Net Worth Update: May 2016

Happy May!  I hope April treated you well and tax day didn’t crush you like it crushed me!  Even though taxes came due, our net worth still went up $6,379.32!! I’ll take a $6K jump every month…

April Financial Breakdown

House: $383,728 – $321,484 $62,244.  I’m just using zillow.com as the baseline here.  They give their estimate for how much they think you’re home is worth.  I’m not saying it’s accurate but it’s a decent way to keep track without bringing an appraiser in every month to help you track your net worth. This month it said the value of my home went up $4,197.00.

My 401k: $18,689.37.  Right now 5% of my salary is going into my 401k via my employer. Nothing crazy here.  According to my account at personal capital, my portfolio only increased 1.79% over the course of April.

Pension Fund: $8,215.40.  I’m one of the few remaining workers in America that contribute to an employee pension fund and if I decide to stay with my employer and retire 24 years from now I will receive a pension.  I DO NOT PLAN ON DOING THIS!  I’m all about early retirement!!!

My Old 401k: $8,497.11.  This 401k is from an old employer.  I need to roll this over into a Roth IRA.  Hopefully I get to this very soon…


Wifey 401k: $4,682.47. Same situation as my 401k.  5% match from her employer.

Wifey Old 401k: $3,300. Also in the same situation as my old 401k.  We also need to roll this over to a Roth IRA very soon.

Car: $13,174.00.  Well, I don’t know what to say on this one.  According to kbb.com, the value of my car actually increased by $174 over the past month.  I won’t expect an increase on a vehicle ever again but it’s a nice surprise.

Jeep: $10,763.00.

Emergency Fund: $8,016.98.  The emergency fund took a hit this past month due to taxes.  I owed over $3k and was able to cash flow over $2k of it, but I had to dip into the emergency fund for just over $1,000 of it.

TOTAL NET WORTH: $137,582.33 (+$6,379.32)

So 2nd post of my net worth in the books.  I’m not expecting to see gains of over $6,000 for a while, especially since over $4,000 of it was due to gains on the value of my home.

Keep in mind, the first few years of beginning to build your net worth are slow but once you get some momentum it’ll shoot up faster than you can imagine!

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Motivate Yourself To Build Wealth!

Getting control of your finances, increasing your net worth, and building wealth is not an easy thing to do. It’s actually extremely difficult. It will never happen without a plan, telling your money where to go, and the dedication to follow through with your plan.

Because of this, it’s important to figure out why you want to build wealth. Think about it right now! Why do you want to build wealth? Do you have specific goals you want to accomplish? Do you want to retire early? Do you want to change your family tree? Do you want the freedom to do whatever you please? Maybe you just want some “f#ck you” money? Whatever your reason is, it is important to have that reason fresh in your mind because you’re going to need to refer back to it frequently for motivation.

debt-slave

Personally, I don’t want to be a slave to anyone. I use the word slave because I firmly believe that if anyone has control over me and can manipulate me due to my finances, that’s exactly what I am…a slave to that person, job, loan company, etc.  Currently, the only outstanding loan I have is the mortgage on my house and it’s driving me crazy.  My mortgage, although extremely affordable as a percentage of my take home pay, is stressful because if keeps me from being able to leave my job if I wanted to quit today (to see how much house you can afford, look here).  My emergency fund keeps me safe for 6 months if I lose my job but my mortgage is keeping me from being able to choose any job I want, regardless of what that job pays.

So, for me, not wanting to be a slave is my “why”, and the motivation from my why will keep me disciplined and help me achieve anything I want! Do I want to have f#ck you money? Yes. Do I want to retire early? At this time I do. Do I want to change my family tree? It will be done. Any goals I want to accomplish can become a reality, all because I have the motivation to never be a slave to anyone.


Now it’s your turn to think about why you want to build wealth.  If my reason works for you, great! Roll with it and use it to live your dream of being free and financially independent.  If my reason doesn’t resonate with you, sit down and figure out:

  1. What are your goals that you want to accomplish in life? Write this down on a piece of paper and write down whatever comes to mind.  What would you do with the rest of your life if money wasn’t an issue?
  2. How would you live if you only had 6 months to live? What kind of life would you live?  How does it compare to how you’re living now?  How would it change if you didn’t have to worry about money?
  3. What are your most important goals? While you’re reviewing the goals you’ve written down, pick out which ones are most important to you.  Will you be able to accomplish your goals without getting control of your finances?  How will your goals be affected by building wealth?  How will they be affected if you don’t change how you spend/save money?

After completing this exercise you should have an idea of what’s important to you right now and how building wealth will only aid you while trying to accomplish your dreams.  Your goals will probably change over time so you’ll want to revisit this exercise periodically so that you can adjust.

So…What’s your why?

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Do You “Act As If?”

Have you heard the saying “Act As If” before? If you’ve seen the movie “Boiler Room” I know you have.  In “Boiler Room,” Ben Affleck is training a group of wannabe stock brokers to be fantastic but illegal stock salesmen on Long Island.  I won’t ruin the story for you but I want to talk about a specific part of the movie where he’s addressing the group of trainees…

At this point in the movie all trainees have just been hired and are preparing to start selling stock after passing their series 7 exam (the SEC requires any individual who wants to sell securities pass this exam). While conducting a morning sales meeting Ben brings up the fact that many of the trainees, who are all wearing suits, aren’t wearing suits that meet their companies standards.  He told them they dress like $hit and need to go out and buy at least one decent suit because the company they work for has a “minimum level of aesthetic professionalism they need to maintain.”  He also promises the group that it’s ok to buy an expensive suit even though they’re broke because they’ll be millionaires in a short period of time.

This then led to the “Act As If” speech, which I’ve always loved. Check it out… ***Disclaimer: Ben drops the F bomb in this clip.***

This is how the typical American thinks about money.  Most of us spend our money before we’ve made it and it gets us into trouble.  Luckily, no job will require anyone to act like millionaires if they aren’t millionaires.  I understand that the point of this talk is to build confidence and present an image of success.  But, you can’t just go out and buy an expensive suit because you think it’ll make you successful faster by influencing how others think of you.  Maybe you’ll boost your confidence for a brief period of time but you’ll become financially successful by being good at your job and telling your money where you want it to go.

I’ve never gone to a doctor because he drives a $100,000 car or a lawyer because he wears a $1,500 suit.  I pick a doctor by talking to patients of his and finding out his reputation. Is he smart? Does he have a good bed side manner? Will he be able to keep me from dying if I’m not supposed to die at that particular time? My point is that if you’re good at your job, no one will care what kind of suit you’re wearing or what model car you’re driving.

Like I said, I’ve always liked the “Act As If” mantra.  It can be applied to almost any situation, not just money.  It pumps me up, it’s motivating and it makes me want to go out, kill something, and drag it back home (metaphorically).  However, now that I’ve gotten a little older and gotten control of my finances and career, I don’t agree with this message as it relates to personal finance.  “Act As If” sounds an awful lot like keeping up with the Jones’ and no one can build wealth by trying to keep up with all of the other fools who either don’t care or are ignorant about personal finance.


When I was younger, I would blow all of my money right after pay day because, like the characters in this movie believed, I thought that I would earn money so fast that I wouldn’t miss the money I already blew.  I think most young professionals feel that way in their early 20’s.  It’s hard to think about retirement when you’re just starting a working career.  But, there isn’t one person on this earth that won’t run across a difficult time in there lives. It is said that everyone will have at least 1 financial emergency every 10 years. We just can’t keep spending money and expect to make it back, or make more, right away. We have to be prepared!

Fortunately, some of us finally wake up and realize that we work too damn hard for our money and we don’t want to look up after 30 years and have nothing in the bank to show for our hard work.

Success with money and more importantly, the speed with how fast you are successful with money comes from your level of dedication and what you are willing to sacrifice. “Act As If” DOES apply to you and your money but you have to reverse how you think about this phrase. “Act As If” you’re poor. “Act As If” you only make 50, 60, 70% of what you really make. “Act As If” you’ll be working for the rest of your lives if you buy that new car or bigger house…because you actually might if you make a poor decision.

Get rich by “Acting As If…”. How will you “Act As If?”

Is The Millionaire Next Door Dead?

If you watch the news these days, you may notice that a whole lot of people seem to believe that the American dream is dead. No one can get ahead and the notion of “the millionaire next door” is no longer attainable. Well, fortunately for everyone, you can still become a millionaire. The American dream is still alive and you can achieve anything you set out to achieve.  But you have to WORK hard!  No one said it was easy to be successful.  No one said you can become financially free without sacrifice.  And you sure as hell can’t rely on the government to help you out.  It’s all on you to achieve what it is you want and I wouldn’t have it any other way.

So How Do Rich People Handle Money?

millionaire lifestyle
The majority of millionaires do not live like this.

There has been study after study done on how millionaires handle money and one of the most extensive studies I’ve seen, was done by Dr. Thomas Stanley.

As Dr. Thomas Stanley, author of “The Millionaire Next Door” points out, one of the most popular chapters in his book (among millionaires) is Chapter 2, Frugal, Frugal, Frugal. This chapter details the frugal lifestyle of millionaires in terms of the modest prices paid for clothing, shoes, watches, motor vehicles, etc.  Check out the book, it’s one of my personal favorites.

Chapter 2, is essentially the most important takeaway of the entire book and it says that millionaires budget, avoid debt at all costs, and invest a lot of money.  But, they are frugal because they are content with what they have.


So How Can You Do It?

Obviously, becoming a millionaire or being financially free is not an easy feat. It takes a lot of work! It takes a lot of discipline! But it is still a possibility…look at all of my fellow personal finance bloggers, they know it can be done and they’re documenting exactly how they’re doing it! So, why not find a person you may look up to, who is successful with money and find out how they handle their money? If you handle money the same way they do, I can probably come to a conclusion that you will also be successful with money.

You can also find a financial plan that works for you and stick to it.  It doesn’t have to be difficult.  I actually prefer that it’s simple to understand because that means that it’ll be simple to follow.  My recommendations are:

  1. Create a Budget
  2. Pay off all Debt (except for your mortgage)
  3. Build up an emergency fund worth 6 months of expenses
  4. Invest in Retirement
  5. Pay Off Your House
  6. Build wealth and achieve Financial FREEDOM!!!

Why Aren’t More People Free?

Are you happy with what you have?  The answer to this question is important in knowing if you will become rich or not.  Most millionaires are content with their $20-$30 pair of jeans, used car, and modest homes.  They dont feel the need to try to impress anyone and they don’t care about what a stranger at a stoplight thinks about their car.

So, maybe the reason that people feel like getting ahead financially is a pipe dream is because they spend their days finding ways to buy convenience and focus on how they can keep up with the Jones’ instead of focusing on building wealth and increasing their net worth.  The size of your income doesn’t matter if you’re making more money AND spending more money.

90% of millionaires are first generation rich, meaning that they are self-made millionaires.  They didn’t receive inheritances.  They worked their butts off, had a plan, were disciplined with their money, avoided debt, and invested month after month, year after year.

They did it, and you can too!


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How much house can you truly afford?

If you’re like me and you’re on a mission to retire early, you need to know that the choices you make always affect your timeframe for when you’ll reach early retirement.  It can shorten how long it is until you reach your goal or it can push it back further and further into the future.  How much of a house you buy will be one of the most crucial financial decisions you’ll make.

extravagant home
Why have a home like this if you have to worry about paying the mortgage for the next 30 years?

Like everything in the world, there are many different opinions when it comes to how much you should spend on housing.  There are many people who think that their house is an investment and it’s ok if they have a ridiculous mortgage payment on an extravagant home.  On the opposite end of the spectrum, there’s a large movement of individuals who lean towards keeping there expenses down to nothing which has in turn created a housing market for “tiny” houses.  Personally, I pretty much stand right in the middle.  I like to keep my expenses low but with a wife, 2 kids, and 2 dogs I can’t really force them to spend the rest of their lives in 300 square foot house.

I’ve never really liked to think of my house as an investment but I can acknowledge the fact that houses do appreciate over time.  At 3% appreciation over 30 years, a $235,000 house becomes worth $485,000.  Not too shabby, but it isn’t guaranteed and shouldn’t be relied on.


How Much Should I Spend On A House?

When figuring out how much you want to spend on a house, you want to avoid any advice from the banks.  Banks will allow you buy a house where the mortgage will be around 50% of your take home pay (and they wonder why there was a housing crisis).  If you’re spending 50% of your monthly take home pay on a house, you’re house poor ladies and gentlemen.  Personally, I’d like to see everyone keep their house payment around 25% of their take home pay when financed with a fixed rate 15 year mortgage.  At 25%, you have the ability to buy a decent house, pay off that house earlyinvest a lot of money, and have a little bit of a life.

House-PoorWouldn’t it be great if you owned a home that you could afford AND pay off early?  Doing it this way will allow you to not only invest more money in retirement but you’ll also have a possible appreciating asset ready to sell if you desire.  If it doesn’t appreciate?  You won’t have to worry about it because you don’t owe a dime on it.  I’ve never seen a bank foreclose on a house that doesn’t have a mortgage!

Most of house poor America is barely able to pay their mortgage because they received terrible advice from somewhere and significantly overpaid.  They invest less than 5% of their income, drive cars with car payments, eat out constantly, and spend every dime they receive.  Please don’t be like everyone else!  Don’t mess up the biggest financial decision you’ll make by over paying for a house.  It’s easy to get house fever while you’re walking around with a real estate agent.  Be patient, be disciplined, and remember to sleep on any decision you’re thinking about.  Your financial freedom is depending on it!

Remember, 25% of your take home pay on a fixed rate, 15 year mortgage!

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Building Your Emergency Fund

An emergency fund is money that you have saved up and set aside to cover any emergencies or financial surprises that life WILL throw at you.  According to Money Magazine, 78% of Americans will have a major negative financial event in any given 10-year period.  Some of the top emergencies people face are: Job loss, dental or medical emergencies, car troubles, unexpected home repairs, and unplanned travel.  These unexpected events can be stressful and costly.  Wouldn’t it feel fantastic to have a stash of cash somewhere that will cover these events?

Building up your emergency fund is extremely important because it’s essential to keeping you from going back in debt.  You’ve worked too hard not to build up your emergency fund.

emergency-fund

Step 3: How Much Should Be in Your Emergency Fund?

Every household’s financial situation is different.  Some people say that if your situation is stable you’ll only need a 3 month emergency fund and others say you should have full years’ worth of expenses saved.  I pretty much stand right in the middle.  6 months gives you a long time to be able to find a job, if you find yourself without one; it is plenty of money to fix a car repair or unexpected home repair; and it’s more than enough to pay for dental and medical expenses (if you have the proper health insurance).  Having your 6 month emergency fund will give you peace of mind and a sense of security.

Now, take a look at your budget and look at what your expenses are every month (not your income but the money that actually gets spent).  Multiply that number by 6 and that’s the number you need to hit to have a fully funded emergency fund.  For the majority of households, $20,000-$30,000 will be what you want in savings but for some it will be more and others it’ll be less.  Keep in mind, now that you’re out of debt, you will be able to save your 6 month emergency fund fairly fast and once you hit that number you’ll never have to go back in debt again!

Where Should I Keep My Emergency Fund?

Your emergency fund needs to be kept in a place that is easily accessible so you can get to it quickly.  You should keep it in a savings account or money market account.  I recommend a money market account because it pays a higher interest rate than your typical savings account (not that either are good).  A money market account will give you around a 1% rate of return but a savings account won’t even give you that.

should_you_invest_emergency_funds

I know getting a 1% rate of return on $30,000 sounds like a terribly dumb thing to voluntarily sign up for but you don’t need to take the chance of losing any of your emergency fund to poor performance in the market.   Your emergency fund is not there to be invested, it’s there to be used as if it were insurance.

What’s An Emergency?

The next time you find yourself facing an unexpected expense after your emergency fund is in place ask yourself a series of questions before freaking out and pulling money out of it:  Did you expect this to happen?   Does it need to be fixed right away?  Is fixing it necessary?   If you answered yes to these questions, you are probably justified in using money out of your emergency fund.  However, I want you to ask one more question:  Can I adjust my budget so that this problem is cash flowed by this month’s income?  If this is also a yes, just leave the emergency fund in place and add the expense to your budget.  You’ll be glad you don’t have to replenish the emergency fund in case another emergency pops up, but when one does, remember to ask yourself the questions above.

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