Last week I announced after I created the new Financial Stats page that I would also be publishing a detailed financial report on a monthly basis. In these monthly reports the plan is to give you all a month over month update on Gross Income, Assets, Liabilities, Net Worth. There is also a detailed break-down on Expenses, Investment Contributions, and progress towards my mortgage pay down goal.
One more note before we get into the financial report for January. I just want to point out that I am publishing this report at 8:22 am on 1/31/15, and as you can imagine we could spend a few more dollars today. However, I was so excited and anxious to get my first report out that I decided not to wait. Today’s activity will not make a material difference.
Summary of January 2015
Note: Above chart was updated on 4/1/15 due to a formula error on the month over month change. Thanks goes out to Wisdom Junkie for pointing it out to me in order to fix it. Need you guys to keep my honest :)
What went down in January
The first thing I would point out is that the gross income for the month is a bit misleading. I would be very foolish to think my income was going to continue at this rate throughout the rest of the year. However, I will take a few seconds to enjoy a record month for income. The reality is that my income will actually not only fall from January, it will likely fall by about $30,000 to $40,000 vs. what was realized in 2014 ($214,000).
So let’s take a look under the hood to see what is driving the huge $11,254 (or 45% increase) in income vs. last month.
- I get paid bi-weekly and January happens to be one of the two months in the year that has 3 pay periods. This accounts for an extra $3,500 in income for the month. This will not be realized next month.
- January is review time at my company. And during my review I found out that I was receiving a raise of $5,000/year and an additional $5,000 in bonus. This accounts for another $5,600 of the increase vs. last month.
- And the last piece of income that I won’t be able to count on next month is about $2,150 in business income. This was income for a client that I was managing online marketing and analytics for. I invoice them quarterly, so this was the 4th quarter payment for 2014. Unfortunately this contract expires this month and I will receive my last payment from this client in February.
A quick history lesson on my side business and why I am choosing not to renew any contracts. In December of 2013 I decided to start a business in the online marketing and analytics space. It was a project that would allow me to get to earn and learn at the same time. The ultimate goal was to prove to myself that it could be done and prepare myself for this blog. I ended up acquiring 3 clients and earning about $18,000 for 2014. Although the extra income was nice, it was really a means to an end. And I had to face the reality that I only have the same 24 hours in the day as everybody else. So in order to give this blog a real chance, I made the decision to let all contracts expire without an option for renewal. Needless to say my clients were bummed, since we had made some really nice gains last year. In fact I helped grow one e-commerce sites revenue by $60,000 or 30%.
I honestly think that with enough time, effort, consistency, and valuable content, this blog will far out-earn this side business. Five years from now I will look back on this decision with no regrets regardless of the outcome. I wake up so excited at the prospects of helping other on their own journey to financial independence.
Now where did all that money go?
Home Mortgage $3,015 the normal payment is $2,215/month, however as a part of our 7-year mortgage pay off plan we started adding an extra $800/month towards principle
Condo Mortgage & HOA $1,138 This is the payment on our rental condo that is just 10 miles from our house. We currently rent this place out for $1,350/month, so we have a small, but nice, positive cash flow of $117/month after our $95/month property management fee
Note: Both mortgage payments are inclusive of property taxes.
Food & Dining $1,130 This amount accounts for both the money we spend at the grocery store and eating out. In the month of January we spent $500 on groceries and $630 on eating out restaurants. This is an expense that tends to get a little out of control for us. Last year we spent $14,000 on eating out, or almost $1,200/month on average. The goal for 2015 is to keep this combined expense below $1,200/month.
Shopping & Other $907 We did spend about $300 to buy supplies to pain the interior of our 3,300 sq ft house as well as paint to put a chalkboard up in our workout room in our garage. This is one of those areas like dining that can have a tendency to cause financial leakage. Will be looking much closer at this in future reports.
Travel & Hotel $722 This past weekend my wife and I spent the weekend in Vegas at the Wynn hotel. This was our Christmas present to each other. This will not be a recurring expense.
Deposit Reimbursement $500 We gave our friend who is renting a bedroom in our house his deposit back to go towards buying his motorcycle, see below. This is not included in the $3,100 that we loaned him
Auto and Transport $438 This includes fuel, car insurance on two cars, and toll roads
Medical & Dental $452 My wife had to get her remaining wisdom teeth pulled. It is what it is
Bills & Utilities $409 This includes our monthly utilities like gas, electric, water, internet, and our cell phones
Health & Fitness $315 This is for Shakeology, which is a daily shake we take as a part of our fitness plan. We also order a recovery drink. Between the two of us, it runs us about $165/month. Also in here is money spent on a 90 minute massage and some workout classes that my wife bought on Groupon. Typically this should only run about $165/month).
Business Services $154 This is for some expenses related to my ending side business.
Total Expenses $9,180
In going through these expenses, I think there is plenty of room to cut expenses by about $1,300 next month, just based on a few of the one-off expenses (Vegas Trip, Deposit Reimbursement, Business Services). I also think there is some room in both the food & dining category as well as the shopping category. Another $500 or so would be my guess. So next month I will be targeting around $7,500 before previously committed expenses for work around the house. We are having cabinets built and installed in the garage as well as a few other small additions. When all is said and done we will likely be spending about $4,500. So the real number will be closer to $12,000 (Yikes!!!).
What were Investments and Contributions?
I currently work for an employer that offers a 401K with matching. For years now I have taken advantage of maxing out my 410K (2014 max was $17,500, and this increases to $18,000 in 2015) for both the tax benefit and company match. This works out to be about 16% of my income off the top before I ever even see my paycheck. My wife happens to work in her family business and unfortunately they are not able to offer any retirement plan, let alone matching. So starting in 2014 we opened up an IRA for her that we plan to contribute the max $5,500 every year from here on out. I also have an IRA from 401K rollover from a previous employer. I personally wish I could have all my retirement in my TD Ameritrade IRA account because of the unlimited investment options and the ability to invest in many different asset classes including options. Additionally, late last year I opened up a SEP IRA to have the flexibility to contribute even more money pre-tax (income from my business activities). The SEP IRA has a contribution limit of $55,000/year in addition to my normal $18,000 as an employee in 2015. I don’t currently have anything in this account yet, I just wanted to have it set up. I have several other investment account with no activity this month that we will talk about in future posts.
Now let’s take a look at what activity went down this month:
- Contributed lump sum of $5,500 to the wifey’s IRA for the 2014 tax year. Side note, you have until the tax deadline in 2015 to make contributions for 2014. This gives us a nice tax savings and a nice boost to my wife’s IRA account.
- Contributed about $2,540 into my 401K. This is larger than what I anticipate to be the normal monthly contribution. The normal contribution depending on what % of my income I allocate to contributions. It will average 16% for the year, but I do play around with the percentage occasionally depending on anticipated expenditures or what not. For example, last year when we were in the process of buying our current house, I actually took my contributions down to 0% for about 4-5 months until we closed escrow. This left me with a lot of catching up to do in the back half of the year to still max it out. Needless to say I found myself increasing my contribution to something like 40% during the last 3 months of the year to ensure I would max out.
- Made a personal loan of $3,100 to a friend. I will probably write about this in the near future. I typically would advise against doing this, but my wife and I felt compelled to help our friend out. The short story is that he travels a lot for work and rents a room out from us. He actually has a place in Baltimore, so when he is here is has to rent a car. This was putting him back almost $500-$600/month, so he decided to by a motorcycle and will have us paid back in 4-6 months. He is an honest guy and makes good money, so we are not concerned that we won’t get paid back in a timely manner.
- Increases Savings $1,592 in our regular savings account.
Total Investments & Contributions $12,732
Summing it all up against the Gross Income
You know Benjamin Franklin famously said “that everything has a place and that everything should be put in its place.” With that let’s summarize where the Total Gross Income for the month of January went.
Gross Income $25,083
(Less) Expenses $9,180
(Less) Investments & Contributions $12,732
(less) Taxes $3,171 (taxes seem low for several reasons. Contributions to pre-tax accounts, increased withholding on W-4, and 1099 and rental income with no taxes withheld…YET!!!)
Total = ZERO (all income accounted for)
Everything is accounted for (phew!). That took about 1800 words to break down for you. I promise we are almost done. First I want to point out that taxes and benefits are going to be different for everyone and I will not spend much time detailing those here. I will also point out that I play with my deductions on my w-4. January is a perfect example where I have set my exemptions to 10. I try to align income and expenses throughout the year while also balancing my tax liability. It is an iterative calculation that I do frequently, and since our tax situation will likely be very different I don’t see any value detailing this portion of my financial life here on the blog (at least not at this time).
Net Worth and Mortgage Pay Down Update
And now for the final piece of what has become a pretty lengthy and detailed report. As anyb0dy likely reading this blog knows, the ultimate goal is to reach financial independence. And one thing I have learned over the years is that your Net Worth plays a huge role in your ability to be financially independent. Because unless you have some sort of guaranteed annuity or income stream, you will need assets that can produce income for you. Although I have a very respectable income, I am still a slave to the man. Without my JOB I could not go more than a few years without working for a paycheck to pay the bills.
My ultimate goal is to build up a Net Worth of $10M returning 6% a year or $50,000/month in income. Ideally I would like to be able to be financially free by my 48th birthday, which is 20 years from now. This is not to say that I will stop working, but I would have the option to do whatever I wanted to for the rest of my life. Now that is a pretty powerful place to be. So with that in mind last week I worked like a mad man to pull together my numbers so that I could start tracking my progress towards the march to $10M, which as you will see I am still very far away from. Not anywhere close to a 7 figure net worth yet. However it is growing at a very respectable rate.
January Net Worth $195,141 (This represents a $13, 771 or 7.1% increase since last month, I am very pleased with that)
One of the other big goals that I announced on the blog last week was the strategy to pay off my mortgage in 7 years (before I am 35). When you break it down and follow the 3 simple rules it’s not as hard as it sounds. We bought our house in February of 2014 and then refinanced it into a 5/5 ARM in September to remove PMI and free up cash-flow to put towards the principal. Sometime later this year we may even consider refinancing one more time into a 5/1 ARM where we could save another 1.5%, which only expedites our time frame to be mortgage free on our house.
Year 1 of the plan has us adding an additional $800/month to our payment. And as you can see from the summary above we were able to reduce our principal by $1,345 in the month of January.
The above progress chart shows how much of our goal we have completed. So obviously when we completely pay off the mortgage this will be filled with a solid green bar and read 100% Paid Off. That will be a day to celebrate for sure.
Well there you have the first Financial Report and a look behind the curtain. This was actually really fun to put together for both me and my readers. In all honesty I have never dove this deep into my finances. I am fired up to continue making solid progress so I can report back to you guys. I hope these are inspiring posts and move you to action. There is a famous Jim Rohn quote that I think everyone should keep top of mind and it goes like so:
“If you don’t plan your future, somebody else will. And you know what they have planned for you? NOT MUCH!”
You have to be intentional with your finances if you ever want a fighting chance to make it to financial independence. And I hope that as you read this posts and the many others that I share with you that you realize that it is not nearly as hard as they make it out to be in the financial media. It also doesn’t and shouldn’t take 40-50 years in the workforce before you have the option to retire. I personally thing that 20-25 years is really all you need, and for the folks that are more aggressive or very high earners you can probably reach financial independence in 10 years (but that will be a post for another day). We will just take one day at a time.
Please let me know what you think in the comments below. Is there anything you would like me to add to the report? Anything I should elaborate on? How can I write this in a way that will help you the reader? Also, if you have a blog, I encourage you to write a monthly financial report and come back here and share the link. I would love to be part of your support and accountability group.
– Gen Y Finance Guy
PS: Here are my favorite ways to track this stuff:
- The “Financial Stats” spreadsheet – a simple Excel template I created to provide the tables and charts you see in this post as well as on the Financial Stats Page. If you would like a copy of this spreadsheet, sign up for my email list and email me at email@example.com and I will send you a copy.
- Mint.com (free) – Mint is great for setting up budgets and automating the tracking of your actual spending habits vs. the budgets you set.
- PersonalCapital.com (free) – This is like Mint, but is geared towards investments and net worth tracking.
Food is one of those areas that a lot of people have trouble with. My wife and I were experiencing the same problem, probably spending upwards of $400/month on restaurants alone. We’ve cut that down to around $200 MAX, and even that is probably a little too much. I agree with you that you can definitely cut your $630 down a bit from January – probably half it in February if you really wanted to.
But hey, impressive monthly income, my friend. :)
Sorry for the delayed reply. I just learned that I need to check my spam folder every once in a while. For some reason your comment ended up in spam.
I know for sure we can do better. But believe it or not the $630 in January was a huge improvement from the average of almost $1,200/month that we spent last year. Right now the goal is to get it down to $500/month and revisit this area.
But you are right, it is more than possible for this number to go way down.
GYFG – Thanks for the very detailed post. Couple questions/comments I have, just as a friendly outsider looking in:
1) At your income level, you’re most likely phased out of the traditional IRA tax deduction you are planning on getting for the contribution into your wife’s account.
2) You mention you could contribute an additional $55k to a SEP IRA, but I believe there is a contribution limit of 25% of your income from your self-employment.
Maybe it would be beneficial to readers to share the rates on your condo mortgage and home mortgage, and then also break out the real estate taxes.
Very lofty goal of $10m by 48, but I can’t knock the hussle!
Thanks for stopping by and providing your feedback and questions. This is exactly the dialogue I was hoping for.
Let me address your questions (which are great ones by the way):
1) Typically you would be right here, however since my wife is not offered a retirement option to contribute to the IRS allows you to get the full tax benefit regardless of income (See IRS Contribution Limits here: http://www.irs.gov/Retirement-Plans/Plan-Participant,-Employee/2014-IRA-Contribution-and-Deduction-Limits-Effect-of-Modified-AGI-on-Deductible-Contributions-if-You-are-NOT-Covered-by-a-Retirement-Plan-at-Work)
2) I was only referencing the contribution limit for the SEP IRA. Since I only made about $18,000 from my business, you are correct that I could only contribute 25% of that into the SEP – IRA or about $4,500 for 2014. But should my business income ever grow then I would be able to contribute up to $55,000. Sorry for not being clear here. Actually Sam over at Financial Samurai did a great piece on this here: http://www.financialsamurai.com/how-to-save-more-than-100000-a-year-pre-tax-open-a-sep-ira-or-solo-401k.
Regarding mortgage specifics (rate and taxes). I think that’s a great idea to add to the financial stats page. For the record I have the following loans:
a) The house mortgage is a 5/5 ARM at 3.675%. Monthly property taxes run about $583/month
b) The condo mortgage is a 5/1 ARM at 2.75%. Monthly property taxes run about $133/month
I will work on integrating these either in the page or into the monthly income report. Need to think what makes more sense. If you have an opinion, please let me know.
The $10M goal is very lofty. Even my wife thinks I am a bit crazy. But as Norman Vincent Peal has been so famously quoted “Shoot for the moon. Even if you miss, you’ll land among the stars.”
The first major goal is to get the mortgage paid off before I am 35 (https://genyfinanceguy.com/2015/01/16/the-mortgage-snowball-strategy-to-pay-your-mortgage-off-in-5-7-years) and continue making progress towards this lofty goal. I plan to do a detailed post at some point over the next couple of months detailing a framework on how I plan to get to $10M.
Thanks for stopping by.
Heck of a detailed post here GYFG. Certainly a great snapshot of your finances, and tracking your income and expenses will only help accelerate your journey.
Keep on trucking!
One note – you’ve actually decreased your loan balances, which should be reflected by a positive change (green) instead of negative (red).
Thanks for stopping by!
I guess my conditional formatting is a little confusing. I think your right I should switch the formatting on that.
Wow, Finance Guy, you’re doing great! Your level of income is impressive and your net worth is way above the average for your age. Keep up the great work!
As a (very) little recommendation, where you wrote in the table ‘Last Month’, maybe ‘Previous Month’ or ‘December 2014’ would make it clearer? (last month would imply February, for example, if somebody read it in March) . Don’t mean to be picky lol Anyway, looking forward to reading your blog and following your journey! All the best.
Thanks for the recommendation. I can see how that may be confusing. Just changed it on my mast file and will use “previous month” nomenclature going forward.
Great post. I really liked all the details. I’m curious why you want to pay off your mortgage so fast when rates are so low. 10mil is a good number but as a semi retired 33 year old who has traveled the world and spent a year living in San Diego, Chicago, Austin and Minneapolis I had a very difficult time spending so much money. Lavish dinners, hotels, cars and houses just didn’t do it for me. How would you spend 50k a month!?! I personally think 10 rental props bringing in 20k a month would be fine plus some side money from doing some Web work for an occasional cruise.
Thanks for stopping by and leaving a comment. I am glad you liked the detail, It was getting pretty long when I was writing it up, but I wanted to make sure I covered everything. I am sure this report will evolve overtime, but I don’t think it will get shorter.
Regarding paying off the mortgage early. Its really just a piece of my overall financial strategy. I plan to take plenty of risks in the financial markets, alternative investments, and businesses. To me if you are willing to invest in government bonds than you should be more than willing to pay off your mortgage early. So instead of buying bonds as a % of my portfolio, I am instead putting that money into my mortgage.
But it is a fair question nonetheless. The true finance geek in me says to put the money into stocks or something else. But I like the idea of owning my house outright. I will take my guaranteed return of 3.675%. Plus based on the strategy I outlined, it is all done with income that comes from future raises. You can read about it here if your interested in the details: https://genyfinanceguy.com/2015/01/16/the-mortgage-snowball-strategy-to-pay-your-mortgage-off-in-5-7-years/
Your right, I probably don’t need $10M, but I can’t help but strive to get there. This might change overtime, but for now its something I am compelled to chase.
Thanks for stopping by!
Oh wow! Didn’t realize you posted all your juicy details! Your post is up!
Yes, January was my first edition! I have always enjoyed seeing real numbers when I have been on other sites. So I decided early on that I would provide full transparency. I know it kind of goes against your stealth wealth, but its something I am compelled to do. Plus I think I am starting at a low enough net worth, that people can relate.
Thanks for sharing my story with your community. It means a lot. I will make sure I jump in and join the conversation, as I know your community is a very active one.
Have a great weekend!
Everything looks pretty good except spending a bit much on dining out although your high income compensate for it. My wife and I made a promise to each other that we will go out just once a month together to a mutually agreed restaurant. Haha We just started this to reduce spending in dining out and it has been working pretty well.
The $630 that we spent in January was actually about half our average in 2014. I couldn’t believe it when I saw that we spent $14,000 eating out last year. The goal is to get this down to about $500/month on average in 2015.
This is a hard area for us to be to limiting in, since we get so much joy out of this spending. But $500 seems more than enough to splurge once a week. The good news is that we like to cook, so we just need to be more disciplined about cooking on the weekends instead of going out. During the week we cook almost every meal.
Let me know how your new once a month strategy plays out.
Great Post. I Look forward to following your journey! Thanks for putting yourself ‘out there’. I think we will benefit as readers and you will benefit as well to keep yourself accountable and motivated.
You are very welcome Christian. I couldn’t agree more that this transparency will keep me very accountable and motivated. I already find myself thinking about how the decision I make will effect what I share on my blog.
I really hope that the readers find benefit out of the blog. Its here for them (and YOU) as much as it is here for me.
Good for you for setting such a lofty goal. I enjoy reading MMM’s posts (I learn a lot), but I also want to read blogs from people who actually enjoy going out to eat and traveling, and are willing to save enough to support that lifestyle. Thank you for sharing your journey.
I love MMM’s posts as well. He helps keep me grounded at times. But yes, I am not going to be the personal finance guy that tells you to stop spending money on all the things that bring you joy. My goal is to try and be somewhere in the middle of Frugal and Big Spender. I try to evaluate my expenses often to cut expenses that are no longer bringing me joy so that I can use that income on other things. But I always make sure I am putting money away every month to reach my bigger goals. But I have acknowledged that no one is guaranteed a tomorrow, so you can’t delay everything in hope of a better tomorrow.
So by reading things like MMM and I Will Teach You Be Rich, my hope is that I would fall somewhere in the middle. I also plan to try to have a bit of an unconventional approach as you will see if you read my blog in the coming weeks, months, and years.
Thanks for stopping by.
Would love to see your plan on hitting $10m net worth within 20 years. I hope it’s backed by some math and not pie in the sky dreaming.
That would be an average increase in net worth of $500k per year between now and then!
I imagine the plan includes figuring out a way to ramp up your income to $500k+ per year in the near future.
Thanks for stopping by. I have had a lot of people asking me about this plan. I am working up a post that will go live sometime over the next few weeks.
There is certainly a huge assumption around ramping up income. As a preview, I am involved with succession planning for the CFO role over the next 5 years as my boss plans his retirement exit. The company has made a very solid commitment to preparing me for this role in the next few years. I will also start getting stock options next year.
I hope you stay plugged in to see the entire plan.
Thanks for stopping by.
Nice post, lofty goal of 10 mil but like you said if you miss you are still in the stratosphere :)
10 mil IMHO would require a stressful C suite position at your job or entrepreneurial success …. Maybe both?
I would be happy with 2 mil in the bank. As long as I’m doing what I love along the way 5% on 2 mil is $100k pre-tax/year. I’m sure I’d still be writing, inventing or selling things as I find that stuff fun :). We should all enjoy the journey.
I am actually planning on both between the CFO role at my current employer (which I have already been asked to prepare for as a part of succession planning) and this blog and the ideas I have for it over the longer term.
$2M is an awesome goal. Looking forward to you sharing your successes along the way.
You sound like a man with a plan and some tricks up your sleeve… I’m staying tuned for sure GenY.
Gen Y Finance Guy,
I applaud you for having and documenting your financial goals.
A few things:
You have a goal of paying off your mortgage in 7 years. Your stated your condo is generating approximately $1,500 in income per year (plus this is a reduction of $X dollars per year in mortgage debt, which translates to $Y net worth gain). BTW, great rate of 2.75% for a rental. Have you considered, if your goal is to pay off your mortgage in 7 years, to sell your condo to help to pay off your mortgage ? Is your condo investment generating that much incremental value to you ?
Selling the condo was definitely a consideration. However, we bought the condo before the melt-down. So even though we put 20% down when it was purchased for $250K. It is currently only worth about $190K and we owe about $166K. So not much there after commission and fees.
For now we will continue letting our tenant amortize the mortgage for us. The rate is super low, and there has been this standing joke between my wife and I that “If we absolutely fail at life, we can always move into the condo”.
We have also considered refinancing the loan into another 5/1 option ARM that would increase the positive cash flow, but would also extend the term of the mortgage.
I am continually thinking through these types of questions.
Incredible breakdown! I’m always amazed at people who have the passion to do this. Looking forward to reading more of these in the coming months.
Looking forward to seeing you around.
Awesome! I love the transparency. Not a lot of financial bloggers share this much detail but it’s something I personally love to read about. PS. Congrats on the raise and bonus!
Just trying to humanize finance and remove the taboo of talking about money. Plus you confirm my feeling that this is a type of post that people love to read. It allows people to see if I actually put my money where my mouth is. Already looking forward to publishing February.
Cool! Looking forward to the next one then.
Thanks for sharing this Dom! It’s really made me realise or have it reinforced to me, the importance of setting super clear financial goals..
Good luck on your journey; although I’m sure you won’t need it :)! I’ll keep reading these posts and am happy to share my journey if you’re interested.. Would be awesome if there’s any areas where people’s net wealth / worth are tracked?