The final stretch of the year is upon us. I can’t believe that it is already December. I ended up completing the Tribe of Mentors
Man’s Search For Meaning
The Better Angels of our Nature: Why Violence Has Declined
The 4-Hour Workweek: Escape the 9-5, Live Anywhere and Join the New Rich
The Fountainhead
Sapiens: A Brief History of Humankind
Tao Te Ching
The Beginning of Infinity: Explanations That Transform the World
Mastery: The Keys to Success and Long-Term Fulfillment
The War of Art: Break Through the Blocks and Win Your Inner Creative Battles
The Hero with a Thousand Faces
Poor Charlie’s Almanack
Finite and Infinite Games
The Chronicles of Narnia
The Selfish Gene
Zen Mind, Beginner’s Mind
Tools of Titans
Song of Solomon
I hope everyone had a great Thanksgiving! We enjoy Thanksgiving so much that we did it twice: once on Thanksgiving day, and again the day after. I ate my weight in turkey, mashed potatoes, stuffing, and cranberries. Thanksgiving week is also when I decide on my goals for the new year (a separate post to follow this month).
The stock market started November off strong as it tried to recover most of the losses from the October correction. However, volatility came back to visit and we saw the major indices take a shot at their October lows. The good news (for the GYFG portfolio anyway) is that the stock market ended the month higher in November than at the closing of October. This marks the 46th month of growth out of the 47 months I have been publishing this blog.
Every once in a while I remind myself that the party will eventually end and we will experience a significant decline in our net worth before we continue the trend up and to the right. Until that day I welcome the gains month after month – as should you! When that day (or more like a sequence of consecutive monthly declines) comes, I’m ready. I will just refer back to my post outlining the wisdom from the Oracle of Omaha himself and remind myself that it’s not a very good idea to bet against America.
If you’re a regular reader and only want to read the new content, feel free to just skip the intro below, and head to Net Worth. If you are new or haven’t read many of these reports, I encourage you to take two minutes to read the intro below, which does change periodically.
Intro
Mission Statement: To Humanize Finance, Build Wealth, and Reach Financial Freedom.
For those of you new around this corner of the internet, these monthly reports are about full transparency. And, they are just as much for me as they are for you. It was a hard decision to make all of my financial details public, but it has proved to be a very motivating one. The process I go through every month to produce these reports has been enlightening and life-changing. I published my first “income and net worth report” for January of 2015 when our net worth was only $195,141, and our gross income was on pace to hit $178,000 that year.
Less than four years later, our net worth currently clocks in at $895,001 with a gross income over the trailing twelve months of $461,576.
- That’s a 4.4X increase in net worth due to a compound annual growth rate of nearly 50% for the past four years.
- At the same time, income has increased 2.4X, which translates to a compound annual growth rate of 28%.
Honestly, I don’t think the GYFG household would have experienced these kinds of results without the existence of this blog and the accountability it brings. Knowing that I will share our results with my readers every month keeps me very focused and intentional with all things related to our financial well being. For that, I THANK YOU for taking the time to read and interact with me on this blog.
Above and beyond this benefit to my own household, my sincere hope is that my policy of full transparency will inspire you to take the helm of your own financial ship and be intentional with its direction. I truly believe that anyone can reach financial freedom if he or she is willing to do things differently than the pack. If you’re after average results, then you’ve landed on the wrong site. There’s nothing wrong with average, but the kind of results I preach are EXTRAORDINARY. Sure, the “get rich slow” method is proven, but there is an alternative, which is to “get rich fast.” Look, I have no interest in living like a starving college student until I am old and brittle to only then have the means to check off bucket-list items when my body might no longer be physically capable of doing them. And I don’t want that for you either!
Here at GYFG, we approach the pursuit of FINANCIAL FREEDOM with an abundance mindset, so you won’t hear me telling you to cut out those $5 lattes. Choose to spend on what is meaningful to you. I spend a lot, but I also strategically earn a lot, save a lot and invest a lot.
I hope these reports inspire and move you to action. Don’t take a passive role in your finances and hope for the best. Keep this famous Jim Rohn quote in mind:
“If you don’t plan your future, somebody else will. And you know what they have planned for you? NOT MUCH!”
You must be intentional with your finances if you ever want a fighting chance to make it to financial freedom. But it does not have to take 40-50 years of slaving away for The Man before you have the option to retire. I think 10-20 years is all you need, with the most aggressive folks probably able to reach financial freedom in 10 years or less. A high income paired with a high savings rate are two of the vital components of a good recipe for the 10-year track.
I know I don’t have to publish my juicy details every month, but it’s important to me that you know that I put my money where my mouth is (not so many people giving financial advice actually do this). I publish all of my financial details not to brag, but instead to show you what is working as well as what’s not working. Sometimes finance can get pretty dense, and I think real life examples and numbers can help slice through the complexities (and BS). Personally, I have always enjoyed the financial reports put out by other bloggers around the blogosphere, so I have always intended to share my own.
You can find all my previous reports on the Financial Stats page.
Net Worth
Our net worth was up $22,910 in November vs October. Compared to last November, our net worth is up $250,595 year-over-year (or +39%). November feels like it represents gains from two months since last month we only realized a $2,000 gain with the market decline. We were just shy of hitting $900,000 in November and the $1,000,000 mark is likely to be exceeded in the last update for 2018. However, if the market completely falls apart and finishes out 2018 by making new lows (in which case I will be eating crow), we should still be a shoe-in to the Double Comma club early 2019.
November Net Worth $895,001 (up $230,610 or +34.7% for 2018)
- Previous month: $872,091
- Difference: +$22,910
Net Worth Break Down:
It’s back! Again. Below is a more granular look at the nuts and bolts of our net worth – a peek inside the sausage factory!
Fun Fact: I was curious to know what percentage of our net worth was after-tax vs. pre-tax. I did the math and found that about 30% of our net worth is tied up in pre-tax (or tax-favored retirement accounts) and that the remaining 70% is all after-tax.
The Real Estate category remained flat at 54%. This category includes the equity in our primary residence ($319,092), our investment in the Rich Uncles commercial REIT ($62,052), and our hard money loans through the PeerStreet ($104,641) platform. I have been taking capital as it’s freed up from our after-tax PeerStreet account and using it to fund Rich Uncles as we work the RU account value up to $100,000 (which is why PeerStreet value hasn’t been changing much MoM).
Cash increased to 5% from 4%. We are currently holding $42,191 in cash. This is net of our credit card balances of $2,860, which we pay in full every month based on the statement due date.
As a clarification for newer readers, the Business category (at 12%) represents the ownership I have in the private company that I work for. I anticipate this increasing significantly by the time I update the value at 12/31/18. I expect the value of this will increase by at least $100,000.
Life Settlements remained flat at 9%. We currently have investments in seven policies at $10,000 each. They are accreting in value by about $1,000 per month. For anyone that is familiar with options, I liken the fixed return of life settlements to the theta of a short option. In this case, the accreted value is like the theta decay of an option you’ve sold. In more simple terms, with this fixed return you are amortizing (realizing) that value with the passing of time.
The Stocks category remained flat at 18% and represents the cumulative value of our brokerage accounts (retirement accounts and after-tax account) that are invested in stocks. However, this is not all of our retirement money, as the majority of our PeerStreet investments are made through a self-directed IRA (worth about $78,000 and are counted in the Real Estate category of the pie chart).
The Cars category remained flat at 2%. I expect this to dip to 1% next month.
Note: I include our cars because the goal is to keep the value of our cars as a percentage of the overall net worth pie as small as possible. By including them, it keeps me conscious of the opportunity cost of sinking too much capital into the machines that are only meant to get us from point A to point B.
Total Capital Deployed in 2018 (YTD):
One item not captured in the table below is the capital deployed due to automatic reinvestment of dividends and interest, but I do plan to include that total at the end of the year. I had originally estimated that we would deploy somewhere between $250,000 and $300,000 in capital this year. I recently revised my projection to $350,000 and we surpassed that this month. All I can say now, with any confidence and specificity, is that it will be less than $400K by the end of the year.
We deployed an additional $15,191 in the month of November, bringing the YTD total to $371,489. Please note the addition to the table above. I have added two new columns that I plan to populate in next month’s report: Dividends/Interest and 401K Matches. I will only update these two columns once per year as it’s too much of a hassle to update every month. Stay tuned for a full picture in January.
Through the end of the year I anticipate the following deployments on a monthly basis:
– $5,000 to Stocks (still have $10,000 left of $80,000 cash in a 401K to deploy, which I do monthly)
– $1,000 to Rich Uncles (working towards a $100,000 balance)
– $5,000 to $10,000 towards paying down the mortgage (we may defer this for a few months while we build up our cash balance)
So, we are looking at a minimum of $6,000 and a maximum of $16,000 of capital deployed for each of the remaining three months of the year. Mrs. GYFG is officially on maternity leave, which will impact our cash flow through January. We will adjust as necessary.
I have been meaning to mention something for the past few months but kept forgetting every time I sat down to write this section of the monthly report. I wanted to point out that this is an unusually high amount of money for the GYFG household to deploy. It was possible only due to the following sources:
(1) We came into the year with about $81,000 in idle cash sitting in my 401K.
(2) In October of 2017, we sold our rental condo and ended up with about $93,000 in cash from that transaction and a significant chunk of that got carried into 2018 (in addition to existing savings).
(3) The rest has come from cash flow from our earnings.
I don’t anticipate being able to put anything close to this amount to work in 2018. In fact, my 2019 forecast has only $182,583 available for deployment. With dividends, interest, and 401K matches earned this will likely increase to around $200,000 – less than half of what we will have deployed in 2018.
Gross Income
November income was up 8.3% at $35,396 vs. October of $32,672. This increase was accomplished even with Mrs. GYFG out on maternity leave, and her disability income representing only about 50% of her regular income. Despite that dip, November happened to be a three pay period month for me (we are on a bi-weekly pay schedule), and our income still accomplished an uptick. I see income dropping to around $25,000 in December.
In the second chart above, I also track our income on a trailing twelve months, and we set another record in November at $461,576 (that’s ten consecutive months of record highs). I’m pretty sure we will see a dip next month as I only have $25,000 projected to December (vs. $32,363 for December 2017 falling out of the TTM). So, we probably won’t make a new high for a while. I currently have our income projected to finish 2018 at $454,856.
Savings Rate
Below is how we actually did vs. our goal of saving 50% of our after-tax income.
With one month to go we are still tracking to a 57% savings rate – still above our 50% target.
Speaking of savings rate, go check out my post where I mathematically prove the importance of your savings rate as a higher priority in achieving financial independence than your compound return! If you’re trying to build wealth quickly, then you have to read this post.
Mortgage Early Payoff Goal
After several refinances, our mortgage is a 3/1 ARM at 2.25% and we currently owe $130,908. We had originally set a goal to pay it off in seven years and three months but recently accelerated that timeline by a few years. In the progress bar below you will notice that we were originally working towards a goal completion date of 1/31/2022, but are now aiming to have this goal completed by 7/31/19.
For the past few years, I have been writing about the desire to avoid concentration risk and ensure diversification, and therefore not rush to pay off our mortgage. But in June 2018 we decided to go after this goal hard and fast. Why the change of heart? The first major driver is the fact that our income has grown far faster than we had ever imagined in our wildest dreams. Based on the 20-year plan I shared on the blog back in 2015, our income wasn’t projected to hit current levels until 2029 – that puts us 11 years ahead of schedule.
Prior to the 2018 tax reform, the tax benefit we received from being able to deduct the interest and property taxes was already minimal. And now, under the new reform, there is zero tax benefit (due to SALT limit and the increased standard deduction to $24,000 for a married couple which is greater than our itemized deductions). I still don’t understand why anyone could be dogmatic about keeping a mortgage for the tax deduction, which is worthless under the new tax reform for most households across the USA.
Moreover, why would you spend a dollar on interest to get thirty cents back? Why not pay zero interest and keep 70 cents out of each dollar that you don’t have to pay towards interest? Our lightbulb moment came when we realized that we could get this pay-off accomplished in about a year, which became very motivating in light of Baby GYFG’s imminent arrival (the sweet boy is now here). We feel this gives us a very strong financial foundation from which to spring into our next phase of life, and wealth-building.
This acceleration means that the equity value in our home will be growing rapidly over the next eight months, as will the percentage of our net worth concentration tied up in this asset. It currently makes up 35.7% of our net worth, and I anticipate it will make up as much as 40-50% of our net worth between now and July of 2019.
ONLY EIGHT MONTHS TO GO!!!
The original philosophy of this plan to pay off the mortgage was to accomplish this goal while avoiding any austerity to our lifestyle. I coined it the “pay more tomorrow” plan. In keeping with the GYFG emphasis on the income side of our financial equation, I decided that we could easily increase our income (after tax) by at least $9,600/year and dedicate that additional income to fund the goal effortlessly. This has proved to be not only true but also very conservative. To date, we have paid down the mortgage by $224,092 in less than four years.
This goal is now 63.1% complete (vs. 60.3% in October)!
Closing Thoughts
Our financial arm continues to remain on autopilot through year-end. We got to enjoy our first Thanksgiving as a family with Baby GYFG, and we are stoked for all the first experiences that we get to share with him in the coming months and years. Mrs. GYFG texted me the other day at work when it was raining that it was the first time Baby GYFG had seen rain. All the firsts! As I mentioned last month, I did get my goals set for 2019 and I’m already furiously working away on them (post to follow soon). I ended up combining the “Food” and “Fun” categories for four goals around the four major F’s in life:
- Family
- Fitness
- Finance
- Fun
Enjoy the holidays!
– Gen Y Finance Guy
4 Responses
Great Job.
Your numbers show that brute force savings trumps the market again!
You ended up positive for the month while my NW went down by 100k due the market swing in Nov/Dec.
Keep at it!
One thing I noticed is that earlier on in your blog you didn’t like the idea of a majority of your income coming from W2 work as a job can always be lost if a recession hits.
You had more side income at that time. you mentioned you just sold your rental property. Did you have a change of heart and double down on the employment income only?
Hey Jason,
Thanks for stopping by. I’m bracing myself for the day where my savings will no longer be able to outpace a market decline. It will happen just like there will be an inflection point where the compounding of the money I have put to work will generate more annual net worth gains that my savings will in any given year (probably still another five to seven years from that point).
Your memory serves you right. I don’t like the fact that we have such a heavy concentration of our income from the day job. However, it is the income that continues to remain steady and grow the fastest. We did sell the condo in October of 2017, but the income from that was a little misleading as we were breaking even from a cash flow perspective ($16,200). We were only making money on the amortization of the loan. There are two things that make the “other” income I report a bit misleading:
(1) I don’t include dividends or interest earned on our investments. This would currently add an additional $12,000 to $15,000 annually. Since I have it set to automatic investment, I don’t really track it, I just let it flow to net worth. If I included this, our “other income” would be somewhere north of $33,000 per year.
(2) When we had the condo in 2017 our “other income” was about $28,000 gross, but net it was only about $12,000 (because the $16,000 was breakeven from the condo). Today, the $33,000 gross, is the same as the net (before taxes of course).
All that to say, we are still very much trying to continue to build other sources of income to diversify our risk from our day jobs. Once we finish paying the mortgage off in July of next year, we will have a lot more capital to go after this even harder.
Any advice?
Dom
I’ve been following your blog since you started. Excellent job. I started accelerating my mortgage payments on my primary and second homes and primary is down close to 100k, which to me is within striking distance of being paid off. Paying off a home has been a goal of mine, not sure why, maybe its just another form of accomplishment. Thanks for the extra motivation!
Thanks, Dave!
I appreciate your loyalty over the years. It looks like this is your first time commenting and I appreciate you taking the time to leave a comment. It really means a lot and makes my day when a reader comments. I would agree that $100K is within striking distance. What do you think your timeline is to pay off one of your mortgages?
There is something about being debt free regardless of your net worth that brings a level of comfort that you can’t put a price on.
Cheers,
Dom