Frustrated – PrudentCoin.com

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.

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:

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.

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…

Advice for My Younger Self

Reaching your mid-30’s, you think about all the successes and failures from your 20’s. What seemed a roller coaster ride filled with uncertainty is now a recent memory with an obvious path. When my younger brother graduated high school, I gave him some life advice from my own experience. To be honest, I don’t remember what it was, but I don’t think it was very clear in my own mind yet, nor actionable for him.

Now with younger cousins graduating high school, I have a much clearer recommendation that would have answered, for me at least, the age-old question of…

“What do I want to be when I grow up?”

Like most, I couldn’t afford college without taking on debt from day one, and my parents had no financial ability to help. Sure, I would have worked a part-time job, but it wouldn’t have come anywhere near close to covering tuition after paying to live a bare-bones “lifestyle”. And since I didn’t know what I wanted to do, spending $60k or more on a 4-yr degree had an unknown ROI.

Instead… I spent ~6 years, with a young family, working near the poverty line in call centers and odd-n-end jobs before eventually becoming low-to-middle class. In what became a career path you couldn’t have made up, I started at a machine shop part-time that my buddy worked at, then moved to a full-time calibration job another friend was at (even working months worth of extra hours in overtime, we still did not surpass a $40k income; I even slept in my car one night because I worked a 16 hr day followed by a 14), then I interviewed and landed another calibration job making ~40% more (~$42k/yr thanks to learning everything I could at the previous job for 3 years), and have now moved internally in that company switching to improving business systems and processes. While at this company, I completed my Bachelors with them paying for most of it. I need another bump or two in title and several big bumps in pay to get where I need to be, but I’m so blessed just to be where I am at given my starting point.

So, what am I encouraging my own flesh-and-blood high school graduates to do?

Unless you have the financial means and interest to attend college right off the bat for an engineering, medical, business, etc degree that has a real Return on Investment (ROI)…

Find a Trade or associate-level Profession that has a decent barrier to entry, takes two years or less to get started, pays decent during summer internships or on-the-job training, and has a higher pay in years 2-5+.

In the medical world, this could be a Tech (radiology, ultrasound/sonographer, etc), a RN, a Dental Hygienist, or even a EMT/Paramedic + FireFighter. As long as you keep your certifications/licenses current, often you can even jump in and out of the workforce, or work part-time, depending on other family or life responsibilities.

For Trades/Apprenticeships… electrician, HVAC, machine operator, etc + even the legal and financial occupations.

Sales… As a 18-22 yr old, an inconsistent income doesn’t hurt like it does when you have a family and mortgage. Couch surf if you have to, but Real Estate, among others, requires just a few years of learning the ropes, getting certifications, working under a Realtor, etc before you start making good money. Do it while you’re young, energetic, and have nothing to lose.

Here’s Why… A barrier-to-entry means not everyone can apply to the current job postings and the pay will be higher. 1-2 years of training means you will have marketable and transferable skills, even before your first job. And, the training will often introduce you to paid internships or first jobs. Don’t worry that this isn’t your dream job or not what you want to do in your 40’s. It may open your eyes to a career you hadn’t thought about, give you hands-on experience for a future job, or just be a source of interesting small talk when you’re older. Today, employers and society are all but expecting you to have several careers during your life and many in the workforce change jobs every 2-3 years. Regardless, this starter career will finance the training for your “real” career!

After 3-5 years when you are making a decent middle class wage, and have a better idea of what you’ll see as meaningful work, fund your “next” career. Still work at your current job, but attend college or additional classes. Some examples… An electrician but want more, get an Electrical Engineering degree (or work-to-own the company you are currently employed at from the aging owner). A RN and like it, go for a BSN then a specialty to make six figures. Or switch completely, but use the current income to fund the training and then even be a part-time extra job going forward. A FireFighter/Paramedic can be a Real Estate agent or electrician too. A Dental Hygienist will often work only 3-4 days a week, during the day, so the off days, evenings, and weekends are free for other endeavors.

Save and invest 25% of that income + train for your next “real” career with College and/or more industry training and certifications

You’re young and being cheap is ok. At this point, $10 is a lot of money and can even be two whole meals from Taco Bell or McDonald’s. $100 means you can buy just about anything you want, or only have to save for a few months maximum. Having a thousand dollars in your bank account basically means you are rich! KEEP THAT MINDSET. Treat yourself to a little bit, but do not increase your lifestyle dramatically. Save a ton and invest now in a passive S&P 500 or Total Stock Market index fund. Work and study 60+ hours a week; you have the energy and them some. By 25 yrs old, you will have made $150k+ combined, have almost $50k in savings/invested, and be ready for your next career.

[Link to] Need vs Comfort vs Luxury

Don’t let lifestyle inflation get you until you are in your 30’s with a Net Worth of $500k, with much of that invested.

If I would have done this, we would be 5 or more years further ahead of where we are now…

Financial Status Update – Jul 2020

Oh my, what a crazy 2020 so far. Not that 2019 or especially 2018 were tame, but COVID-19 and a rolling global shut-down knocked everyone back. Add-in a whole host of smaller events like Tropical Storm Isaiah hitting the East coast, historic flooding in China starting to affect some supply and industry, Kobe Bryant dying in a helicopter crash, etc…

But 2020 hasn’t been a bummer year for our Net Worth! We paid off our second/final auto loan and committed to maxing out our retirement accounts at of the beginning of the year, before Coronavirus hit. We continued steadily saving through it all, even though I was furloughed for a few weeks. I had made myself extremely useful in a number of roles; not quite irreplaceable but close. This limited the number of weeks I had to take off unpaid compared to others. Continuing to buy during the massive 30% dip (3/19/20 below) meant that we saw great returns on the way up. We didn’t Dollar Cost Average per se (http://prudentcoin.com/dollar-cost-averaging-is-timing-the-market/), but invested like normal as soon as we had the cash.

There were two financial moves we made but wouldn’t necessarily recommend, but happened none-the-less:

First, we changed my 401k plan’s allocation; it had been in a Target Date Retirement plan with 70% stocks and 30% bonds. We had been fearful of a market crash and it better fit our risk profile. After a near 30% market drop, but knowing it could drop even further, we decided to re-balance to a 90/10 fund. This ultimately made us more money when the market rebounded as bonds hadn’t dropped quite like stocks had. However, we wouldn’t recommend as we were going against our own investment principles and actually timed the market. Sure, it worked out this time… or did it?

By being in a lower percentage of stocks for several years, we were seeing lower returns than we would have if we were 90% in stocks. So, even though our portfolio fell less in March 2020, the greater returns of the stocks over the preceding years would have been more than enough to cover the difference (blue line is 90/10 and orange is 70/30 stock/bond with Vanguard Target Date retirement funds):

Source: https://markets.ft.com/data/funds/us/compare

Our second abnormal money move was… we had money left over from a cash-out refinance on our house last fall. We had put in a lot of sweat equity, given the kitchen and frankly the whole house was nasty when we bought it 2.5 years prior. We wanted to get back to a 75% LTV so we could finish a few more needed projects, like a garage that needs a new roof, door and opener, siding, etc. We maxed out our 2020 [Roth] IRA’s plus filled up the last of our limit for 2019. We did this in March, when the market was 20-25% down from it’s previous high, as we knew it was a good value. Even if the market went lower, we were content. We hadn’t planned on this, but it was too good an opportunity to pass up.

Since our last Financial Update was in December of 2018, let’s cover 2019 with a chart too. The major bump in the Fall was our cash influx and adjustment of our home’s value from the refinance and new appraisal. While that certainly was very nice, the major takeaway should be the steady growth from consistent contributions and staying in the market throughout the entire year.

2019 was a year of slow and steady growth, but it is exciting to see that in 2020, even with the crazy times, compound interest really becomes exponential as the balance adds up. But that doesn’t happen unless you make sacrifices on the front end. In 2020, we are saving ~50% of income + in our 9th year of delaying gratification and busting rear working 80+ hours a week. That’s what it takes to see this kind of growth after 5+ years into our FI journey. Our stretch goal this year was to hit a $320k net worth, and we are surprisingly on track to even surpass that. We will see!

We are not saying we’ve made it, but so excited how far we come after the sacrifices we’ve made. Please go back and read our updates and mindset from several years ago. As our net worth grows, it might be hard to relate if you are just starting out. But read our 2016 posts, especially: http://prudentcoin.com/being-frustrated-with-where-you-are-at-financially/ There is light at the end of the tunnel. For us, a solid Financial Independence (FI) is still 10 years out, but we have some FU money now. Start with the basics: save and invest, then save and invest more…