Friday, February 2, 2018

January 2018 Net Worth Update

January sure started the new year with a bang for our net worth. We ended the month at $768,059, up nearly $25k making it our third best month ever. Here’s how it all went down:


CASH

Our cash went down a bit this month but January tends to be an expensive month for us so this wasn’t entirely unexpected. We paid our semi-annual auto-insurance, booked a beach condo for an upcoming trip, and also hit up the best clearance clothes shopping of the year. We’ve known our cash levels would hover here for a bit and should have it rebuilt in February to where we want it to be longer term.

CARS

Nothing too exciting here - still loving my Lexus and even managed to squeeze three kids in car seats in the back this month. While we were out, I took it in for an oil change and definitely felt like more of a target for an up sell compared to when I showed up in my old Corolla. Had I just let them do their thing, I would have paid at least double.

529s

Sorry kids, this was the last month I’ll be adding to your 529s for a while. We’ve decided to redirect what we were saving to college to go towards the mortgage. We’ve always paid extra, and this will allow us to do even more. This single change accelerated our expected payoff by a few months, and we feel that we’ll still have plenty of time to save for college since we’ll have the house paid off before our oldest is even in middle school.

In the meantime, we’ll keep it invested 100% in equities and let it ride.

INVESTMENTS

The market had a great start to the year, but honestly I am starting to hope for things to go down a bit or at least stay flat. It’s not that I mind buying in a higher prices each month, but really that this constant steady increase is setting inappropriate expectations for many investors. I’m not worried about me. I made it through 2008 on the front lines of the financial services industry and experienced things that can’t be learned from books. I’ve also got several years before I’ll actually be using my investments to live on and I’ve got a wife/partner that is very good at separating emotion from investments.

Who am I worried for? How about the guy who just started investing 8 years ago? Since he started, the market has done nothing but increase. Sure we’re had some scares with Greece, or the Fiscal Cliff, or Brexit, etc. But nothing really that has drawn the market down by 10%+ for long enough to really get scary. This guy thinks he’s a genius!

He’s probably got a Robinhood account and they fuel the fire by advertising things like “Mastered Stocks? Now try Options”. As if figuring out to buy and sell stocks on your phone in a bull market is all you’ll ever need to know to make money (As a former Registered Options Principal, I don’t even want to think about the compliance nightmare they’ve got coming).


Or how about the retirees who for years have been looking for safe, low-risk returns and have historically avoided stocks. Since interest rates have been so low for long and stocks have been rising so much for so long, they may have stepped further and further away from an asset allocation they’d be comfortable with during more volatile times.  

I digress. At least this first week in February we’ve seen a little bit of volatility and actually some down days. January market returns were over 5%, which boosted our investments balance by $24k. We’ll continue to do our thing by investing regularly and staying allocated close to 100% equities.  

The only change we’ve really made to our investments is that we changed my 401k contributions to now be going in as pre-tax contributions. We’re still putting the same amount in, but this increases our take-home pay, allowing us to pay even more towards our mortgage. Do you see a trend developing here? 

HOUSE/MORTGAGE

We knocked down our mortgage balance by $1,800 this month and will be able to do at least this much each month in 2018. As mentioned earlier we’ve made some changes that will allow us to further increase what we pay towards the house and are making mortgage payoff our top priority. We aren’t doing so at the expense of contributing to retirement or going on vacations, but will be scaling down some home improvement projects and other areas of savings/investing (see 529s).

We also now have these jars in our living room where we’ll all see them regularly. Each glass rock represents $1,000 of our mortgage and whenever we make a payment we’ll be able to move rocks from the left to the right. Only 185 rocks left, but this helps us get the kids involved and to visualize our progress.



January was great and I’m excited to see what the year has in store for us.


Friday, January 19, 2018

The Best Investment for 2018

I came across a great article the other day from HumbleDollar outlining the best investment you can make in 2018. Sorry, but it isn't anything too exciting - it's paying down debt. Specifically mortgage debt. Not that I needed any additional validation, but it’s nice to see this since we are planning on reducing our mortgage balance in 2018 by over $30k.

This year marks 9 years since we paid off our non-mortgage debt and at one point since then we had our mortgage balance as low as $85k with a line of sight to be mortgage free within a year.

OUR CURRENT MORTGAGE


In 2013, I took a new job and we moved to a new state. We had a good chunk of home equity built up and when we sold we took all the old equity and put it towards our new house, still borrowing $260k. Our house is larger than our last house, but more important (to us), we now live near the best public schools in the area (our last house was in a terrible school district, but our kids were small enough we didn't really care).

Fast forward to today and 5 years into our 30-year mortgage we are 95 payments ahead of schedule (that's like 8 years!). Our mortgage website has a cool calculator that shows how much time and interest we've saved assuming we only make minimum payments from here on out. You already know that that isn't happening, so every month this view looks better and better.


Since 2013, my income has grown a lot, allowing us to put more and more towards the mortgage each year. Our first couple of years we had some expensive home repair projects, plus at the beginning of any mortgage it takes a while before it feels like you’re making any headway as the interest part of the payment is so high. But since about 2016 we have started to get into a groove and now the payoff is gaining some traction.

MORTGAGE PAYOFF


We’ve made some additional tweaks to our budget that will allow us to increase what we pay each month. I've also made some high-level assumptions about how the new tax law will change our take home pay. Our plan is to have all extra $ will go towards the mortgage. As of now, our current projection is that we will be mortgage free in 2022.


If we only ever paid the minimum, our interest payments would have totaled $173k over 30 years. Yuck. Paying $52k in interest is also lame, but way better. One of the biggest excuses you’ll hear for keeping a mortgage is for the tax deduction. With the new US tax law doubling the standard deduction, even fewer households will itemize deductions. Now mortgage interest will be deducted by even fewer households. Even more reason to get rid of this mortgage as soon as we can.

Wednesday, January 3, 2018

December 2017 Net Worth Update

December 2017 marked the first time ever that the stock market had positive returns every single month of a year. I’m thankful for the impact the market has had on our net worth this year.

Nevertheless, let this serve as a reminder that the high returns and low volatility we’ve been experiencing are unusual and shouldn’t be expected to persist.

What will 2018 returns look like? Your guess is as good as mine, but so far we’re off to a positive start.

NET WORTH SUMMARY


Our net worth increased in every area this month, ending the year at $743,422, up $12k from last month and up $137k from this time last year.

CASH

Despite buying several last minute Christmas gifts and traveling for the holidays, our cash balance went up by more then $1k. For our trip, we drove and didn’t need to get a hotel so it was a pretty inexpensive trip. We’re still focused on increasing cash but don’t expect it to be where we want until February. That’s when I’ll be getting my annual bonus which we’ll use to boost our cash and make a really big mortgage payment.

Our Christmas gifts for the kids were actually quite simple. We make a concerted effort to keep our kids expectations low, so even though they only got a couple gifts each, they were thrilled. They got some LEGO sets I got on sale, a new DVD player for the car, and some other things that were thoughtful and unique to their interests. Things like clothes we always just buy when they need them regardless of Christmas or birthday timing so gifts from us are usually things in the ‘want’ bucket.

Side note - we have always tried to make sure our kids know we will never lie to them. This means we don’t do things like Elf on the Shelf, Tooth Fairy, Easter Bunny, or even Santa Claus. Despite our best efforts, they got pretty heavy doses of Santa at school and it has really been confusing to the kids of who to believe. Doh!

INVESTMENTS

The S&P 500 returned 0.98% in December, which explains most of our returns. We also continued to add to our investments from normal payroll deductions. All of my retirement contributions are going in as Roth contributions so at least I know that portion is 100% ours.

I had a small holding in some crypto-currencies, but when some of them tripled in under a week in December, I cashed some out. I still have a small position, but have taken out more than my initial investments and am only playing with the house money. It’s been fun to watch, but it definitely looks and feels like a bubble.

My personal rule of thumb is that I don’t invest more than 1% of our investable assets in speculative trades. This would include things like options, individual stocks, and most certainly Bitcoin/crypto-currencies. I know I could be missing out on a huge opportunity here, but it’s not worth risking a painful loss to play with more than 1%.

HOUSE

We continue to build home equity, and made an extra principal payment yet again. Starting in January, we’ll be increasing the amount we pay even further. We reduced our mortgage balance by over $22k in 2017 and are planning on even greater reductions in 2018.

I have been trying to get a good estimate on the impact of the new tax bill on our household and it looks like we could see as much as $4-5k in lower taxes next year. If and when we start to see the increase in our take-home pay, it will likely all go straight towards the mortgage.

Most of our home improvement projects are on hold until spring, when we plan to replace the grass in our front yard. We’ve tried several different things to get the grass to look good but have decided we finally need to bite the bullet and start from scratch with new sod.

There are a few big home projects we’d like to take on, but as of now are thinking they may be 2019 projects. The big ones would be to remodel our kitchen and master bathroom. Neither are terrible as-is and both would be extensive and expensive even doing most of the work ourselves. For 2018, we’re also keeping our eyes out for some good deals on a few specific furniture items and hoping that none of our A/C or furnace units die.

CARS

There isn’t much to report on our vehicles other than that I really love driving my new car. I knew that upgrading from a Corolla to a Lexus would be an improvement, but I wasn’t expecting the change to be so drastic. I’m not sure if that means my old car was that bad, if the new car is that great, or some combination.

I can’t explain why KBB has our car values going up this month, but the total value still is reasonable and not a large percentage of our assets.

529 College Savings

We are now including our 529s in our net worth, but there really isn’t much to talk about here. We’re adding $200/mo and allocating it 100% to stock mutual funds. Our current savings rate is not enough to fully fund all our kids’ college, but we aren’t planning on covering all of their expenses anyways.

I’ve toyed with the idea of stopping these contributions and paying down the mortgage even faster, but this really wouldn’t make that big of a change in our timeline. We’ll have more than 7 mortgage-free years before our first child starts college and that should be plenty of time to further pile up our savings.

Thanks for checking in. I’m looking forward to what 2018 brings.