Thursday, May 17, 2018

Calculating my Savings Rate

When corporations report earnings, margins are always an important metric. For instance looking at operating margins, I can tell how profitable a company still is after they factor in all expenses such as cost of goods, labor, and operating expenses. Although I'm not a corporation, I can still use a similar concept. I can take my income (which is like my revenue) and then subtract all expenses such as food, housing, transportation, entertainment, etc.


The definition of personal savings rate is: "A savings rate is the amount of money, expressed as a percentage or ratio, that a person deducts from his disposable personal income to set aside as a nest egg or for retirement."

Before going forward and calculating my savings %, I took a look at what the national averages were in the USA. I used FRED for the data.

When America was in its growth days and the economy was growing and personal income was growing we had savings rate above 10%. But recently, the savings rate is very low around 2.5 to 5.0%. This is very unfortunate and I think a lot of this is attributed to the growing use of credit to combat the rising costs of living and low to non-existent income growth. Income growth can be seen back in the days before 1980s but in the last few decades there has been little to no income growth across America. America is also driven by a consumer culture and buying large purchases (cars and houses) on large credit. This likely is why Americans have such low savings rate compared to other countries like China.

Even with a savings rate of 10% back in the good days, that seems awfully low to me. For example a person earning $40,000 after taxes every year will only stock away $4,000 annually for a rainy day? That will take a very long time to accumulate enough to retire and is little safety for emergencies. I am skeptical if the data is actually correct though, as people may save money without the Fed having the data to compile the personal savings rate graph. I also don't believe this graph uses equity saved up from a person's home, and it should be noted most American's nest egg is stored in their house's equity. So if the FRED graph is only showing savings as retirement accounts or brokerage accounts, then the actual savings rate may be actually higher than what is graphed.

So enough of the national data. I got to work and pulled up my bank statements for the last 4 years. Here is what I found: 

(Note original post on 5/17 was updated on 5/19 as I forgot to include bonuses paid by my employer in the salary numbers)

I created two data points for each year. The purple bar is to show my net savings (money stocked away into my brokerage counts too) divided by my income before the tax man took anything. The green graph is the same but divided by my income after the tax man took his share. Since the purple bar's denominator will be larger (since it includes income that haven't been taxed yet), the percentage is lower. The data here does not include dividend payments or share appreciation or capital gains, this data is purely using income from my full time job.

I am hovering around 60-70% of savings rate (calculated using take home income after taxes). This includes my rent, food, and every other random expense. The margins have slowly been going down as over time my salary has increased compared to when I first started as a fresh graduate, and I have also been increasing my cost of living due to higher rental costs and being less frugal. This is kind of a 'realization' moment for me that costs do add up no matter how small they are, and I have to be more careful of my margins going forward. I'm noticing there is a tendency to spend more when I earn more.

Overall I think the results are quite good and this explains why my portfolio continues to go up and up even on bad market environments. A large chunk of my take home income is pushed right into my portfolio for more shares of dividend paying stocks.

Thursday, May 10, 2018

Recent buy: PEP, CLX, KO, KMB ...

Around $7000 of cash was deployed today in stock. The buys were distributed approximately as below. Exact dollar amounts not shown as there were too many trades. Although there were a lot of trades below I did not have to pay any commission.

$1.5K staples
PEP  300
CLX 360
KO   150
KMB  100
GIS   150
CL     100
KHC   150
PG     150

$1K indus
MMM  200 
ITW    300
HON   300
GD     200

$1K tech
MSFT 1000
ADP  300

$2K utility
XEL 1000
WEC 500
NEE 450

$.5K material
APD 500

$1K health
JNJ 600
ABT 420

$.3K discretionary
MCD 300

Thursday, May 3, 2018

April 2018 Dividends Received

April finished. Like clock work, the corporations I hold shares in deposited cash into my brokerage account as usual. Here is the breakdown:

Ticker      Total    Taxable         401k
MO $380.81 $328.11 $52.70
PM $353.66 $305.18 $48.48
KMB $77.84 $37.99 $39.85
KO $71.30 $71.30
XEL $66.30 $66.30
MKC $62.40 $40.44 $21.96
O $56.82 $56.82
ADP $45.45 $45.45
MDT $44.29 $30.98 $13.31
ITW $41.61 $41.61
SYK $13.72 $9.45 $4.27
INTEREST $1.63 $0.21 $1.42
$1,215.83 $977.02 $238.81

Tuesday, May 1, 2018

Recent buy: MSFT, JNJ, KMB, etc.

I did a small change in my Medtronic (MDT) position in my 401k. Medtronic pays foreign dividends since they are based in Ireland. As a result I have some dividends withheld for tax reasons when they pay into my 401k. And since a 401k is a retirement plan, I can never get that withholding back as it's not a taxable account. I forgot about this when I purchased MDT in my 401k (make a reminder, don't purchase foreign dividend paying companies in my 401k).

My 401k only had $2300 in MDT. I sold that and I bought $3200 in Microsoft (MSFT) in my 401k. I still hold over $5000 in MDT in my taxable account and don't plan to change that.

Additionally I bought in my taxable account:
$250 JNJ
$197 GD
$206 KMB
$65 CL
$197 PEP

Shares purchased in taxable are free. 401k is $7 per trade so a buy and sell is $14.