GYFG here checking in for the June monthly financial report. If you have been reading these reports for a while you will notice that I introduce each month with the same intro month after month. I do this for two reasons; a) for the newbies to the site (which make up about 50% of the sites traffic); and b) to remind everyone what these reports are all about. By all means if you have read the intro at least once, then please feel free to skip down to the “Summary of June 2017” section where the new content begins.
For those of you that are new around this corner of the internet, I wanted to fill you in as to what these reports are all about. These monthly reports are about full transparency. They are just as much for me as they are for you. It’s a hard decision to make all of your financial details public, but it’s also a very motivating one. It’s not just the post, but the process of putting this post together that really benefits me.
My sincere hope is that my 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 they are willing to do things differently. If you earn an average salary and have an average savings rate, then you can expect an average result! That means you will likely have to work at a job you may or may not enjoy until you’re 65 and then maybe you can retire IF you’re lucky.
Hey, there is nothing wrong with average. If you’re happy with average, then by all means keep doing what everyone else is doing. Not sure how you feel about that, but I have no interest in living an average life. I want EXTRAORDINARY.
Most people don’t want to live below their means in order to reach FINANCIAL FREEDOM, because that’s painful. They think it involves cutting out all the joy in life. You know what I’m talking about, those financial gurus that tell you that in order to get rich you need to cut out the $5 lattes and stop going out to eat. Then after 40 years of diligent and above average savings and super low spending, you will be a millionaire. Basically, you have to live like a college student and suppress all the things you want to do in life and then when you’re old you will be rich.
Okay, that doesn’t sound like the plan for me either.
The good news is there is another way. This site and these reports are here to show you the OTHER path to financial freedom. There is a way where you can have your cake and eat it too. I believe and hope that over time I will be able to convince you of the following:
In order to reach financial freedom you can choose to live below your means by cutting expenses to the bone and living in a state of scarcity or you can expand your means and live in a state of abundance by increasing your income and enjoying the $5 latte or other indulgence of your choice.
Not only that, but if you’re diligent you can reach financial freedom a lot sooner than anyone has ever led you to believe.
Our Mission Statement:
To Humanize Finance, Build Wealth, and Reach Financial Freedom.
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 (because not that many finance blogs or people giving financial advice 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, but 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.
As always, you can find all my previous reports on the Financial Stats page (as well as annual trends and a few other financial metrics not found on this report). In these monthly reports the plan is to give you a month over month update on Gross Income, Assets, Liabilities, Net Worth, Expenses, Contributions, Savings Rate, and progress on the mortgage pay down goal.
Summary of June 2017
Wonder how I pull all this information together every month?
Note: You may be wondering why I don’t use a bunch of screenshots from personal capital in these reports, and that is a fantastic question. As many of the other bloggers out there who use personal capital, post nothing but the graphics from within the application. I personally only use it as an aggregation that feeds into my own database that creates all the graphics you see in this post. The tool is fantastic, but I personally think the graphics are a bit limited, and prefer my visualizations.
We use Personal Capital to aggregate and consolidate our transactions from across all of our financial accounts (checking, savings, retirement, credit cards, mortgages, HSA, and other investment accounts). At the end of the month I export that information into my financial stats spreadsheet in order to produce this (beautiful) monthly report.
Tracking your finances is, in my opinion, the best way to stay on top of your finances. You can’t optimize what you don’t measure. You can’t make informed decisions if you don’t know what you having coming in vs. going out. Without a holistic view of how much you spend every month, there’s no way to set savings, debt repayment, or investment goals. It’s a financial freedom must!
If you don’t already have a FREE account with Personal Capital, stop reading and go sign up for your account right now! (Seriously, this financial update will be here when your done. There’s no time like the present to take action. You will thank me later!)
Month Over Month Financial Summary
Just three things to point out in case you missed it:
- Income for the month was up 35% due to an extra pay period this month. We expect about $46,000 in income next month due to my mid-year bonus.
- Our P2P bucket continues to fall as I pull available funds out every month from Prosper and Lending Club.
- Overall net worth grew by $13,008 or 2.3% for the month.
INCOME; What went down in June?
June Income = $31,672
- Previous Month: $23,452
- Difference: $8,220
Here is a look at the trend for the last 13 months:
June came in about $4,000 less than expected. In July I will be getting my mid-year bonus, which should put our income close to $46K for the month.
Now where did all that money go?
I have come to the realization that there are always going to be unplanned expenses. Our goal is to save 50% of our income and live off and enjoy the difference guilt free. With that type of rule governing our financial life, it is a free pass to inflate our lifestyle, but only proportional to our income. You can see prior financial reports here. We do however try to line up expenses with expected income as much as possible.
Rather than do the normal MoM review, I thought it would be good to look at how we are doing with half the year behind us. Let’s just say this year has not gone nearly as expected and we are significantly behind goal in many areas.
Income – We are currently $39,142 behind where I thought our income would be by mid-year. My income from the day job is $11,000 behind goal as my bonus was a wee bit smaller than I originally forecasted, due to a softer close to the year. And Mrs. GYFG’s income is about $30K behind where I forecasted as business has slowed a bit for her. The good news is that income is still up $19K or 11.2% YoY.
Home Improvement – We are currently $5,900 over budget, but this is mostly a timing issue. I straitlined the budget of $15,000 for the year, because at the time I didn’t know when we were actually initiate and complete our flooring project, which ended up happening in Feb/Mar. We should be close to budget by the end of the year on this category.
Food & Dining – This continues to be a place that we spend a ridiculous amount of money. So much for the cuts I had planned. It is starting to bother me with how much money we are spending in this area, mostly because we are so far behind on our goals for net worth and savings rate.
Shopping & Other Back in January I checked my younger brother Anthony into rehab in order to help him get his life back, which set us back $33,000– This is the line item that has completely busted our expense budget. .
Travel & Hotel – I only budgeted $6,000 for the year and I am started to doubt that will be sufficient, but we don’t currently have any other vacation plans as of yet (gulp)!
Net Worth – With a miss of $39K on the income line and and unfavorable variance of $42K on the real expense line, we would expect to be off our net worth target by $81K, but due to the performance of the market, we are only off about $58K.
Savings Rate – This is the line that gives me the most heart burn, but if you adjust for the $33,000 that we spent to help my brother, we would be close to 50%. Although the $33,000 is technically a loan, I am not carrying it as an asset, and have also treated it as an expense due to the fact that I have no idea if my brother will ever pay me back. I would very much welcome being paid back, but I am not going to count on it.
Here is the trend for the last 13 months:
Note: I have now changed the chart to reflect the add-back of loan amortizations to reflect what I call “real spending” above. This is done because amortizations are really just a balance sheet transfer from cash to pay down liabilities, it has no impact to net worth.
Not much more to say about expenses.
CALL OUT: It is crazy how slippery money can be. Because of this I totally recommend you automate as much of your finances as possible, especially the saving and investing piece. We set our financial goals at the beginning of the year and then automate the process of reaching them.
Our mortgage payment is automatically set up to pay $1,600 in additional principal.This is on hold. Trying to work down net worth concentration to something closer to 20%.
- My 401K contribution is automatically deducted at a rate that will ensure I max out by year end ($18,000)
- My HSA contribution is automatically deducted at a rate that will ensure I max out by year end ($6,750)
- We are now sending $500/month to our Rich Uncles investment account. Looking to increase the account balance to $11,000 by year end (currently at $5,500)
We are now sending $2,000/month to ourPeerStreet investment account.We now have $77,000 invested here and are on hold from new monthly investments. This is generating about $6,000 of income annually.
All of these things take priority over any spending that we do in a given month. We monitor expenses but don’t really manage them. Instead we manage savings and investments and let the expenses work themselves out.
Below is how we did vs. our goal of saving 50% of our after tax income.
Since it is mid-year I took a look at the forecast for the rest of the year and made a number of adjustments. The good news is that since experiencing a negative savings rate in January, our savings rate has been much better in the months since then, are projected to be through the end of the year. However, the bad news is that our savings rate for the year is now projected at 43% vs. our 50% standing goal. With income much lower than expected and the bust in our expenses, I just don’t see how we close the gap. We would need to cut $20,000 from the currently projected $47,000 for the 2nd half of the year.
Speaking of savings rate, have you checked out my post where I mathematically prove the importance of your savings rate as a higher priority than the compound return? If you’re trying to build wealth quickly, then you have to read this post.
Net Worth and Mortgage Pay Down Update
My ultimate goal is to build up a Net Worth of $10M returning 6% a year or $50,000/month in gross income. Don’t freak out, this is only about $5.5M in today’s dollars when you take into account a 3% inflation rate. If you want to see how I plan to get there you can read all about it here.
June Net Worth $571,210 (up +8.3% for 2017 YTD)
- Previous month: $558,202
- Difference: +$13,008
Net Worth is up 1,246% since 2012!
Net Worth Break Down:
A dedicated post is planned in the near future to deconstruct our net worth in a much more granular format.
In July I have scheduled to pay back the 401K loan I took out in January, which will cause a short term dip in our cash reserves (or remain relatively flat), but after that cash should continue to build through the rest of 2017.
3 things I would like to point out:
- Although our Stocks slice of net worth is 14% in total, making up about $79,183 of our total net worth, approximately $60,000 is sitting cash. With the 401K loan being paid back next month, this is likely to grow to 18% of net worth (a total of approx. $108K), of which about $88,000 will be sitting in cash (well a money market earning a measly 1.25%).
- The real estate slice is made up of 4 main chunks: our primary residence ($138K), a rental condo ($84K), PeerStreet Investments ($78K), and Rich Uncles Investments ($7K).
- The business slice represents the equity I own in the company I work for and will only be valued every 6-12 months. Since adding it to the balance sheet, I have not updated the value, and don’t plan to until January of 2018.
Note: I think people tend to glaze over the fact that the savings rate plays a much bigger role in increasing your net worth than the rate of return on your investments (in the early days of your journey). In the short term, savings rate has a bigger impact on net worth. The goal is to eventually build a big enough asset base that the gains from compounding will eventually outpace the gains from savings. Actually, check out the post I recently wrote: Savings Rate – The Most Important Variable to Wealth Building [and the math to prove it]
Progress On Our Mortgage Payoff Goal
You can read about our strategy to pay off our mortgage in 7 years (and 3 months). After several refinances we currently have a 3/1 ARM at 2.25% and we currently owe $297,307. It is nice to see it go under $300K.
Our primary residence is currently sitting at 24.1% of our net worth, still higher than we would like, which is why we have not made any additional mortgage payments this year. We would like to see this closer to 20% in the short term and far less in the longer term (like less than 10%). That is not to say that we don’t still plan to stick to our 7-year goal to have it paid off, we just feel more comfortable stacking up the cash in our bank account.
Based on our plan we are so far $7,200 behind goal on our mortgage payoff schedule of extra payments.
I hope these reports inspire and move you to action. Don’t take a passive role in your finances and hope for the best. There is a famous Jim Rohn quote that I think everyone should keep in mind:
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 freedom. It doesn’t have to take 40-50 years of slaving away for the man before you have the option to retire. I personally think that 15-20 years is really all you need, and for the folks that are more aggressive (i.e. extremely frugal, not us) or very high earners you can probably reach financial independence in 10 years or less (maybe us, it’s yet to be seen but income is our focus vs. expenses).
I am looking forward to chatting with you all in the comments below. How was your month? 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.
One last thing before we go. If you are new or even if you’re not new and you have been wanting a more guided tour of the blog, I finally launched a “Start Here” page. I highly recommend you check it out.
– Gen Y Finance Guy
Can you share again why your monthly income is so volatile each month? Looks like there are 30% moves without considering a midyear bonus. Is it partly commission based?
Your were up late! Or maybe in a different time zone?
On income volatility, my wife’s income every month has a large commission based component. And this month in particular I had 3 pay periods due to a bi-weekly pay structure. The next 3 pay period month for me will be December.
Aw man, sorry about the food expenses. That’s still something we struggle with, but we can be successful if we prioritize it. It’s all about making interesting dishes at home (I get ideas from library cookbooks I rent for free), buying in bulk, eating meals based on rice/beans/fresh veggies, and cooking your own staples.
Mrs. Picky Pincher – I may complain about it, but we are not trying to do anything about it… :(
What’s crazy, is that we enjoy cooking, and do cook a lot at home. But we still manage to go out a lot, and we do pick up a lot of checks when we go out with friends.
I’ve been up from 10 PM until 8:15 AM. Midnight oil shift! Also wanted to finalize a financial independence post for today.
I keep forgetting the total income figure includes your wife. Thanks for clarifying.
Happy Fourth of July!
Wow! I can’t imagine pulling an all nighter like that. I never even did that in college. But I guess you have to adjust when you have kids. Congrats by the way.
Happy 4th to you as well!
Great detail. I am striving for the same depth and transparency in my own net worth.
Curious to get your thoughts on the savings rate being calculate on pre or post tax income? I, personally, a showing a pre-tax metric on my website, but always love to hear how people view certain ratios.
Church – The savings rate I publish is based on after-tax. However, I do track the pre-tax savings rate as well. I like to look at the pre-tax number as well to see how tax efficient or in my case how tax inefficient my income is.
Because everyone’s tax situation is different, I find it more useful to share my after-tax savings rate.
I love the transparency as always. I’m going to do a 6 month in-depth review of my finances and will look to establish the same level of transparency! :)
Looking forward to it Erik!
Great stuff – even with the dip in income, it is still an incredible number.
So if your 5 year goal is to have the primary mortgage paid off and at 10% of your net worth, let’s do some math. It might be worth $500k by then, so your net worth would have to be $5M. Your other goals/projections put your net worth around $1.5M around 2022. Doesn’t match up. But if you keep your primary residence around 20% of your net worth, both goals align much better.
A few things:
(1) You are correct that the 5 year goal is to have the mortgage paid off in full by January 2022.
(2) I am aiming to have our mortgage make up 10% or less of our net worth, but not in 5 years, which is why I used the following verbage in the post above:
(3) You are also correct that the net worth goal in my original blueprint in 2015 put us at about $1.4M by beginning of 2022. But like I mentioned above, the goal for the 10% is just over the longer term, not within 5 years. I would also call out that I actually keep an updated model annually that re-forecasts where I think Net Worth will be, and I did post an update in 2016 here. That was almost a year ago and it moved the projection up to $1.6M.
I updated it again in 2017, but have yet to write a post, but it is currently projecting a net worth of $2.2M at beginning of 2022.
I do appreciate you keeping me in check and honest ;)