Category: Financial Update

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.

Financial Status Update – Dec 2020

2020, what a year… Part of me wants to skip the details, but I know in a few years we will all look back and scratch our heads. COVID-19 started in China, initially was concealed so it quickly spread globally, and the panic and concern caused rolling shut-downs and economic hurt the world over. Still looking for data, however at least 50% of the US workforce had to have claimed at least 1 week of unemployment during this time. Stimulus checks, employer loans, extra federal dollars when claiming unemployment… You have to where a “mask” everywhere, even a piece of cloth. And many are either working from home or not working because their businesses/employers are shuttered. This caused shortages for most things, even toilet paper early on. Most people are shopping online with malls and physical stores far emptier than years past. Plus, a very contested Presidential election with very different ideals from each side.

Debt Free!

We didn’t have much left; just a zero interest Home Depot purchase from the home remodel. That is paid off and we are deft free aside from our home mortgage (~70% LTV) and the credit cards we track our purchases with, get cash-back, but pay off each month.

One of our two vehicles is having issues, so we are deciding between purchasing another budget vehicle or down-sizing to a single minivan, mainly since we are working from home now. Given very low interest rates, we may likely take out an auto loan, but pay off in 2 years, just to conserve cash now, or but that is still up in the air.

But it is a great feeling to be debt free and keeps our minimum monthly expenses lower.

Looking at this S&P 500 graph, you can see the large dip in March and April 2020. You can even spot it on the long-term chart. We kept invested, and adding to our investments during the dip, essentially buying stocks on sale. Between inflation, the US Federal Government supporting the economy with more debt, and the US Workforce and Businesses all needing to make money to stay afloat, it will continue to climb.

Net Worth

Even with all this, our Net Worth steadily grew this year. In fact, we surpassed even our streeetch goal of $320k; which was a 25% or $64k increase. We committed to maxing out both our employer retirement accounts + the HSA, and hoped to save additional money into our IRA’s. Weeks of unemployment made it difficult to calculate percentages needed to max, but we got close. We did max out the HSA. And we even moved some “left-over” money from a cash-out refinance, from all the home remolding we had done, into our Roth IRA’s near the market bottom in April.

Our Net Worth would be even higher, but with all the uncertainty, we did spend $1-2k stocking up on common items plus a few “capital expenditures” that gave us a safety net.

2020 Net Worth graph from Personal Capital. The dip/rebound in December is from our CARES Act withdrawal. We had a lot of money in our 401k and wanted the contributions more available in a Roth IRA if 2021 is no better than 2020. We also converted some IRA $’s into a Roth IRA.

But a $83k increase between contributions and investment returns is awesome! So excited to see our hard work paying off! Maybe we can duplicate next year, but we will see how it works without a stock market plunge [hopefully].

After a very conservative increase in our home’s value from remodel projects in the kitchen and bathrooms, our final Net Worth figure for 2020 is… [drumroll please]

The most important take-away from this whole year, and it’s the same story as in 2009-2010, is to maintain your income, save as much as you can, and stay invested. When everyone is panic selling, you are slowly but steadily buying more VTSAX or a quality total stock market index fund. To be honest, it’s what you should do every month and every year, the stock returns usually are much higher though because you are buying stocks on a sale.

What Should I Include in My Net Worth?

Your Net Worth is all of your Assets minus your Liabilities. In other words, all your money + equity – your debts. The Net Worth value is important to track, even if just once a quarter, to make sure you are building wealth. A doctor making $300k/yr could have a low Net Worth if they spend 99% of their income; whereas a teacher could have a higher Net Worth than that doctor if they save $10k over the year. Your Net Worth quantifies how well you are converting your income into wealth, as opposed to luxuries that have no value after they are used. For many, equity from the home they live in is a large chunk of their Net Worth. This isn’t bad, per se, but it means only a smaller portion of your Net Worth is being productive (i.e. earning interest).

Here is what to include in your Net Worth with examples:

Cash – The balances in your Savings + Checking accounts that aren’t already spent, Cash in a safe or safety deposit box (or under your mattress), savings in your HSA or FSA, money owed you that you realistically expect to receive soon, etc

Subtract Debt – Credit Card balances, auto loans, and other lines of credit

Investments – Retirement accounts (401k, 403b, 457b, 529, IRA, etc), investments in your HSA, brokerage accounts, Robin Hood, WeBull, peer-to-peer lending

Real Estate, minus any mortgages or loans – Take a fair appraisal and subtract your mortgage balance. Zillow may or may not give you a realistic value. You could compare estimates from Zillow, Redfin, and ReMax to get in the ballpark. Personally, since we have only owned our home for a few years and want to be conservative, we’re using the last official appraisal. Not required, but do be conservative and honest here. We also don’t update this value but maybe once a year or two as we want to see the organic growth of our Net Worth from frequent saving and investing, not frequent “artificial” increases from our home value jumping around.

Precious Metals – This shouldn’t be a huge chunk of your portfolio, but some is usually good. Gold and Silver aren’t the best investment nor even the best hedge against inflation, but it’s part of not keeping all your eggs in one basket. There are times when gold is worth it’s weight in, well… gold. For example, some Jews fleeing Nazi Germany sewed gold coins into their clothes knowing they could restart their lives elsewhere (rather than having German Marks in say Japan or Argentina).

? Vehicles – IF using conservative values and mostly offseting loans, in our opinion. To be honest, the only reason we included our vehicles’ value in our Net Worth is because Personal Capital automatically added the loans (update: when we had the loans, but they are paid off now). Because vehicles decrease in value each year and we only buy reasonable ones (currently <$10k) we actually need, we wouldn’t sell them unless we were destitute because they get us to and from work and family. When a car loan was in Personal Capital, we added a manual asset offsetting the loan. This manual asset was always less than the actual value of the vehicle. In our opinion, the Net Worth should be about growing your passive investments and overall wealth; not having expensive luxuries that decrease in value but look valuable on paper. Would you rather have $200k “equity” in a super car or $200k in a 401k? Unless your net worth is >$2-5 million depending on your other lifestyle choices, the 401k is the correct answer.