Financial review of 2020

At last, 2020 is gone. One hell of a year it was!

Just like last year, we have done a financial review of 2020 to measure our progress and make necessary adjustments.

We will quickly share the progress during Oct – Dec and then the whole year.   

Oct – Dec 2020 updates

• We continued to work from home.
• Spent 1.5 month with my parents in hometown when air pollution was peaking in NCR. Lots of food and little exercise resulted in weight gain of 3.5kgs.
• Savings rate of 85%(Oct), 87%(Nov) and 81%(Dec). The average savings rate for this quarter was 3% less than previous one.  
• Rent(66%) and groceries(19%) were the major expenses in this quarter.
• Travel to hometown and gifts contributed to 6% of expenses. Rest all expenses were similar to previous quarters. 
• Got double digit salary increments for 2021. 
• Equity valuations in mutual funds and direct stocks continued to increase due to rally in the stock markets 

Review and highlights of 2020

1. Savings Rate

Our average savings rate in 2020 was 84.4% which was 4.4% higher than 2019. This was mainly due to two reasons – 1. Less expenses during lockdown 2. Income in 2020 was higher than 2019. 

We hope to maintain a savings rate of 85-87% in 2021 by avoiding any lifestyle inflation.  

Below chart depicts monthly savings rate in 2020. 

2. Expenses 

Our 2020 expenses were 12% less than 2019 expenses. 

• Rent continues to be biggest expense at 57%.
• Due to lockdown and WFH, we spent 1.75x more on groceries compared to 2019. These expenses were second highest at 15%
• Travel expenses at 7%(one international trip pre-Covid and a domestic trip to hometown). To ensure safety, we booked outstation cab for our hometown visit instead of using public transport.  
• Home improvement at 7%. The big ticket was our first air conditioner since the unbearable heat made WFH almost impossible.
• Remaining expenses were pretty low as there were not a lot of needs during the lockdown.
• A new expense category of ‘baby items’ has been introduced. We are expecting our first child in early 2021 and pretty excited about parenthood. 
• An excellent medical policy from our employers helped to keep the maternity related medical expenses pretty low. We are keeping a track of all such expenses and will share details in a separate post after becoming parents. 

Below is a pie-chart depicting our expenses. 

3. The downs and ups of Equity investments

Due to many poor investment decisions of the previous years, our equity investments were already running in losses at the start of 2020. And then Covid-19 started a bloodbath. By the end of March, we were at a loss of 39% or around Rs 7.5 lakhs. 

However, there has been a strong recovery in both direct stocks and mutual funds since May 2020. At the end of 2020, our investments are at a profit of 10%.

Looking back, it was good to not panic sell when the markets were crashing. Although, we missed to invest more when the markets reached a bottom.  

Below graphs shows the variation throughout the year. Month seen is when the calculations were done 

4. Portfolio Income

Primary sources of our portfolio income were interest from debt instruments like EPF, PPF and fixed deposits. We also sold some equities to book profits during market recovery. Some dividends and negligible amounts of cashbacks from platforms like CRED, GooglePay and PayTM.

The combined portfolio income from all sources was ~8% more than our total spends in 2020. Hope its OK to say that we achieved textbook meaning of financially independence in 2020.  

Note: As suggested by one of the readers, above income falls under the category of Portfolio Income. Thus, I’ve changed the wording from Passive Income to Portfolio Income. 

 

5. Net assets growth

Our net worth increased by Rs. 51,85,440 in 2020, which averages to Rs. 4,32,120 per month.  On a year-on-year basis, this was a significant increase of 37%. 

We also reached an important milestone of crossing Rs 2 crore in net worth.  

Financial goals for 2021

• Avoid any form of lifestyle inflation.
• Maintain savings rate or increase it by 2-3%.
• Invest more in equity mutual funds to increase our equity exposure by at least 10%.
• Achieve our F.I.R.E target by end of this year. 
• Learn more about investing in direct stocks to make better decisions. 
• Continue to maintain a healthy lifestyle.
• Review and adjust our goals and target every quarter. 

That’s all for financial review of 2020! Although it was a good year for us financially, Covid-19 caused huge challenges on the social and mental well-being. 

With hopes of an efficient vaccine, looking forward to a better 2021.