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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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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Net Worth Update: $131,203.01

Welcome to April everybody!  I hope March treated you well and you were able to take advantage of a market that wasn’t losing money.  The S&P 500 increased 3.98% over the last 30 days.  It wasn’t a great month for investments but at least it wasn’t like January!

Since this is my first post on my net worth updates, I’m just going to list everything out and I won’t really have any detailed explanations about what’s going on like I will in future net worth posts.  You can also see in the “My Net Worth” excel pic that there is nothing there for “last month.”  That’s because this is the first month I’ve started using it.

I’m currently not investing in any 401k’s or other investments.  I do have balances in 401k’s but the only changes in those investments are from my employers contributions and the ups and downs of the market.  Right now I’m in Step 3 and I’m just building up an emergency fund of 6 months worth of expenses.

So, here we go…

April Financial Breakdown

House: $379,531 – $322,085 $57,446.  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.

My 401k: $17,660.16.  Right now 5% of my salary is going into my 401k via my employer.

Pension Fund: $7,975.  I’m one of the few remaining workers in America that contribute to a 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: $7,991.85.  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: $3,779. 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: $13,000.  I know, I know.  Many people don’t like counting the value of vehicles towards their net worth for whatever reason they choose, but I do because I could easily sell my car and have $13,000 in cash if I needed it.

Jeep: $11,000.  Same here…

Emergency Fund: $9,051.  I’m sad to say that I do not have my 6 month emergency fund saved up yet.  But, we’re working on it and will hopefully be where we need to be in the next 6 months or so.  GOAL? $20,000 right now.

TOTAL NET WORTH: $131,203.01

So there it is.  My first post on my net worth.  It’s obviously not where I want it to be right now but when I’m done building a solid foundation I will be able to invest a lot of money and build my net worth much faster than I can right now.

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!

**If you like talking about Money, Paying Off Debt, Building Your Net Worth and Retiring Early…This is the place for you!  Subscribe to receive emails of new blog posts, news, tips, and exclusive content!!!

 

 

Build Wealth and Gain Financial Freedom!

Congratulations!  If you’ve reached this step, you’re now living the good life!  You have zero debt and no payments of any sort.  Can you imagine what you can do with your life now?  Anything you want!  You’ve been investing 15% of your income into retirement and threw everything else at the house to pay it off as quickly as possible.  Well guess what?  It’s paid off!  You’ve been dedicated, disciplined, and intentional with your money so that you could be so close to accomplishing your goals of financial freedom and retirement.  Now what!?!

3 Steps to Building Wealth

You’re going to watch your net worth begin to skyrocket.  Now that you’re in this final step you’ll continue contributing the 15% you have already been saving towards your retirement but you’ll also begin to add your house payment and the extra money you were throwing at the house to your retirement and other investments.  Here’s how you want to go about investing:

  1. MAX OUT YOUR 401K– You’re allowed to contribute $18,000 in 2016.  If you have the money, DO IT!
  2. MAX OUT YOUR ROTH IRAIf you qualify for a Roth IRA, you should max out the $5,500 allowable contribution after you max out your 401K.
  3. INVEST IN STOCK INDEX FUNDS– I’ll go into this in depth in a future post but an index fund is a type of mutual fund who’s portfolio of stocks is built to mirror a component of a market index, like the Standard and Poor’s 500 Index (S&P 500).  You’ll want to invest any money you have left over after investing in your retirement accounts in stock index funds.  Look for index funds that mirror the entire market (or at least the S&P 500) while I write a more thorough review of index funds and recommendations for you.

If you can come up with enough money out of your budget to follow these 3 steps, you will become wealthy extremely fast.  If you can’t do all 3, it’s not a problem.  Work your way down the list and do the best you can!  Can’t max out your 401K?  That’s o.k., contribute as much as you can and work on building up your income so that you can invest more money.  The same goes for all of the steps!  Even if you’re on step 3, you want to increase your income so you can invest more money.

Gaining Financial Freedom

financial-freedom-beach-sea-sky-sand

So how much do you need to save to consider yourself financially independent?  25 times your annual expenses.  If you can save 25x your expenses and only withdrawal 4% of your money every year, you will be able to live off of this money forever.  This is the reason you need to keep your expenses as low as you can.  The higher your annual expenses are, the more money you need to save.  For example, if I spend $40,000 per year and wish to continue spending $40,000 per year during my retirement years, I will need to save $1 million ($40,000 x 25=$1,000,000).  Now you can withdrawal 4% every year.  You’ll have $40,000 to spend and the rest of your money will continue to grow.  Don’t worry about the details right now, just start to invest and continue to read these articles.  This blog is mainly about lifestyle transformation and attitude adjustments in how people think about finances.  You’ll learn common sense for your personal financing and investing over time and see that you will change as you save and grow financially.

Remember, you need to know that you’ll never become financially independent if you don’t keep your expenses low.  If you made $5 million per year and spent $4.9 million of it you would never achieve financial freedom.  Keep your expenses low and save as much as you can.  This will make you rich!

*Leave a comment to let us know how your investing is going!  Do you have ideas other than what is listed here that’s working well for you?

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Pay Your House Off Early

There’s only one step left before you can start building some serious wealth…Paying off your house.  Can you imagine sitting on your back porch drinking a beer on a nice spring day knowing that you are the ACTUAL owner of your house?  Not the bank, YOU!  What would it be like to not have a mortgage payment anymore?  How much money could you save if all of that money wasn’t going to the bank anymore?  YOU WILL NEVER BE WITHOUT A HOME!  It doesn’t matter if you lose your job or have a medical emergency, the stress of having to come up with the monthly payment is gone!  What a great feeling…

So What Do I Do?

Now that you’ve built your foundation and are investing 15% of your income into your retirement account, you can throw the rest of the available money at your mortgage principal.  Make sure it goes to the principal!  When you start doing this your balance will start falling faster than you expect.

Another method you may want to consider is refinancing if you have a 30 year mortgage.  Refinancing to a 15 year mortgage will guarantee that your mortgage will be paid of in 15 years and it’ll save you 10’s of thousands of dollars in interest.  It’s worth looking into, especially if you’ll save over 1% on your interest rate.

You could always downsize to a Tiny House and be out of debt today!
You could always downsize to a Tiny House and be out of debt today!

Downsizing is also an option to not having a house payment anymore.  If your mortgage is eating up a significant portion of your monthly budget you may want to downsize!  I recommend not having a mortgage payment that makes up more than 25% of your budget.  Anything over this amount will leave you in danger of being house poor and without the ability to have any fun or build wealth.

How Long Will It Take?

This is completely up to you and how much debt you are in with your house.  If you have a $340,000 home, it may take the full 15 years that you’ve refinanced your mortgage to or you may have a $100,000 home that you pay off in 5 years.  There is no guaranteed timeframe for this step, it’s completely up to you.  But remember, paying off your home is a long road…stay intense and find ways to have fun along the way!

*Leave a comment to let us know how you plan on paying off your house!  Do you have ideas other than what is listed here?

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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.

* If you like talking about Money, Paying Off Debt, Building Your Net Worth and Retiring Early…This is the place for you!  Subscribe to receive emails of new blog posts!!!