Tuesday, December 24, 2019

November 2019 Net Worth Update and New Goals Beyond $1 Million

November was another great month in the DIY$ household for net worth growth. We finished the month up $28k to $1,030,781. It was only last month that we passed the threshold into millionaire status and it has lead me to reflect on what we've done to reach this milestone. 

I've also turned my thoughts to 'what's next'? The next obvious goalpost is to have a paid off house, but we'll be checking that off in just a couple of months so we'll need something else to work towards pretty soon. 

First - here's what happened in November:


In November, the majority of our net worth gains came from our investment balances, since we continue to stay invested primarily in index funds and the S&P 500 returned 3.4% in November. We also got a nice bump from home price appreciation and an extra large mortgage payment. As expected, our cash balance went down since we paid our annual property tax bill, but we're still above our self-imposed $20k minimum, so nothing to be concerned about. 

LOOKING FORWARD (2020)
With our house payoff in sight, we've set up to do a few things differently in 2020. 
  1. Switching 401k contributions back to Roth. For the past two years or so, my 401k contributions have been pre-tax to maximize my take home pay and put the difference towards the mortgage. Starting in 2020, we'll go back to contributions being Roth. 
  2. Resuming 529 contributions. We paused contributions a while back to accelerate mortgage payoff and now will go back to adding a few hundred dollars each month. We also now have a separate account set up for each kid (previously we just had one that we were planning on changing beneficiaries between the kids) and will be adding only to the new accounts for now. We still haven't settled on how much support to give each child in college, but want to have a decent amount earmarked for each.
  3. Adding to non-retirement investments. The majority of our investments are currently within retirement accounts that aren't accessible until 59 1/2 years old. We are planning to retire prior to age 59 1/2 so will need some non-retirement assets to bridge us until then, and there are other investments we'd like to do in the next few years that can't be done in retirement accounts. We won't be increasing our 401k contribution since we're already getting the full employer match. We're starting with $1k/month and will re-evaluate after a few months.
  4. Making some large purchases that have been on hold. We have around $20k worth of things we'd like to purchase, but have been waiting to pay off the house first. We won't buy them all right away, but will start actively shopping for them and buy when the price is right. 
  5. Start large home renovations. For the past few years, our home projects have been relatively small and inexpensive. Early next year, we'll be taking our master bathroom down to the studs and transforming it to what we've always wanted. We'll be doing most of the work ourselves, but still will probably spend >$10k. 
  6. Taking the kids on a big trip. We travel a lot with the kids, but it's usually just to visit family. It's been a few years since we've taken the kids on a big international trip, so they'll be joining us for a European cruise next year as a celebration for paying off the house.  
NEXT FINANCIAL GOALS (2021+)
Reaching two major goals at roughly the same time ($1M net worth and paid off house), I'm trying to find the next thing to set my sights on for motivations. Here is what I've come up with for new longer-term goals:
  • $1M Net worth excluding primary residence/cars/529s. This should be achievable in ~3 years barring any major market corrections. 
  • 25x non-discretionary expenses saved in liquid assets. Our investments are currently just under 8 times our annual non-discretionary expenses. This will increase automatically when our largest fixed expense goes away, but this is really the metric that determines our level of financial freedom and ability to retire. I'll be tracking this more closely in the future. At our current level of spending, we would need ~$1.6M.
  • Liquid net worth of $3M. If you ask me today, this is the amount at which we'd feel comfortable considering retirement. My job keeps getting better in terms of pay and perks, so my desire to retire as soon as possible has waned.

Monday, November 25, 2019

October 2019 Net Worth Update - Millionaire Edition

For a while now, I've been wondering what would happen first, paying off our home or reaching millionaire status. Well, now we know. We haven't quite paid off the mortgage, but have now reached millionaire status! 




Right at the end of the month, our net worth crept barely over the $1M threshold to end at $1,002,357. This doesn't really change anything in terms of how we live our lives, but it was a fun milestone to reach. 

CASH / INVESTMENTS

We're continuing to build up our cash in anticipating of a big property tax bill due next month. Once that's behind us it will hover for a bit until we pay off the house a few months from now. 

The market continues to rally even with signs of weakness in the economy and we continue riding the wave. Through October, the S&P 500 is up more than 21%, and 2% just just in October.  

Now that all the major brokerage firms are also offering $0 for trades, I've begun the process of selling my positions at Robinhood and moving the funds to a new trading account I opened at the same firm that holds our much larger accounts. I'll have this done by year end so I don't have to worry about getting another 1099 from Robinhood in 2021 since they are always the last of my 1099's to be issued.

Our household rule is that I keep ~1% of our portfolio in a trading account where I have free reign to make more speculative investments, but that percentage has declined as our larger accounts have grown and we haven't been making additional contributions to the trading account. I previously held it at Robinhood because the trades I've made have been relatively small (under $1,000), so $5-8 commissions were prohibitive. Post house payoff, we'll likely beef this balance up more.

HOUSE/MORTGAGE

Between our extra large mortgage payment and minimal home price appreciation, we added about $5k to our net worth between our house and mortgage. Although we're getting very close to being able to pay off the house by draining our cash, we're planning to wait just a little longer so we can keep our cash reserves still over $20k at all times. 

Without a mortgage our need for an emergency fund will actually go down but we are planning to stay at $20k since we also will need extra cash to cover some big home renovation projects that will be starting in the Spring.

Tuesday, October 22, 2019

September 2019 Net Worth Update - Another All-time high

September was another great month for our net worth, which grew by over $22k to $982,369. It's hard to believe that we're basically one good month away from achieving millionaire status. I think it may set in once we are mortgage free, because until then we don't see a lot of accumulation of assets outside of our retirement accounts and home equity.



CASH / INVESTMENTS

Our cash balance jumped in September, but partially because we closed out our mortgage escrow account. The account had accumulated around $3k which we had never included in our numbers before. Now we've got that cash, but we'll also be writing a big check in a few months to pay property taxes. Sadly, our county charges a 2.5% processing fee for paying taxes with a credit card, otherwise I'd consider using our credit card to get 2% cash back.

The market continues to march forward and we continue to go up in lockstep. The S&P 500 was up almost 1.7%, and we saw those increases plus our normal monthly contributions. 
We haven't made any changes to our investment holdings or strategy. 

HOUSE/MORTGAGE

We sent the same amount to our mortgage that we were planning to, but since they had already closed our escrow account, the payment went further towards principal than normal. We have enough cash to pay our tax bill, but may dial our payments down a bit in the next couple of months to not deplete our cash too badly when that bill comes.

Our home value also crept up again this month, so the increase to our net worth associated with our house was just over $10k. If our house were paid off, half of that increase would have been in liquid assets, which I’m really looking forward to. We’re now targeting just 4 more months to be mortgage free.

Our home related expenses were under $200 this month as we took care of some curtains, and bought some trim that will be installed over the next few weeks. Our big home remodeling projects will start next year, but we'll give ourselves a few months to relax and build up cash before we start tearing down walls. 

Tuesday, September 17, 2019

August 2019 Net Worth Update

Another new month brings another new all-time high net worth for the DIY$ household. We continue to march towards $1M mark and a paid off house, closing the month with a net worth of $960,099. 



CASH

As expected, our cash balance bumped up a bit in August. Hovering between $20-25k is our sweet spot for now. There are times when I feel it should be higher since we do spend a lot, but if we really had to live on a shoestring budget this could easily last us three months and probably as long as six months. Once we pay off the house, this amount will definitely be adequate.

I also got a raise that goes into effect in October, but we've already allocated the increase to go towards our mortgage for the next few months, so it shouldn't really impact our cash balance.


INVESTMENTS

We haven't made any changes to our investment holdings or strategy. Since the market was down, so were our accounts. Our year-to-date returns are still quite good, but even in a bull market it's good for the market to take a breather every once in a while.  

HOUSE/MORTGAGE

We're back to making extra large mortgage payments and were able to knock another $3,300 off our balance. After this month, we're now targeting complete mortgage payoff in 6 more months. If you're doing the math, 6 * $3,300 is much less than $40k, so clearly this plan does assume that the rest will come from my annual bonus.

Our home value also popped up a bit this month. One thing that I'm sure helps is that homes in our neighborhood are now consistently selling for over $500k, with several close to $600k. Our neighborhood is mid-range priced for the area and homes still are moving pretty quickly. Less expensive neighborhoods are still very much in a sellers market, but the more expensive neighborhoods nearby with homes priced between $800K and $2M have been selling a lot slower. 


We had very few home related expenses in August, but that's only because we did a lot of work ourselves with tools or materials that we already had. This month that meant breaking out the pressure washer and cleaning off the driveway. Living in a heavily wooded area contributes to needing to this every so often and it takes 10-12 hours to do it right. I'm not sure how much it would cost if we hired it out but it's a very simple and satisfying job. 


I haven't kept track of all the money we've saved by doing work ourselves, but it would easily add up to tens of thousands of dollars over the past six years in this house. 


Monday, September 16, 2019

Sage Career Advice

One of my favorite college professors was a retired investment banker. He had spent his career as an ex-pat throughout Asia and built up an 8 figure net worth before 'retiring' (to be a part-time professor) at 50. I looked up to him and occasionally went to him for career advice even after I was not taking classes from him.

While I was in my last year of college, I accepted a job to work as a financial advisor at an insurance company. My short time at that company is worthy of a separate discussion, but something from the experience has stuck with me over the years.

After I accepted the position, I went to meet with this professor to tell him the good news. He congratulated me and then had just a few questions about the job. The one that stuck with me was:
"What is the average age and tenure of the people in your office?"
Although he didn't say it, looking back I can tell that he would have steered me clear of this job had I asked him about it first. He knew several things that I didn't know at the time. First, insurance companies churn through new hires. Most people who join these companies quickly flame out once they exhaust their lists of friends and family to sell crappy annuities or high commission mutual funds to. In this regard, I also became a statistic, only lasting about 3 months before taking my licenses to a discount broker.

Second, companies need new employees to be able to continue growing. When I was hired, I was one of the only 'new' people at the office and I rarely saw people with less than a couple of years. If I was paying attention, this should have been a red flag. Naive little me was probably only thinking how cool it was to be in a grown-up job in a grown-up office (I even could order business cards if I wanted to pay for them!). What I should have asked myself was "Why weren't any of my classmates considering working here or somewhere similar?" or "How many people has my cubicle neighbor seen come and go in his 2 years here?"

My current employer hires thousands of new people each year and still has several people with 30+ years at the company. I just hit 6 years and 75% of the people hired with me into our department are still with the company.  I'm not planning on leaving anytime soon, but rest assured when that time comes, I'll have a lot of questions about the company, culture, and employee demographics before joining another company.

Tuesday, August 13, 2019

July 2019 Net Worth Update

Financially speaking, July was a pretty good month in the DIY$ household. We had one of our most expensive months ever, but still managed to grow our net worth to a new all-time high of $955,950. 






CASH

Our cash balance went down a bit this month but is still above our preferred minimum of $20k. We'll be recovering over the next few months since a lot of this was due to one-time expenses such as summer travel, rental cars, expensive yard work, and semi-annual insurance payments.


INVESTMENTS


Our investment portfolios continue plugging along, primarily in low-cost index funds. There should be more to report here once we pay off the house. Until then, we're contributing enough to my 401k to get my employer match and not really investing outside of retirement accounts. 

HOUSE/MORTGAGE

Since we had so many other demands on our cash last month, we weren't able to make as big of a mortgage payment as we've been doing, but still paid nearly $1,000 more than our minimum payment. Our home value is back up to where it was a few months ago before a house was sold at a really low price and threw off the online estimates at Zillow.

Last spring we got some new sod for an area of our front yard that had gotten overgrown with weeds and where the actual grass had all died. We got 4 pallets and laid it ourselves in a single afternoon/evening. Last month, we got 4 more pallets for the rest of the front yard and parts of the back yard that needed and spent our Friday evening laying it ourselves. 

As far as yard work goes, laying sod has got to be one of the most straightforward jobs. It's definitely hard work, but I never really considered hiring out that part of the job since it's something I can do myself. Coincidentally, our neighbors got sod professionally laid the same week that ours was delivered and I was really curious how much we were saving by subjecting ourselves to such hard work. 

As we were laying the sod they talked to us and without even having to ask, they let us know what they paid. It made the pain worth it to know that what ended up taking us only 4 hours to do, would have cost us $500 for someone else to do. I'm still young enough that for $60/hour I'll do the work most every time.  

Tuesday, July 30, 2019

Book Review - The Sellout by Charlie Gasparino

I’ve probably read several dozen books about the Great Financial Crisis, and just now got around to reading ‘The Sellout’ by Charlie Gasparino and really enjoyed the approach he took in telling the story.

If you were glued to CNBC for much of 2008-09 like I was (it was on all day in the lobby of my office so I could often hear it all day long whether I wanted to or not), you may recognize Charlie Gasparino. He is a reporter on CNBC often known for being the first to break major news, and was on TV a lot as the crisis unfolded given his deep connections throughout the finance industry.

A lot of other financial crisis books focus on the authors play-by-play point of view (like Hank Paulsen’s ‘On the Brink’), or that of a single company (check out ‘A Colossal Failure of Common Sense’ focusing on Lehman Brothers or 'House of Cards' for Bear Stearns). The Sellout takes a slightly different approach from any book I’ve read on the topic.

Given the authors' long tenure covering Wall Street, he already had relationships with a lot of the key players and knows them well. The CEO of Bear Stearns even reached out to him in the midst of the crisis. This unique perspective allowed the narrative in the book to start long before the crisis started and to tell the stories that lead to the CEO’s of the various firms rising to the helm of the different companies.

Personally, I think that some of the most interesting stories were those of Bear Stearns and Merrill Lynch and it was interesting to learn how interrelated they were. Since the story goes back so far, you get a good sense of how the decisions made as their last CEO's rose to the top contributed to their ultimate downfall. A key takeaway for me was that leverage is a two-edged sword, and company leaders ignore or underestimate that risk to their own peril.

If you really want to dive deep into the demise of a single company there are better books out there. This one is just right if you want to know just enough detail to know what happened leading up to and in the financial crisis and why it happened, in a style that is engaging and doesn't drag on.