Goals – 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.

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.

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…
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.

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.

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…

Which level of Financial Independence are you at?

This article glosses over the initial struggle to get even to a zero Net Worth. Many go further into a negative Net Worth each and every month as they spend more than they earn. This article assumes you are on the right path already, but if you aren’t, use this as a goal of what is possible. Maybe reaching a zero Net Worth will take years, but at least start turning the ship around instead of digging a deeper hole. Spend less than you earn, even if only by $20 a month, to build up an emergency fund.

Negative Net Worth

Most of us start here. Between the cost of college, a first beater car, rental deposit, part-time jobs, and more, it’s hard not to start here. BUT, don’t stay here long!

Zero NW

Yay, you are debt free outside of your mortgage!!! You technically could still have auto loans, but we highly recommend not using vehicle equity towards your positive net worth.

$50k NW

It’s important to celebrate the early victories. It takes consistent effort to reach $50k. A higher income makes it easier, but the savings habits needed to hit this milestone are the same habits needed to reach a million dollar net worth. Just add in low-cost index investing and increase your savings rate over time.

$100k

The first $100k is a b*tch, said Charlie Munger (Warren Buffet’s partner) during a Berkshire Hathaway shareholder meeting in the 90’s. One hundred grand isn’t what it used to be (in fact, inflation since just 1990 has caused the US Dollar to lose near half its value where $50k in 1990 had the same purchasing power as nearly $100k in 2020). But it still is a huge milestone! Your effort and struggles have been validated. The second hundred thousand will come a little faster, and the third a little faster than that… until the compounding returns just take off.

The next levels or stages make more sense after reading FIRE Options. The RE or Retire Early part isn’t as important as the FI or Financial Independence part, in our opinion.

$250k

This is a start to solid Net Worth and the compounding returns will really start adding up. If you are in your 30’s, just this amount invested for another 30 years at 7% would compound to $1.9m without saving another cent (CoastFIRE). Sadly, a $250k NW also makes you wealthier than 67% of other Americans including many in their 60’s in or near retirement. Don’t stop here! Use the same habits to hit the next level. Your Net Worth will start growing rapidly compared to what you are used to.

Quarter FI

You might reach 25% of your FIRE goal at or before you reach $250k NW, but it’s a milestone none-the-less. Going out to eat is a rarity for us, but we are starting the tradition that for every +$100k we accumulate, we will take a date night, going out for a nice ($50-100) dinner with drinks + a fun activity. We just passed $300k NW and will hit 25% FIRE by the end of the year.

$500k

Our next major milestone (as of this writing) and one we should hit by our 35th birthday if we push. It means continuing to work 80-hour weeks between two technical jobs and saving $50k+ a year. Even if we stop saving once we hit this goal, and just make enough to live for the next 25 years until we are 60 yrs old, we would end up in FatFIRE territory with $2.7m. There are few certainties in life, so we are saving as much as we can while we know we can.

Half FI

Half-way there!!!

75% FI

Likely at LeanFI right now, where if you had to, the passive income your portfolio generates would cover basic living expenses and a treat here or there. But why stop here?! …unless you absolutely have to. It might only be 2-3 years before you are full FI.

“One million dollars!!” -Dr Evil

$1 mil

You are a millionaire! Depending on your investable assets vs money tied up into your primary home’s equity, the passive income alone would keep you above the poverty line for a family of six.

100% FI

For many, this is somewhere between $1.2 and $2 million. Congrats, you can keep living your current lifestyle without any further work. Don’t go out and buy fancy new cars or luxurious vacations, but keep your existing hobbies and find some new inexpensive ones. Stay in your budget, not withdrawing more than 3.5-4% of your invested balance each year, and you are set for the rest of your life. A really great feeling and for many, why work full-time any longer?

FatFI

You don’t have to stop working when you reach Financial Independence. Maybe you enjoy your work or have transitioned to a less stressful role (or being FI means you are less stressed because your boss needs you instead of the other way around). Maybe you are finishing up a project and want to stick it out. Maybe you want to serve your community or work with missions. Just because you are Financially Independent doesn’t mean you sit and blankly stare at a TV or get sunburn on a beach. Maybe you have kids who still need raising; a full-time job in of itself.

In our case, we are purposefully working towards a full-time job with medical and travel benefits as our kids leave for college. By our mid-40’s, we will be empty-nesters and reached FI. We could have left with LeanFI, but don’t feel comfortable with that number. And our slower path to FI is because we are raising a family and enjoying each and every year with them. It isn’t what everyone has to do, but these are our stages:

No Money, Low Net Worth = WORK + Save + Invest + repeat
Some Lifestyle, Lower Net Worth = Us right now. Keep the same habits, but actually living more than barebones. Besides a hobby or two, our “splurges” are family road trips and visiting family on a lake.
More Lifestyle, Medium Net Worth = When our oldest is 13, we should have a net worth above $500k. We won’t live high on the hog, but we will consider buying a boat (probably just rent though) plus lots more outdoor adventure and travel.
More Lifestyle, Millionaires = Kids will be in high school (and we will be ~40 yrs old). The goal is to have a manager/director job allowing more travel across the US and even internationally. There will be stress, but the higher income will lock in some FatFIRE and my wife and kids will sometimes come with, for a vacation on the front or back-end of the work trip. After working 80+ hrs per week between 2 jobs for more than 5 years, even working just 40-60 hrs a week at one job will be relaxing in its own way.
Great Lifestyle, Multi-Millionaires – After reaching $2.5m net worth, double our FI number, we will likely step into a consultant role and/or work with a non-profit in our early 50’s. We want to travel internationally, and may even partially retire outside the US. But we don’t ever see ourselves doing nothing for more a few days off here and there. But maybe our goals will change. We know we want awesome trips for our grandchild and adult children, so we can spend a lot of time with them, and to be active well into our later years.