Financial Status Update – Dec 2022

Wow, another year in the books! I started a new job with a new company, we road-tripped to the Black Hills, Yellowstone, and Grand Tetons driving over 5,000 miles round trip, our youngest turned 1, we visited family all over the state, made progress on our home remodels, and on and on.

All the while the market continued dropping [slowly but surely] over the course of 2022. Thankfully the economic floor didn’t drop out, but… average mortgage rates went from sub-3% to over 7% and, while the official inflation peaked at 9.1%, many basic necessities (groceries, energy, travel, etc) saw price increases of double digits:

Source: https://www.cnbc.com/2022/12/29/why-egg-prices-have-been-rising.html

But even through all that, our family is very, very blessed. And, using the extra $$$’s from the large pay bump moving companies, we continued saving and investing.

Investors should be “fearful when others are greedy, and greedy when others are fearful”

Warren Buffett, Berkshire Hathaway “Chairman’s Letter, 1986“

We maxed out two employer-sponsored retirement accounts (401k and 457b). We maxed out a Health Savings Account (HSA). We maxed out two IRA’s. We contributed to our kids’ 529 college savings plan. That’s over $55k saved and invested! BUT our Net Worth barely grew though year-over-year (~15k). Most would be frustrated and give up. But we see it as a buying opportunity. As long as we keep earning money and keep investing money, you want the downturns WHILE employed instead of early in retirement (sequence of returns risk).

So, what is our Net Worth at the end of 2022 AFTER saving and investing all this money? Drumroll, please…

Year-over-year, our Net Worth increased by $30k, which sounds decent until you see the chart below. We only adjust the value of our home once a year, at the end of December. The real estate market has been crazy this year, but we also have been making improvements to the house, so we increased the value by a conservative $19k. After all the contributions and investing in our retirement accounts, we are ONLY +$11k for the year. But remember, we’re continuing to buy even when the market is down, knowing we’re investing in living and breathing companies that continue to turn a profit, whose value (and the overall value of the US economy) will almost certainly continue rising, whether fueled by real economic growth, inflation through poor monetary policy and willy-nilly spending, or most likely a combination of both.

So, what are our plans for 2023, learning what we can from 2022’s mistakes, knowing where we want to go, and the likely continued side-ways economic picture?

Control the miscellaneous spending. We easily spend $500-$1,500/mo extra – for nice-to-have and just-in-case things, for hobbies, for whatever. It’s not wrong, but it’s eating into what we really want in the next 3-5 years. And that’s 75%+ of financial independence and maximized time with the kids as they grow so fast.

Declutter and deliberate spending on what is most valuable to us, knowing time with family is in the top 3. Lifestyle creep is real, and we certainly delayed gratification for many years. We need to find a happy medium.

Diversify our investments, including semi-passive income through Real Estate rentals.

Excel at our jobs to continue providing seed money for our investments.

Financial Status Update – Dec 2021

Nearing a milestone, you reflect on the progress and the mistakes along the way. Approaching a $500,000 Net Worth, the regrets are weighing more heavily than I expected. What if we had saved just a little bit more? Wasteful purchases over the years come to mind, plus thoughts of returning useful but not absolutely necessary recent purchases. Why didn’t we start seriously saving and investing earlier? How awesome would it be to have $750,000 instead, being that much closer to a millionaire? Our total at 55 years old would be a million dollars higher if we had. Or we could slow down the delayed gratification sooner.

BUT you cannot live life in regret, or ignore the progress. We are incredibly blessed with a growing family, comfortable house, went on a wonderful two-and-a-half week family road trip covering 5,000 miles visiting 5 national parks, have extended family in pleasant locations to visit throughout year, interesting jobs that pay well, AND a net worth that is ballooning. With a conservative annual adjustment in the value of our home to match the upgrades and appreciation, we’re right at $496k! Up $143k over the 2021 year!!

Certainly a strong bull market helped (S&P 500 up 29% YTD; VTSAX up 26%), but maxing out two employer retirement accounts + our HSA, and even some cash on the side, meant we saved ~$50k on top of saving the expanded child tax credits in 2021. And since we had some room at the 12% income tax bracket given all the deductions, we also converted more IRA investments into our ROTH IRA, so more that 50% of our retirement portfolio will be tax free now.

Thinking back to regret and feeling behind, most of our progress has been in the past few years. We didn’t cross $100k until August 2017. That is when we started being serious about saving (but weren’t maxing our account yet) and purchased a home we could add some serious sweat equity into. We didn’t cross $200k until the fourth quarter of 2019. Meaning… half of our net worth was built in less that 2 years! Basic calculations say we should be millionaire’s before 40 if we continue with our strategy; and well before 40 if the bull market/inflation continues. Don’t mind the jumps or dips below; Personal Capital double-counted once, we had some transfers causing dips when between accounts, and we only manually update home value once a year.

So, how should we make even more progress in 2022?!!

First, we need to continue the momentum with saving and investing. And also continue increasing our emergency fund beyond $20,000 just in case. Our insurance premiums are higher in 2022 + orthodontics for one child + paying off a birth of another child, all will make our net income less. BUT we are committed to still maxing out everything we can this year. We usually buy quality, so we have most of what we need now and it is lasting. Although a replacement family vehicle for our road trips is probably coming this year too. We will have some large expenses, but we currently have the income to cover them all and save, if we reduce the miscellaneous purchases.

Just as importantly, we need to add pain and barriers to spending money. Amazon and online shopping deals make the little-to-no thought purchase just too easy. As we pass $500k and have $750k in our sights, extra junk in our life means slower growth and more clutter. We’re not minimalists, and with growing kids you can only pare down so much, but we want our life to be about experiences and travel, not cleaning up and storing stuff. Having the right mindset and spending less time looking at things are the first steps. We might need to take more drastic personal steps, but we will see.

We need to step-up our overall health and fitness this year too. Between working 60+ hours every week for years, a new baby, and home remodeling projects, the quality of our family dinners and only a little cardio has taken it’s toll on our waistline and energy level. I have been making personal mental growth though; growing up lower income we finished everything on our plate and anything special (something other that roasts with potatoes and carrots, or lunch meat sandwiches) was eaten quickly and as much as I could have. Having pursued a higher income, occasional work trips, etc, “luxurious” meals are more common and I’m developing the ability to each less, enjoy each bite more, and even limit the sweets (chocolate is dangerous).

Finally, for both the excitement of it plus some mental well-being, we need to plan regular family trips this year. We have access to a family cottage about two hours away that we can spend every second or third weekend at during the summer. Another family place up North to camp at. Other family we can go stay with if on occasion. We enjoy spending time with our extended family, who loves seeing the kids, plus traveling period. I’m hoping to take a few work trips this year too, depending on COVID and travel restrictions.

Financial Status Update – Jun 2021

Please see our last post, titled A Late Start + Fear of the Unlikely, for background thoughts. Even we are surprised by how fast our Net Worth is growing, even with this long-running bull market. While we highly recommend you read all our thoughts, in a nutshell… a high automated savings rate, low expenses, hard work, and consistently doing these over and over = the results you see below.

Our Net Worth at the end of June 2021 was… $425,037.11! That’s up $71,938 YTD!!!

$425k was our goal by the end of 2021, and we reached it mid-way through! Even though there is a trend up over the past 6 months above, you’ll notice several periods where we were flat or even down. Several of these lasted for a month. Even when the market was down, we were still contributing thousands of dollars into our retirement accounts and other investments.

The glass half empty says “the market is scary and I’ve ‘lost’ money, SELL!!!!”

The glass half full says “buy and hold for the long term, and hey, the market is on sale!”

If the second half of 2021 is similar to the first half, we will be very close to $500k Net Worth (which was our 2022 goal). Many are fearful of inflation, and many are fearful of deflation. Couldn’t tell you which one will happen, or in what order. Our plan is buy and hold with diversification. We own a home with a low interest rate in a growing market. We buy index funds and bond funds in Traditional, Roth, and brokerage accounts. We have cash. While we will continue to invest a large portion of our income automatically, we do want to build our cash reserves higher. That’s it.

Are you just starting out? Read… A Late Start + Fear of the Unlikely for background thoughts.

A Late Start + Fear of the Unlikely

We recently found a worksheet from 2013 listing our assets when we updated our Wills. Guess how much we had to our name when we were 26 years old, made a little more per hour than fast food workers, with a second child on the way? Our Net Worth was a measly $18,000. We were living in a small rental, had one old car, and no real career direction.

We realize 26 years old isn’t that late a start, but given we are only 7 years since that “reboot”, use our example as what you can accomplish within 5-7 years, regardless of your starting age, if you’re motivated, even frustrated, with your past mistakes or inability to get ahead.

Life wasn’t handed to us on a silver spoon. We paid for our first cars and cell phones ourselves, couldn’t afford college, didn’t have a career plan, but knew we wanted a family and would work hard to carve out a life.

So we chose to continue working diligently, commuting 2 hours round trip for a whole year, and working 100’s of overtime hours to hone a marketable skill. After four years and two companies, we found a new job finally making $42,000 per year with good benefits!!! At the same time, we also picked up a second job that matched a passion plus would pad the income. Between career advancements inside both organizations, our income has grown rapidly thanks to hard work, consistent 70-80 hour work weeks since 2013, and did I mention hard work.

But from 2013 to 2020, our Net Worth has increased by 23x! Thanks to hard work, following opportunity, and saving with investing…

Besides hard work… ultimately it comes down to trust and diversification. Trusting that what’s happened historically will be the most likely future + diversification for the upsets.

We were always concerned about investing in the stock market. But with low fees and diversification (like a Vanguard Index fund), there isn’t anything else as passive with as large a potential. Sure, the stock market could fall, and even stay low for years. But over decades, that buy-and-hold compounding is so incredibly powerful. And you can and should diversify into other asset classes as well, including real estate and even multiple active income streams.

Say it with us… Timing the market doesn’t work!

There will be many times where your investments drop and keep dropping. Let’s review a few recent examples from our own Personal Capital dashboard, shall we:

April 27 to May 24

In both of these timeframes, we were still contributing over $1,000 every two weeks. And yet for a month straight, we were either “losing” money or saw the zero growth. But you know what we didn’t do? We didn’t stop investing nor did we sell, fearing the worst. There was plenty of negative news, with fears of bubbles and inflation to concern us. Instead of focusing on recurring speed bumps, we remained invested in low-cost Vanguard index funds, even buying more, as we are in this for the long haul. We focus on what we can control. And yes, we are diversified into real estate and other assets too; not solely trusting in the stock market. But it would require a massive change in the structure of our government and global economy to nullify the ongoing long-term growth the stock market has seen for over a century now.

February 4 to March 9

We include all this to preface next month’s Net Worth Update post where even we are surprised by our Net Worth’s growth. Sure, a long bull market doesn’t hurt, but it is our relentless saving and trusting in the method that is the main driver. Stay tuned…

Upward Socioeconomic Mobility

“…uniquely American upward socioeconomic mobility…” – This phrase is from Thomas J. Stanley, Ph.D. (the author of The Millionaire Next Door, etc), who is one of my favorite authors, in this article.

It was in regards to hyper-consumption, but I believe this upward mobility is an interesting conversation in so many ways.  With both good and bad ramifications.

 

If you look back through most of history, and even today for many, your socioeconomic level was/is defined at birth.  A few top achievers, visionaries, and “rebels” were able to rise to prominence from lower classes, but most did not move up but very slowly, if at all.  Even owning your own land was uncommon in many cultures, instead trading your labor for the right to use some of it.  Kings, Pharaohs, Emperors, Lords, Tribal Chieftains, or Barons were positions only open to the children of existing titleholders.  Even the “middle class” of educated, decently paid workers with a comfortable lifestyle had a fairly solid floor – only by a stroke of luck did one move up and out of the poor house.  Whereas today, someone can grow up poor but perform well in school and land a scholarship or two, or even spend time in the military.  Graduating with a Bachelors Degree and having a healthy work ethic, there is no reason they will not be solidly middle class or higher in only one generation.  Many of the richest today such as Bill Gates, Warren Buffet, Elon Musk, Mark Zuckerberg, Jeff Bezos, etc have built their massive wealth in 1-2 generations.  

And so far we have ignored that fact that even today’s first world poor and lower middle class live like kings compared to even millionaires from a hundred years ago.  Indoor plumbing, refrigeration, automobiles and power tools, options in food, access to knowledge via internet, instant global communication, and on and on.  But that doesn’t mean you shouldn’t strive for some wealth.

 

Given we’re in an unusual time of economic mobility where one can easily move up or down the “class” system, our goal is to climb and amass some $$$’s before economic/class mobility possibly reduces.  There are two common paths to upper middle class wealth currently, barring starting a successful business or becoming a politician.

  1. Slow and steady saving and investing over a 40+ year career, where you’re subject to the whims of society and multiple employers.  You only amass several million dollars because of compound interest since you will keep working to 60-70 yrs old. Or…
  2. Use your youthful drive and stamina making $$$ for 10-20 years with saving and investing 50% or more of your income.  Technology and efficiency is changing every industry, so after a little experience you’ll be competing with 50-60 year olds who are re-training, expecting higher salaries, and don’t want to put in long hours.  Right or wrong, you can outperform most when in your 20’s and early 30’s because of few family or community responsibilities, ability to burn candle at both ends for a while, and low fixed expenses.  Couch-surfing is societally ok at age 25, where it isn’t for a 45 yr old.  Between low expenses and relative ease of picking up and moving for a job, your earning power is immense given some drive and finding a well-paid career path.

Either way isn’t a bad option, but we would recommend amassing what net worth you can sooner rather than later.  If the world reverts to its more common socioeconomic classes/ceilings, you and your descendants would rather be higher than lower on that scale.  There are no guarantees, but we would rather pad our chances, all the while praying it doesn’t change for the worse.