Can These Good Times Last Forever? What Happens If The Music Stops?



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Most people who know me well would likely describe me as a super optimist and that’s the way I prefer to live life. The alternative is to be a Negative Nancy and the energy drain to you and everyone else around you is exhausting.

I tend to believe that OPTIMISM actually CREATES ENERGY, EXCITEMENT, and PASSION. I would go as far as saying that optimism is the path to happiness and fulfillment in life.

On the flip-side of the coin, PESSIMISM is the ULTIMATE DESTROYER of all the good things in this life. Therefore, pessimism is the path to depression and disappointment.

What path would YOU rather be on? The key thing to realize is that the CHOICE is yours to make.

If you choose the former (to be an optimist like I do) over the latter, it doesn’t mean you won’t have your pessimistic moments. We all need to be a little pessimistic at times. It’s important to acknowledge from time to time, that the world is not all rainbows and butterflies.

There are bad things that happen in the world.

There is risk.

And no one is immune to inevitable bad luck.

That said, as an optimist, this pessimistic thinking should only consume 1% of your energy at most. You should acknowledge the downside, prepare with a contingency plan, and then move back to building your wildest dreams.

Like every post, these words are a reflection of my own personal thoughts (and worries), and today I embrace the pessimist within to address the following concerns (from a financial perspective of course):

Will the good times last?

Look, the GYFG household has had an incredible run over the last 8+ years. We entered the workforce near the bottom of the worst financial recession our generation has ever experienced. So, one could argue that there was asymmetrical upside on the horizon. This has been true for us:

  • Our net worth has increased from minus $300,000 (in 2009) to a positive $542,000 (as of March 2017).
  • Our income has increased from a combined $90,000 to a whopping $440,000 (projected 2017) in about 8 years.
  • I was able to go from Financial Analyst to C-Suite Executive in that same time period. Actually in 2014 I was still a Senior Analyst and only 3 years later I carry a fancy C-Suite title.
  • Mrs. GYFG went from a corporate employee to next generation owner/operator of the family business and has tripled her income in the process.
  • We have created a passive income stream of $27,000/year (at end of 2016; and growing).
  • We have an investment property with 35% equity, which at the depths of the financial crisis, was under water by more than $150,000.
  • We are able to save 50%+ of our after-tax income.
  • And the list goes on and on.

These are all things I am grateful for, but they are also so good that I wonder if this trend can last. I wonder what would happen in the next recession, as we all know it will eventually come, but no one knows when or how bad it will be.

Over the long-term I’m confident that the good times will last, but I just want to take a moment to be grateful for what has gone so well to date.

Am I late to the party?

We are 8+ years into this incredible bull market in stocks. Back in late 2013, I started to move out of stocks and into cash, outside of 2015, I have unperformed the S&P 500 (the index I benchmark to). On average for the past 3 years, I have only been about 50% invested, leaving at least $50,000 to $100,000 in gains on the table.

In spite of this, we have still been able to grow our net worth at a compounded rate of 85% for the past 5 years (2012 to 2016). And we have had a reversal of about $842K since the bottom of the market in March of 2009 when our net worth was negative $300K (not too shabby).

I tell you all this, because coming into 2017, I started to feel pressure to put more money to work in the stock market. I think it was a little bit of FOMO setting in after being under-invested for the past couple of years.

But then I realized that because we built and sat on so much cash we were able to take advantage of things we otherwise would not have been able to. One example is the $105,000 check we wrote to take advantage of acquiring an equity stake in the company I work for. Or the $33,000 check we wrote in January in order to get my brother the help he needed. Or recently being able to transfer $50,000 from idle cash in a traditional IRA to a Self Directed IRA with PeerStreet.

It also ignores other investments we have made outside of the stock market.

We have also built up $217,000 in equity through debt pay down and appreciation in our house and investment condo. Oh, and the decision to install Solar, which came with a 22% IRR.

This writing exercise has helped me to realize that we haven’t been that idle, instead we have been PURPOSEFUL and OPPORTUNISTIC with our hard-earned cash. Stocks didn’t and still don’t intrigue us as an investment to go all in at the moment. We think there will be better prices on the horizon.

So, no, I don’t think I’m late to the party. But I do think it would be a mistake to start putting a lot of capital to work in equities at the moment. I would rather work to build up the cash war chest over the next 12-18 months.

Operating costs vs disposable spending.

Frankly, the current euphoria in the market has me cautiously optimistic, as my gut tells me we are in for a potential Frozen Twinkie situation. You may be wondering what a Frozen Twinkie situation is, so let me explain.

It’s when someone hands you what appears to be a regular, chemically engineered, and delicious fake food known as a Twinkie. You bite into it with excitement and joy, only to find out that it was completely frozen in the middle, causing you to chip your tooth.

Because I get the feeling that the good times may have a speed bump in the near future, in addition to addressing everything above, I also felt compelled to look at our spending from a minimum monthly perspective. I actually had this conversation with my wife and accidentally freaked her out a bit, but I explained to her that I wanted us to be prepared with a contingency plan to cut way back in the event of a major blow to our current standard of living.

After spending time reviewing our expenses for 2016, I came up with the following minimum expenditure:

Minimum GYFG Houshold ExpensesIf you glance down to the bottom of the expense list, you will notice that I am saying that our minimum monthly expenditure currently stands at $6,125/month or $73,497/year. What this doesn’t include is the rental income we receive for our investment condo netted against the mortgage and association fees.

I did that intentionally since I was trying to capture a worst-case scenario. If you apply that credit of $1,350/month in rental income, then our minimum monthly expenditure is more like $4,775. Regardless of whether we use the adjusted number or not, both figures are significantly lower than our actual spending in 2016 and projected spending in 2017 (by at least 50%).

In fact, if either of us were to lose our job, we would be more than able to pay our bills and pay for the bare necessities. As you look at the list, you could even argue that there are still discretionary expenses that could be pulled out to lower this even further, and I wouldn’t argue with you (I’m talking to you wine club, yoga, LA Fitness, Audible, Massage Envy, Simply Kneaded, Showtime, Hulu, House Cleaning, Hot Tub Maint, Charitable Givings, etc).

Intuitively I knew this to be the case, but the real question is if something like this did happen, how long would it take us to adjust our lifestyle? In theory, I think I could/would make the switch overnight if we were to suddenly lose one of our incomes, but I have witnessed others in the real world taking much longer to adjust.

After laying these thoughts out in a somewhat organized fashion (very loosely used), my concerns are much less than when I started this exercise. At this point I think we have taken more than adequate steps to build a solid financial foundation.

Although we might spend $10,000 to $12,000 a month, we have left plenty of slack in the system to reign that in. In fact, we do plan to reduce our spending over the next 3-6 months to get our cash stack back up to $50,000 before the start of summer.

Now you can return to your normal Optimistic programming. We apologize for the interruption.

Onward & Upward!

Do you need to address any of these concerns so you can continue building your dreams? Do you consider yourself to be an optimist of a pessimist? Do you have a contingency plan? Do you ever feel like things are too good and that the shoe is about to drop?

– Gen Y Finance Guy

Gen Y Finance Guy

Hey, I’m Dom - the man behind the cartoon. You’ll notice that I sign off as "Gen Y Finance Guy" on all my posts, due to the fact that I write this blog anonymously (at least for now). I like to think of myself as the Chief Freedom Officer here of my little corner of the internet. In the real world, I’m a former 30-something C-Suite executive turned entrepreneur turned capital allocator. I am trying to humanize finance by sharing my own journey to Financial Freedom. I believe in total honesty and transparency. That is why before I ever started blogging, I decided that I would share all of my own financial stats. I do this not to brag, but instead to inspire motivate, and also to hold myself accountable. My goal is to be a beacon of hope, motivation, and inspiration, for you, the reader, by living life by example and sharing it all here on the blog. My sincere hope is that you will be able to learn from me - both from my successes and my failures! Read More



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21 Responses

  1. Love it! That is a very well-considered evaluation, GYFG, and your analytical skills are impressive (as always).

    My thought is that your ‘concerns are much less than when (you) started this exercise’, mainly because you can see your potential outcomes. Uncertainty results in pessimism, and that ‘fear’ can be overwhelming. I’m looking at Mr. and Mrs. GYFG’s ability to rock $842K of NW in just eight years, with your eyes wide open, and your optimism is well-founded! Great post, thanks for sharing!

      1. “I’ve always been a pessimist! My first memory, as a baby, was staring up at the mobile above my crib. I distinctly recall thinking, ‘oh, yeah…that thing is coming down!'” – Dennis Miller

        GYFG, your updated site presentation is great for me, as a reader. Really appreciate the improved loading-time, and the graphics are on point! And when you choose to play, your #beardlife game is strong!

        1. Thanks for the feedback JayCeezy!

          I had always intended to remove the ads, once the site got to critical mass and could self sustain on affiliate offerings only. That is the biggest reason for the loading time improvement.

  2. I think it is always good to know what you could cut if you had to. A lot of people get in trouble not because they lose their job, but because their lifestyle doesn’t change with it. They keep spending until their savings reaches $0 or put it on credit cards with confidence they will get another job soon at the same pay.

    I do need to look at this stuff. I’m not too concerned with expenses, but also don’t want them to grow out of control either. If I don’t know the exact numbers, this could easily happen.

  3. I like to think of myself as an optimist, but I still have contingency plans just in case bad things happen. #1 and definitely the most important one is living well below my means that I could take a large pay cut and still meet all my living expenses. Now while I hope this doesn’t happen, I’m ready for it if it does.

  4. Hi GYFG, I am an optimist, too, and my wife and I have built up since our 20s our assets and no debt but a mortgage by age 51. One probably has to be an optimist about the future to be an investor. Otherwise, delaying gratification wouldn’t be rational. Still, it is true that bad things happen so preparing for them is not pessimistic but just smart. The optimist sees those setbacks as opportunities. For example, I lost my job in the Great Recession and having strong finances meant that I had the ability to not just get another job but find the RIGHT job. I knew the moment I got cut that it was a good thing. I ended up having a great summer and then increasing my responsibilities and income. Had I not had savings, I’d have had to grab the first thing I saw.

    Also, the Great Recession taught me about bonds. Personally, I like to be 100% invested so I put my safety money in the VG Total Bond Index. It grows a little most years and typically doesn’t fall very much. I find I sleep well with about 20% in bonds, which is 2-3 years of living expenses.

    Your numbers are really impressive. Thanks for reporting and keep up the good work!

    1. Markola – I think you really hit the nail on the head when you said:

      One probably has to be an optimist about the future to be an investor. Otherwise, delaying gratification wouldn’t be rational.

      Hope for the best, but prepare for the worst!

  5. I am a pessimist who works for an optimistic outcome. People who are blindly optimistic may get lucky. The baby boomer generation sure did. But if you were blindly optimistic up until 1929, you would have lost everything in the Great Depression. Always prepare for the worst case scenario

  6. Love this. People often compare everything to “what if it was all invested in the S&P 500”, but to me that’s silliness. Comparative returns don’t pay the bills, so I don’t really care what the market does, and I’m not going to buy something that’s clearly overpriced. Just my opinion of course. Like you said, there are other opportunities to be had if you have the ability to take advantage.

    To your broader point, I always have a contingency plan, whether it be 0% returns or job loss. I don’t want financial independence to be dependent on any one factor — that’s fragility, as Taleb puts it. I’d rather have financial health, or robust anti-fragility (also Taleb). –R

  7. Wow, it’s crazy how we are all so much alike. I have tabs of a revised versions of our current budget too for different scenarios like if I lose my job, my wife loses hers or decides to go part-time. It’s always good to have a back-up plan and be mentally prepared for it. Life just happens.

    1. SMM – it is always great to have a community of like minded folks that “get it”.

      Scenario planning is always good to do in order to have a back up plan in your back pocket if you will.

  8. Frozen Twinkie! I love that! I’m an optimist but lately I’ve been wondering if things are going too well in the financial department. I started to hold a higher cash deposit starting this year and I think it’s helped me take more risks because I have that cash to fall back on. It’s hard to avoid the temptation to put the money in the market. I’ve also been pulled towards individual stocks lately when up to now I’ve been all index funds.

    1. Julie – I learned that “Frozen Twinkie” analogy from an executive at the first company I worked at out of college, and it has stuck with me ever since.

      We deployed a lot of capital in Q1, so we are definitely in cash hoarding mode as we build up war chest again.

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