% of our mortgage, we should really start diverting every available € towards investments rather than putting it into our house.

In reality however, we would continuously reducing our mortgage amount by our monthly payments. Based on our preferences and the shown interest rate drops per mortgage ratio class, we will aim to initially reduce our mortgage ratio to 95%. After that, as it takes time and considerable amounts of cash to drop to the next (lower) mortgage ratio class. So it is likely better to invest in the means time, try to make some dividends and capital gains, and cash at a point where we would be able to drop a large cash amount into the mortgage to force the amount into the next interest rate class (which is generating the largest impact on cash flow and interest expenses).

Another point of consideration here is that the property we are buying is a four-plex, of which we will use the largest unit for us and the other 3 units will be rented out. This means that every € that we put into the mortgage is factually an investment, as it reduces the mortgage cost and thus increases the cash flow and profit on the property.

May was a moderately good month in terms of dividend (but with so little history, it really is hard to tell). We kept adding shares with the available cash, but we are running out of the original cash available from the account switch. Each month the Dividend is a bit of a surprise due to the ex-dividend dates of the new shares (and existing shares if we bought extra) that we don’t always keep track of carefully.

20160601 Monthly Dividend

Here is an overview of our dividend stocks (we currently have 40 42 different stocks):

20160601 Dividend Overview

If you group the above dividend stocks by sector, the distribution of our portfolio is as follows (based on market value at close of markets on May 31, 2016):

20160601 Dividend Stock by Sector

Purchases of the month of May include AAR.UN, GS, CIX, EMA, TCL.A and BCE. Shares were bought as new positions and averaging down on existing ones or buy extra shares to keep the DRIP’s optimal (i.e. buy as many shares as possible per dividend payment).

We also sold MRD (Melcor Developments), a real estate company focussing on building construction. It had lowered dividend payments and was not a good fit with the portfolio.