Author: kdrevik

Net Worth Jan 1, 2019

OK, a lot of folks have done postings on their net worth (and how much it took a hit in 2018). I figure I’d join the crew and open up the windows to the folks outside. I know this is a topic of some controversy within the FI community, as some folk’s post their net worth, and some folks are loathe to do it. I believe that the more information folks have, the better they can judge my writings and decisions versus their own.

Like many others, I’ve posted my net worth on Rockstar Finance. So here goes.

Real Assets Value Jan 1, 2018 Value
House $279,809 $289,171
Mrs. 39 Months Car $3,650 $3,981
Mr.39 Months Car $5,251 $4,353
Sub-Total $294,781 $297,505
Liquid Assets Value Value
Family Checking $8,428 $4,014
Family Savings $11,963 $3,673
Mr. 39 Month’s Roth IRA $135,025 $178,199
Mr. 39 Month’s IRA $298,748 $234,647
Mr. 39 Month’s 401K $55,467 $61,732
Mr. 39 Month’s Deferred Savings $56,566 $105,889
Mr. 39 Month’s Checking/Savings $9,249 $8,925
USAA Brokerage Account $53,481 $22,526
Pop’s stretch IRA $135,205 $127,882
Mrs. 39 Month’s Checking/Savings $119,658 $119,658
Mrs. 39 Month’s IRA $162,001 $104,627
Mrs. 39 Month’s Roth IRA $89,448 $135,481
Sub-Total $1,135,238 $1,107,253
Debits Value Value
Home Loan $0 $0
Credit Card bill -$1,288 -$3,240
Auto Loan $0 $0
Sub-Total -$1,288 -$3,240
Net Worth $1,428,730 $1,401,518

Overall, net worth dipped about 1.9% for 2018, and this after pumping in around $87K of money during the year. Needless to say, it wasn’t a “banner year.” However, it’s the first dip in my Net Worth since the 2008 crash, so a good ten year run. Since my growth plans are based on my long term growth rate of 6% (what I’ve averaged over the last 22 years, including the 2000 and 2008 stock dips), I’m still in the ballpark.

Key lessons learned for Net Worth in 2018?

  • Real estate not really jumping up in my area (Southern NJ). My value hasn’t moved much since 2009.
  • Cars have depreciated a lot – but they continue to run well (regular maintenance) so no need to replace anytime soon. Slowly saving up for new ones at some point of time in the future.
  • Roth IRA conversions altered the makeup of my retirement accounts. Will probably due one more $50K conversion, and then let it ride from there. Used money from investment account to pay taxes, so it dipped a lot there.
  • Put aside 25% of paycheck and 100% of bonus to deferred account, so that jumped up significantly over Jan 1, 2018. No taxes paid until I leave work (when it gets paid out as a lump sum). This will end up being a good portion of my year 1 & 2 of FIRE money
  • Credit card bill was from one of our Pet’s emergency medical costs (ouch!). We have the money to pay it off, so no big thing

Overall, while our Net Worth took a slight dip, we will continue with the plan. I believe we are still on track to retire in 18 Months (if we want), or we could retire now if we felt confident in US Social Security.

How did your Net Worth go in 2018?

Other FI Bloggers and their net worth

Mr. 39 Months

Final End of year work: Year in Review 2018

I can’t claim to own this process, I borrowed it from Tim Ferris (author and podcast interviewer) and have been doing it for a couple of years. I use it to review things that worked in the previous year, what didn’t work, what do I want to add, and what do I want to get rid of.  Tim’s recommendation is to sit down with your journals and notes from the previous year, and spend an hour or two really thinking this through. Based on the answers, you should be able to formulate your plans for the new year.

The Steps

  • Identify 20% of people, projects or ideas which provided 80% of enjoyment/powerful emotions for 2018
  • Identify 20% of people, projects or ideas which provided 80% of stress/pain/powerful emotions for 2018
  • Try and spot patterns from #1 and #2; Determine action steps to increase #1 and reduce #2:
  • Identify Three things to add to my life
  • Identify Three things to remove from my life
  • Ask folks close to you, what you should do more of and what should you do less of?
  • Start putting stuff into the calendar. If it is on the calendar, we will do it
  • Questions from “Happy Money”.
    • For Purchases, “how will this affect my use of time”
    • “How will I use this thing on Tuesday night”
    • $100 to most increase happiness?
    • $500 to increase happiness?
    • $1000 to increase happiness?
    • Take 20% of liquid cash, how would you apply it to increase your quality of life?
  • Go through 5 minute journal (daily 3 min in morning, 2 min in evening)

So what have I come up with for answers to the questions?

  1. Identify 20% of people, projects or ideas which provided 80% of enjoyment/powerful emotions for 2018
    • Travel with Mrs. 39 Months
    • Tracking Finance/heading towards FI
    • Blogging about finances
    • Exercise/Stretching
    • Reading
    • Gaming
    • Woodworking
    • Family
    • Backpacking
  2. Identify 20% of people, projects or ideas which provided 80% of stress/pain/powerful emotions for 2018
    • Working with boss (expectations, changes, etc.)
    • Dealing with employees who work for me
    • Standing up for myself when I’m right
    • Feeling being left out
    • Yardwork
    • Finances – reaching FI when market is volatile
    • Illness
  3. Try and spot patterns from #1 and #2; Determine action steps to increase #1 and reduce #2:
    • Pattern of being the boss of other workers, and stressing in getting them to perform when my boss questions them
    • Being fit/not ill means a happier life
    • Spending time with Mrs. 39 Months/hobbies
    • Reading about/studying/applying aspects of personal finance
  4. Identify Three things to add to my life
    • More time with Mrs 39 Months
    • More time on hobbies
    • More exercise/stretching and better health
  5. Identify Three things to remove from my life
    • Being the boss (just do my own work)
    • Illness
    • Lack of Control over finances
  6. Ask folks close to you, what you should do more of and what should you do less of?
    • TBD
  7. Start putting stuff into the calendar. If it is on the calendar, we will do it
    • Week at the shore with Mrs. 39 Months
    • Backpacking trips (at least five in 2019, including a full week)
    • Dulcimer festivals with Mrs. 39 Months (3 on calendar)
    • Woodworking (class in June, working at Pennsbury manor all year)
    • Travel to family in Vermont & Tennessee
  8. Questions from “Happy Money”.
  • For Purchases, “how will this affect my use of time”
  • “How will I use this thing on Tuesday night”
  • $100 to most increase happiness? A few more books to read
  • $500 to increase happiness? Another woodworking class
  • $1000 to increase happiness? Gymnastic Fitness class
  • Take 20% of liquid cash, how would you apply it to increase your quality of life? More vacation travel

9. Go through 5 minute journal (daily 3 min in morning, 2 min in evening). Key points:

  • A lot of time, I am grateful for my loving wife, Mrs. 39 Months
  • Family also mentioned a lot
  • Friends also mentioned frequently
  • Hobbies emphasized
  • Things to shy away from: Anger, depression, envy

So this helps me build my goals for 2019.

I hope this was helpful!

Mr. 39 Months

Update on ratios

If you remember, I wrote back in the middle of the year about using financial ratios to analyze your performance over a period of time. I thought it would be good to revisit my ratios, see how I’m doing, and give everyone a chance to see if this sort of tracking would suit them.

Liquidity

 Liquidity is a measure of the speed at which an asset can be converted into cash without loss of value. Cash, savings, checking and money markets can be quickly turned into cash. Stocks and Bonds (and real assets like gold, real estate, etc.) are more difficult to turn into cash at short notice.

Most people require a little bit of liquidity in order to survive (purchase food, pay bills, etc.). The key is to keep your liquidity in line with your other financial goals, and to keep your liquid assets as low as possible (while still being able to sleep at night).

The basic liquidity ratio is:

Liquidity Ratio = liquid monetary assets (from balance sheet) / average monthly expenses (from cash flow statement)

Liquid assets: Cash, checking, money market accounts, and savings

Two months recommended

From our previous post, the individual has a liquidity ratio of $22,200 (from Net worth) / $6,414.58 (annual expenses divided by 12) = 3.46 months for liquidity.

Our Liquidity ratio has been over 2 years for some time (thanks Mrs. 39 Months!), but it dipped in 2018 – not so much because of lack of cash, but an increase in the average monthly expenses due to some medical bills. Not a trend I want to continue.

Debt Ratios

The purpose of debt ratios is to determine the amount of financial leverage you currently use, and to track as you (hopefully) improve. The objective is obviously to become debt-free, especially if you want to be financially independent. The debt-to-asset ratio is very useful for tracking progress.

The data source is entirely the balance sheet. Debt-to-asset ratio = total debt / total assets.

From our example last post, $96,500 Debt / 335,300 Assets = 0.288

Another Debt ratio that is good to track is the Debt-to-Gross income ratio, which is the total debt payments / annual take home pay (pay after taxes, medical, etc.). It is used to help determine your ability to pay the debts off.

The source of the data is the cash flow statement.

From our example last post, $$11,400 (mortgage & debt payments) / $45,925 (total take home pay) = 0.248 or 24.8%. This is pretty good, as you should never take on debt payments (including student loans) of over 36% of salary.  Another recommendation is not to take on housing costs (mortgage or rent) of more than 28% of salary.

Our debt ratio continues to be 0, as we are debt free (and I intend to stay that way!)

Savings Ratios

You can use current income to pay for current consumption or to pay off past debts . The other option is to purchase assets that grow and create wealth – wealth that will provide financial security. This wealth is acquired by deferring current consumption and diverting income into long-term investments. The savings ratios measure the amount being saved and invested.

The savings ratio that I track is the savings-to-income ratio. It is a simple one, and its purpose is to determine the percentage of your income you save each year. You gain the data from your cash flow statement.

Based on the previous statements, the ratio for the previous documents would be $13,500 / $79,100 = 17% of their income, which is good for normal folks. However, for FIRE people, the percentage is a little low – most FIRE folks shoot for 30% – 50% or more. The ratio of savings you need to perform is based on your overall financial goals.

For the first time in our lives, our savings ratio bumped above 50% vs.Gross Income (i.e. income before taxes). Once we got the “Fire” and paid off the mortgage, it really got us pumped.

Real Growth Ratios

Inflation is the killer of savings, slowly bleeding your savings down until you have nothing left. If inflation is 3%, the price of a product will double in 24 years. How do you deal with this?

You save enough and invest correctly, so your money grows faster than the rate of inflation. You should use the growth of Net worth ratio to make sure you are keeping up with inflation.

Growth of Net Worth Ratio =[(Net worth this year – New worth last year) / Net Worth last year] – inflation rate

Example: [( 298,700 – 275,000) / 275,000] – .03 (inflation rate) = 0.056 or 5.6% Net Worth growth.

Then once you retire, you follow the 4% rule, adjust for inflation, and enjoy the good times!

Like just about everyone, our Net Worth took a hit this year (down 3.5%) due to the market. While we were diversified, and thus didn’t suffer as much as being 100% in stocks, the combination of the market and rising interest rates on our bond portfolio really gave us a hit.

Very Hope this was helpful!

Mr 39 Months

Look out for the “End of Year” status reports!….

Well, its that time of year, the end-of the old year, beginning of the new. What we can look forward to over the next 30 days is a list of the performance of various FI bloggers, and their goals for the new year. Some insights on how their investment strategies worked out, what frugal tips worked (and which ones didn’t), what travels they made, etc. Get ready for it!

                               

While some might look down on this, or find it boring, I actually enjoy seeing the information shared by our community. I always try to take away 1-2 things from each annual review, and try to integrate some of them into my plans for the new year. I also write about my wins & losses, and what I’m planning for the next year. It could be “navel gazing” but it helps me work out my objectives and what lessons I learned. So here goes…..

We’ll start the series of blog posts off with how I did with my goals for 2018.

Financial Goals:

  • Save $90K in my tax-defered, Roth and regular investment accounts. Score A. The final total was a little over $90K, when you take into account money put into savings.
  •  Increase dividend income to over $24K, so it covers33% of a sample $72K/year standard of living (roughly what we are living right now). Grade A. Dividends were $26,436, or a little over 36%.
  • Beat new worth growth rate of 7% (I’ve averaged 6.1% over the last ten years). Grade F. Markets tanked, and the result was a loss in my net worth of 1.9% for 2018. Not as bad as some folks, but still didn’t help me along the way to my goal.

Business Goals

  • Begin attending regular meetings of my local Real Estate association. Grade C. I attended an average of 1/month (even though there are at least 3/month that  I’m interested in). Plan to continue paying for membership and attending in 2019
  • Double the number of blog visitors in 2018. Grade A. Had around 2,000 in 2017, have 6,267 in 2018. Thanks to everyone who came & read, and especially those who commented. It helps me improve
  • Write/publish a book on finance. Grade D. I have a strong idea (in my opinion) and I’ve got 3 chapters worked out, but still a long way to go. Want to finish that in 2019. I did sell a few copies of my other book on Amazon, however.

Personal

  • Increase weight lifted by 10%. Grade B: I hit the goal, but other health issues pushed my fitness training off for 2 months. Just getting back to where I was.
  • Average 3 hours of Cardio per week. Grade D. Still only hitting a little over 1 hours (see health issues above)
  • Take part in one long bike ride (80+ miles). Grade F. Did not do
  • Backpack over 100 miles on AT. Grade C. Did around 80 miles. Other things popped up which kept me off the trail.
  • Reduce weight by 20 lbs. Grade F. Only reduced by about 2 lbs for the year. I was down in July, but the health issues kept me from exercising and I ate too much. Need to get back to it.
  • Read at least one book a month. Grade A+. This was one of the more enjoyable goals. Overall, I read 23 new books in 2018. I hate forgotten the joy of reading, and this one really opened my eyes again to it. Less time in front to the TV and computer/gaming, and more time reading.

Travel

  • Visit a National Park. Grade A. Hit two while on our trip to California.
  • Visit family in Tennessee, New York and Vermont. Grade B. Saw family in TN and NY, but didn’t get up to see my brother in Vermont (did see him in TN at Thanksgiving). Plan to do this next year.
  • Visit Portland OR and Northern CA. Grade A. Completed this in 2nd Qtr. A lot of fun, and didn’t get caught in the wildfires.
  • Visit Ashevill NC, Ellis Island, and go on an International Trip. Grade F. Didn’t complete any of these. Primary reason was lack of vacation days from work to enable us to do this. Another reason to hit FI?

Like most folks, it was a mixed bag for 2018. We did get a lot of things done, and made progress on a lot of goals. I’m reasonably happy with how the year worked out. Hopefully you can all say the same!

Next up for posting: How my investment strategy worked (uggh!)

Some other FI bloggers end-of-year reports:

Mr. 39 Months

Just Like a YoYo

Wow, you go away for a week and the market goes nuts. Down an unprecedented 600 points the day before Christmas? Up 1,000 points the day after Christmas? What is going on?

In my opinion, the market is still unsure of where the economy is going to go in 2019, and there are a lot of scared people running out of the market right now, trying to find safety. This is forcing mutual funds to sell at a prodigious rate, often times having to sell their winners in order to generate sufficient funds. It’s almost a self-perpetuating drop, as each new drop pulls the next group after it. The overall drop was around 20% from the market high, which brought us into “bear” territory. Time to panic and sell?

The problem is, as was just demonstrated with today’s 1,000 point jump, you not only have to get out before it drops and you have to get back in before it starts going back up again! Or you can do what so many good investors do, and don’t worry about it.

Stick to your plan. Invest regularly. Dollar Cost Average. Diversify. Take advantage when folks panic and sell at bargain basement prices to pick up some deals. The mutual funds that folks have shed will be there, ready to jump back up again shortly.

In a previous posting, I talked about the P/E ratio. The P/E ratio had dropped down on Dec 24th to 18.03 – still higher than its mean of 15.73. This was back below its Jan 2014 number. Still higher than its mean though, so we could have more to go before we get back to an average market.

I still have over 18 months to go before I hit my FIRE date. The typical market downturn is 12-24 months, which is why they tell you to have 1-2 years in savings bucket, to weather that storm. So I intend to stay with the plan, and keep investing.

How about you?

Other Bloggers on the topic:

Mr. 39 Months

Well I screwed up…..

 In working through my “Power of Zero” philosophy and plan, which included doing a Roth IRA conversion from my IRAs to Roth (in the hopes of keeping my taxes low to non-existent in retirement) I failed to take into account hitting the limits on who can pay into a Roth.

In order to put money away into a Roth, you have to have a Modified-Adjusted Gross Income(MAGI) less than $135K for singles, and $199K for married couples. Note that it starts phasing out at $120K and $189K. Modified Adjusted Gross Income is before you put in your deductions ($12K and $24K in the US). If you are over these limits, you cannot put money into a Roth IRA. You can put it into a regular IRA, but you can’t deduct the income for tax purposes (so what good is that?)

In this case, I converted over $100K from regular IRA to Roth, and combined with our regular income for the year, its going to push us over $200K. Thus, I am going to have to “claw back” $13K of my Roth contributions for 2018. Uggh!

I have heard that you can invest that into a regular IRA, and then at a later date (since you have already paid the taxes on it) convert it to a Roth with no tax implications. I’m not sure about that, but I am going to investigate it. I’ll let you know at a later date.

So for 2019, if I do a Roth IRA conversion, its only going to be for about $50K, so I can make sure that I stay under the amount. Don’t mess up like I did!

Mr. 39 Months

Frugal Win – getting gifts out early

         

Like most folks in the US today, I’m separated from my family by some significant distance. The closest family is 1 hour away, Mrs. 39 Months is 3 hours, and mine is 10+hours. We are scattered all up & down the Eastern seaboard – and we are starting to go out West (Utah). As you can expect, sending out Christmas presents can be a daunting (and expensive) task.

Typically, we end up not assembling our gifts until last minute, so that, in order to get them to the family on time, I have to spend a lot of money to pack & ship them(hundreds of $). For the most part, I have simply acknowledged that this is the way it is.

However, this year I have a business trip the week before the holiday weekend, so if we didn’t get it out this last week, then I pretty much had to accept the fact that it was going to arrive after the holidays. Instead, both Mrs. 39 Months and I worked to get everything purchase, made, boxed up & wrapped by the middle of last week. Then I could get it shipped out before having to head out on my trip.

Surprise, if you do this, then you can use the US Post Office and cheaper UPS ground to ship out.Overall, my shipment costs were less than $100 for the year, vs. $250+ for most years. That is with a significant larger number of packages going out (family is scattering more, as the nieces/nephews leave college and start into their first jobs).

So if you can plan early (and most FIRE folks are significant planners) then you should be able to save yourself some money on shipping for the holidays!

So how are you further saving money this holiday season?

Mr. 39 Months

Budgeting for the next year – when do to it/how to do it?

Typically it is around the middle of December when I start looking at my budget for the next year. By then, I’ve got 11 months of spending under my belt and I have a pretty good idea of what my spend has been. From that, I hope to be able to predict my spending for the following year.

I start off with a short review of the current years financial goals vs. where its looks like I will end up. In this case, while my investments have not done that well (thank you market), I still was able to save over 50% of my salary – the first time I’ve ever done that much! In addition, we remain debt free, and I am 12 months closer to FI. We did dip into our savings account somewhat this year, due to some medical bills (sucks to get into your mid-50s), so our savings account isn’t where I believe it should be.

From there, I try and set my budgetary goals for 2019

  1. Continue to budget to have excess funds for the year (i.e. don’t depend on debt)
  2. Put away more for medical (got caught short this year)
  3. Continue to try and keep my savings rate in the mid-to-high 40% range
  4. Continue to fully fund Charitable spending at the rate I did last year ($400/month)

With that in mind, here is a comparison of my monthly spend for 2018, and my budget for 2019.

Revenue Base 2018 Month Jan-19
$4,543.10 $4,456.42
$0.04 $0.04
Total Revenues $4,543.14 $4,456.46
Expense
Home
Property Taxes ($515.43) ($515.43)
PSE&G ($208.42) ($208.42)
Verizon ($279.15) ($279.15)
Water Bill ($33.55) ($33.55)
Life Insurance ($43.95) ($43.95)
Home/Auto Insurance ($219.79) ($219.79)
Investments ($333.33) $0.00
Groceries ($454.03) ($454.03)
Medical ($334.70) ($334.70)
Roth IRAs ($1,166.67) ($1,166.67)
Savings ($100.00) ($100.00)
Charity ($400.00) ($400.00)
Dining Out ($160.26) ($100.00)
Home Repair ($277.93) ($150.00)
Other ($57.91) ($50.00)
Total Expense ($4,585.12) ($4,055.69)
Operating Revenue ($41.98) $400.77

You will notice a significant chunk of funds being leftover at the end of the month. This is a little misleading, as I get paid every 2 weeks, so every 6 months, I get an extra paycheck. Thus, on a real monthly basis, I’ll be a little in the black until that 6th month. My intention is to dump that extra paycheck into savings to get it back where is used to be.

You’ll also notice that my take home pay actually went down about $100/month. That is because I didn’t take enough out in taxes and didn’t realize it until over halfway through 2018. I’ve corrected it, but the result is $100 less a month in income.

I also have a personal account which I pay myself $1100/month. I use this for paying for my lunch & travel food, gas, hobbies. Etc. I follow the same method to do that one, and plan on coming in each month “in the black”.

Some of the categories may seem outside the norm for FI people (groceries, dining out,etc.) but we intend to live some of life for now. Also, you can see that property taxes are pretty expensive in NJ – and my $6K a year is actually quite low for the state (its typically 2-3 times that).

With this in line, I can now go to my banks and investment sites and set up automatic transfers. I typically track my budget monthly, and make adjustments every 3-6 months, based on how I am doing.

Other articles on budgeting

What are you doing to plan for 2019?

Mr. 39 Months