Thursday, October 3, 2013

From Savings To Contributions

As some readers noticed, I had not updated my Savings page for a couple of months. The main reason was that my savings could not be determined accurately for a while. Prior to my mid-summer move to start a new job, I had put aside a few thousand dollars because I knew I would not have any job income in July or in the first half of August. During those months I used my savings to pay for moving-related expenses and to cover my living expenses. In mid-August I received some reimbursements for my moving expenses and at the end of August I finally received the first paycheck from my new job, although the paycheck was for only the last two weeks of August. (My new job officially started in mid-August.) At the end of September I received my first full-month paycheck. Consequently, there was a lot of variability in my income and expenses from July to September, making it difficult to determine accurate savings numbers.

Going forward, it will continue to be difficult to determine my savings on a monthly basis because of how I am paid at my new job. My entire salary is paid over the nine-month academic year (I work at a university), which starts in mid-August and ends in mid-May. As a result, I receive a half-month paycheck for August, full-month paychecks for September through April, a half-month paycheck for May, and then no paychecks for June or July. (In case you're wondering, I inquired about whether my salary could be spread out over the entire calendar year, but the answer was no.) Thus, my monthly job income will vary during the year and there will be massive fluctuations in my monthly savings rate, making it an uninformative measure. Moreover, my savings will no longer correspond directly to new capital available for investment because I will be setting aside some of my savings each month to cover my expenses during the no-income months of June and July.

Given that it no longer makes sense to report my monthly savings, I have decided to switch to reporting my monthly contributions of new capital for investment. Up until early 2013, there was a nearly 1:1 correspondence between savings and contributions, but for the reasons discussed above, that will not be the case from now on. Thus, I have replaced my Savings page with a Contributions page that indicates exactly how much new capital I added to my brokerage accounts in previous months. There will be fluctuations in contributions from month to month because they depend on my savings, but I feel this information will be more useful because it is directly linked to my investing activities. I will now be including a note about contributions in my monthly reviews, starting with my September review (which will be posted in a day or two).

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