First of all, you’re having another baby — congrats! We do have a lot to catch up on, obviously! But I will never catch you in terms of babies. We got the buy-one-get-one-free deal with twins and that’s plenty for us.
I have some stories to tell you about flying across the country with 2 crazy boys and a cat. And buying a car online. And a thousand different moving expenses. These will need to wait as I get back in the blogging groove. I should be able to start writing more again now that we’ve moved.
It’s time for the monthly money check.
Overall, I’m happy with August. A net worth gain of $19,530 in a month is nothing to sneeze at. We are currently ahead of the pace (to reach my goal of $1MM at age 45) by $26,735.
August was a good month mostly because we got paid 3 times. And we had a nice vacation at the beach. September will be interesting, and expensive, because of moving expenses, which I will detail soon. But I’ve got a nice buffer to work with.
Here are some highlights by category.
Cash: $15,832, decrease of $6,384
We bought a car! Online. Through Carvana. It was so easy. I’ll never go to a lot again.
The car purchase is net worth neutral because I’ll be adding back the car value under investments.
Debt: -$9,400, paid off $200
Nothing to see here. I’m waiting until we get settled in the US to decide whether to aggressively pay this or roll it to another 0% offer.
Investments: $230,919, increase of $16,815
As mentioned, the only real change here is the value of our new (used) car. We’re drawing down some alternative investments simply because they aren’t very tax efficient. The LLC value isn’t updated monthly.
Here’s a chart showing my progress for the full 2 years we lived overseas. The blue line shows actual results, while the red line shows the pace required to meet my goal.
I like that.
In 2 years, we were able to increase our family net worth by 44%, more than $200,000. This without a strict budget or a high allocation in stocks.
I have no idea how the next year will go. Back in the US, we have a huge rent expense (around $48,000 per year). However, we won’t be paying for preschool (which was $30,000 per year), so I’m optimistic we can at least maintain the pace for my goal.
This post will be full of detailed numbers (money porn) and cool graphics (eye candy) — because it’s summer, and summer is fun and bright and cheery. July was a sunny month for you and for us as well. Clear skies, no turbulence. As you can see, my net worth jumped by a happy $10,559.
BUT … BUDGETARY WINTER IS COMING.
(SHUDDER. OMINOUS MUSIC. CLOSE UP OF NIGHT KING’S EYE.)
We’re moving back to the US in August, and our expenses will be going up faster than you can say “Littlefinger is a creepy douchebag.”
I’m not sure if you get these references to Game of Thrones, Penny. If you don’t watch it, you might consider it after your tech hiatus. You could binge during a free trial of HBO on Amazon Prime!
Anyway, before I dump the cold reality on you, here’s a recap of July.
Cash: We’re building cash to buy a car in August. We’ve been living on one car overseas but we’ll need two in the US. My philosophy on cars is to pay cash. I look for cars that are 3 years old (or so) with under 50,000 miles. The “new” car will be for Mrs. R, and I’ll keep driving my 2006 Rav4 with 120,000 miles on it and deep stains from kid snacks.
Debt: This is 0% debt. I’d like to pay it, but I want to wait until we get settled back in the US. We always pay our debts.
Investments: I didn’t add new money to taxable investments, but I adjusted the value of my LLC holdings upward by $1,730 after doing a detailed breakdown on the blog.
What I like about July’s report: A 5 figure net worth gain is nothing to sneeze at, even if you have allergies.
What I don’t like: If I were paying $4k in rent, my gain would only be $6,500, which is not quite enough to stay on pace for my goal.
THE COLD REALITY
When we move back to the US, we will start paying out the nose for rent and parking. As in $4,000 per month. I’m not complaining, we’re happy to spend more so we can live in a walkable city neighborhood rather than commuting from the burbs.
Additionally, we’re going to need some odds and ends like beds for our boys, a couple other pieces of furniture, work clothes, and that car.
Here’s my list of upcoming expenses; I might be estimating low.
By the end of August, I’ll have enough cash to cover most of this. Besides, we won’t buy everything at once. That said, I expect the budget to be tighter the rest of the year. I don’t follow a strict budget, but with such drastic changes coming up, I wanted a rough idea of what our spending should look like. This is what I came up with.
Get ready for a bunch of graphical eye candy:
Some of the items, like the HSA, won’t kick in until the new year. What do you think of this budget? I rather like it. So colorful and symmetrical. No idea yet if it’s realistic.
Here’s what it will look like for a complete year.
So what does this mean for my savings and my net worth goal?
Hey, guess what? I wasn’t even thinking about it, but when I totaled up my numbers for this month, I FINALLY made it under the $2,000 bar that I had set (kind of lukewarmly) set for ourselves. I guess that’s what happens when no major expenses come up. It won’t be that way for long though… big school bills coming up next month.
Before I get into all that, let’s talk about where the rest of our money is at. The last time I explored this was in April. In April, our student loans were at $147,037. We haven’t been able to put any extra money toward this since our tax refund, so it hasn’t moved much. It is now at $145,421, because we do pay a little bit more than the interest rate acquires every month in our automatic withdrawals.
One thing we are going to start doing, in response to advice from a reader, is instead of taking $1,000 out one time a month, we are going to have $500 withdrawn two times a month. This will help save since the interest is compounded daily on student loans. (My husband just has to make a phone call, which I keep reminding him to do…)
We have also built up more equity in our house since April. Back then, it was valued at $214,000. Now, it is valued at $229,460. (I come up with this figure by taking an average of the Zillow estimated value, $252,421, and the property tax estimated value, $206,500.) So, take that amount and subtract the amount we owe on the house ($88,670), and it looks like $140,790 is the current equity we have in the house.
Here’s a snapshot of our current net worth:
That’s up $25,318 from our net worth in April, but that’s basically because our home is valued $25,000 more than it was in April. If we took that out of the equation, our net worth would be basically the same.
After my Retirement Plan post, Mr. O, specifically, asked about my LLC holdings. Happy to oblige. Here’s the story of how a $30,000 investment in farmland turned into more than $200,000. There are bunch of graphics and some stories from my neck of the woods.
Note: This page has affiliate links to good products we endorse. Full disclaimer.
I’m going to start this story at the end, and then talk about the beginning, and then return full circle to the very end, like one of those annoying historical fiction novels that jumps between the past and the present. I’ll try to do this without being annoying. Go read or watch Julie and Julia for a barometer of this approach. If you can stomach it.
Careful readers of my Retirement Plan, like Mr. Manifesto, noticed that around 30% of my Net Worth is currently tied up in what we will call Brothers LLC (Limited Liability Company). Here’s my net worth pie chart, updated:
Brothers LLC is like an investment club I’m in with my 2 brothers. More accurately, it’s me and Mrs. Rich and my brothers and their spouses. We all own our shares through our respective family living trusts (which I highly recommend for estate planning — more on this in a future post).
My brothers and I each bring unique contributions to our company.
Brother 1 is a former doc and a visionary. He can afford to be a visionary because he made huge money as a doc. He owns 55%. The LLC was his idea, and most of our holdings have come through his connections.
Brother 2 is a banker, he’s our numbers guy. He also makes big money, but he’s fairly conservative, as bankers can be. If he doesn’t like a deal, we usually pass. He owns 20%.
Brother 3 is me. I’m the youngest. I bring creativity and comic relief and the occasional flash of insight. I own 25%.
The foundation of Brothers LLC is farmland. None of us are farmers anymore, but we farmed growing up and we come from a long line of wheat farmers. My ancestors worked the land in France before immigrating to Canada and the northern Midwest, USA. It’s here that I must introduce a seedy character named Grandpa Jack. Get it? Seedy?
That’s not his real name, but people called him that. And now, we go back.
Grandpa Jack was a farmer who didn’t graduate from the 8th grade because, as he told the story, he was afraid of my grandmother. I didn’t get it, but I nodded when he told the story.
His whole life, he worked on the farm. Even in his 70s he would be fiddling around, fixing up old trucks, cussing about broken parts. His favorite was “Damnitalltohell” — properly said as one extended compound word. Honestly, I was afraid of the guy. Later on in high school, I told him I was going to start traveling to help people in other countries. His only question was, “When will you be back to the farm to work?” My grandma slipped me a card with $50 inside, and she wrote: “For your trip. Don’t tell Grandpa.”
Grandpa Jack had a falling out with my Dad, for various reasons, including the fact that when he retired he didn’t give Dad the land as he had promised. He made my Dad buy it in sections, full price.
In 2005, Grandpa Jack died, and true to form, he did not leave any land to my Dad, even though Dad had worked it for 40 years. Grandpa left land to his daughters (my aunts) and to a grandson (Brother 1). Other grandchildren received silver bars that Grandpa Jack had hidden in a woodpile in his backyard. I’m not kidding.
AUNTIE JUNE, NORTHERN MINNESOTA HILLBILLY
In 2008, my Auntie June, a chip off Jack’s block who had inherited 80 acres of land, was looking to sell. I have no idea why. Auntie June is a total mystery to me and I can’t believe we are related.
I just finished reading the excellent book Hillbilly Elegy (that you recommended, Penny). Grandpa Jack and Auntie June remind me of characters from that book. I’m not sure we have a good name for these people in Minnesota, rural folk who drink terrible beer and tell dirty jokes, and also shovel the sidewalk and wave to everyone they see. Imagine crossing a hillbilly with a character in the movie Fargo and stick them in Little House On The Prairie, and there you go.
Could we call them Prairie Dogs? I mean that with all respect.
Auntie June smokes like a chimney and carries dice in her purse, just in case anyone wants to gamble for quarters. And if you see Auntie June, you’re going to gamble for quarters. I’m guessing this habit has something to do with why she wanted to sell the land.
BROTHERLY VISION AND A DECISION
Like I said, Brother 1 is a visionary. After he inherited the farmland (151.5 acres), he immediately began pestering us to form a company and use the land as the basis for more investments. He could’ve done this himself, but he wanted the land to be a family asset and he also wanted to decrease his own risk. We ignored him at first.
But then he heard Auntie June was selling. So Brother 1 proposed that we pool our money to buy Auntie June’s land, and he would add it to his own land and give us a discount in the process. We would then have 231.5 acres to work with in an LLC.
The total cost to me would be $30,000 for a 20% share of the total. $30,000 was a lot of money to me in 2008. I was newly married, we were paying of Mrs. Rich’s student loans (totaling $30,000) and we were thinking of saving for a house.
We had to decide: house or LLC?
It was philosophical. Conventional wisdom says own a home. But we liked the idea of growing our investments and renting our residence. And I liked the idea of starting a family business with my brothers. So we scrapped together the money and BROTHERS LLC was born — from the ashes of Grandpa Jack’s grave and Auntie June’s cigarettes.
THE GREAT RECESSION AND THE FARMLAND BUBBLE
With my brother’s discount, our $30,000 was immediately worth $50,000. And much to our surprise, we had bought farmland just before land prices skyrocketed. In 2008, our land was worth around $1,150 per acre and rental prices were around $65 per acre, per year. A decent ROI of 5% or so. Then the Great Recession caused the Fed to lower interest rates, causing wheat and land prices to go nuts. Land prices tripled and rent prices doubled.
In 2010 and 2011, I started seeing articles about farmland in the NYT, WSJ, and USA Today. Not normal. By 2012, I was pounding the table with my brothers, telling them that we may never see prices like this again. Even my Dad, who loves to say, “God ain’t making more farmland,” was convinced to sell a section of land. That said, we didn’t want to sell ALL of it — it’s our family heritage and a unique asset. So Brothers LLC decided to sell the 80 acres we bought from Auntie June. And that’s how my $30,000 investment jumped to $186,000 in a flash.
As you can see on this chart, the value of our land went up 220% in 4 years and my investment went up right with it. In rural Minnesota, you just don’t see moves like this. It’s not New York, it’s the Prairie!
There was a bidding war and we got a great price. I think my profit after taxes and fees from the land sale was around $39,500. Instead of pocketing all the cash, I used $30k to purchase an additional 5% in the LLC from Brother 1. So, now I own 25%
DIVERSIFICATION AND LEVERAGE
The story of BROTHERS LLC after that is mostly a story about diversification and leverage.
We’ve been at this blog for around 6 months, so I thought it’d be a good time to go over some highlights. This article will contain numerous links to some of our best posts. Of course, a complete list can be found via the Posts tab.
For any new readers, I’ll quickly reiterate our premise. We’re cousins from a small Midwestern town. One summer, around age 10 or so, I think we played together every day for 80 straight days. Good times.
Our adult lives diverged but we kept in touch, often writing long emails to each other about life and happiness and money — which is essentially the genesis of this blog.
As for me, I went from the farm to theology school to French language study in Paris. Much to my own surprise, I landed a high income career, married a woman with similar career goals, and had twin boys. High income agrees with me. Why wouldn’t it?
I admit, since starting this blog, the goal has become less important than the journey, the process … life. As I’ve thought about my philosophy of life, it’s become clear that it’s really not about the money. It’s about relationships, growth, and freedom — these are the keys to happiness, incidentally.
So, I hope I can meet my goal the right way. Since we started the blog, I’ve been able to keep pace.
So far so good!
But, again, I’m much more concerned about happiness than money.
Now to your goals, Penny. You have enough student loan debt ($173,000 at the start of the blog) to make Dave Ramsey drop a dadgum mess in his britches. You’d love to pay it off, and you’re making good progress. I’m not sure how much you have left right now, but I think you’ve already lopped off $20k of debt in a few short months.
THE IMPORTANCE OF HAVING CONVERSATIONS ACROSS THE DIVIDE OF INCOME INEQUALITY
Penny, sometimes I think we agree on a whole bunch of topics and sometimes I think we couldn’t be more different. But what I really appreciate is that no matter the topic, we can have an honest conversation, even if there are points of disagreement.
Before I begin this monthly money check, I want to briefly revisit why I’m writing these updates. Quite simply, my purpose is to track my financial progress and think through how I’m doing with regard to my goals, perhaps clarifying my goals along the way. My purpose is not to brag about finances or elevate money to supreme importance. Human happiness isn’t about money (although money well spent, arguably, can help). I’m also not trying to be an example for anyone. Everyone’s situation is different. This blog is mostly for me, and secondarily for you.
As you know, my goal is to reach a $1 Million Net Worth sometime during my 45th year of life. I gave myself the whole year for the margin of error. I didn’t set this goal for my 45th birthday because, frankly, I didn’t think I’d make it. I’ll be 45 in 39 months, approximately, and I still have nearly $400k to go. It’s a tall order.
However, I’m starting to think it’ll be close. The month of June is an example of why I think this.
From May 31 to June 30, our net worth jumped by $14,885. This is encouraging because there was nothing incredibly unusual about the month. Income was normal, with a little extra for overtime.
What’s more, there were no abnormal investment returns or risky market returns inflating my results. My largest investment — ownership of an LLC along with my brothers that primarily holds farmland and commercial real estate — was flat on the month.
It may sound strange to say that I’m encouraged by a lack of returns, but to me this shows that my financial goals are not dependent on any short term risks. As I’ve noted, I hate the broad stock market right now. I think it’s a bubble and I refuse to buy shares at these valuations. (Actually, I might buy some individual stocks opportunistically, like Nintendo before Christmas season, but I’m not buying the broad S&P 500 index here and now). The beauty of it is, I don’t need stocks. Investing, to me, is about risk and reward and meeting goals. If I can meet my goals without undue risk, I will.
Anyway, financially speaking this was a normal month, and it was a good month. When we move back to the US, we’ll need to pay a whopping $4,000 per month in rent, but even with that expense this would still have been a good month.
Widening the lens, I can’t believe half the year is gone! Let’s see how 2017 is going, with some observations by category.
Net worth is up by $72,837 in 2017. More than half of this is in retirement, so it’s not money we’ll be touching anytime soon. The next largest portion is from debt destruction. It’ll be nice to get that completely out of the way. After that, a bit of cash and investment gains.
Your lack of spending is really astounding. As we’ve said many times, the point of making money and spending money isn’t money itself, it’s to get something of value in return. At first I thought maybe there just wasn’t much that you valued because you spend so little. I think that’s partially true. You don’t value vacations like I do, for example. You don’t value clothes at all. You don’t, in general, value many things that cost money. But when you do value something, like education, you’re willing to pony up.
Turns out I value plenty of things in life that cost at least a fair bit of money. I value travel, eating out, a short commute to work (because I value work) and so on. Even though I’m not going to detail all my expenses (waste of time), I can still sneak some money porn into the post by highlighting a few things Mrs. Rich and I specifically valued in May. To wit:
A beach house rental for the summer: $653.22 (partial payment). Because we value family beach vacations.
A deposit on our new apartment: $1,100. Because we value an apartment close to school, close to work, and close to enjoyable activities.
A painting by a local artist: $410.88. Because we value art, and we value a beautiful reminder of our 2 years overseas.
According to many personal finance blogs, this is just craziness. We spent $2,500 on a few things and what did we get, really? A glorified blender, a painting, and some overpriced places to stay?
Yes, actually. That’s what we got. I do realize this kind of spending will prevent us from retiring early. But I don’t want to retire early if it means no smoothies.
I also realize that we spent more on these 4 items than you spent on everything in May. That does seem a bit crazy. How could we be so different? Which one of us belongs in the looney bin?
Most of all, I value going through life without worrying too much about money. I like thinking about money and managing money, but not worrying about money. I value financial security. Financial security is the basis for my goal of reaching a $1 Million net worth at age 45.
NET WORTH PROGRESS
Let’s check on that goal. Going into the month of May, I had a net worth of $603,982. Therefore, I still need $396,018 with 53 months to go. I need to average an increase of $7,472 per month. In May …
… my net worth increased by $7,749. Ding! In 2017, I’m up $57,951 , or $11,590 per month. I won’t keep that up but I think I’ll stay on track for my goal. Here’s a chart showing my progress since I started tracking it in September 2015.
Now, let’s look at each net worth category separately to see how I’m maintaining this upward trajectory.
First of all, your money check, despite the Blergs, was awesome — you’ve paid off a huge amount on your student loans this year. Does it feel like it’s picking up steam or still feel like really slow progress?
In my last monthly money check, I talked about how tracking my expenses in great detail isn’t worth the effort for me. The expense reports were interesting in terms of being money porn, but the truth is we don’t talk about basic expenses much at home. Mostly, we talk about priorities and we talk about large, lumpy bills. We don’t quibble about a $3 latte when we have a $24,000 preschool bill.
A couple fellow bloggers (Max, Mustard) commented that tracking expenses was useful for maintaining a baseline. I agree with this to a certain point, and maybe my disagreement with them is semantics. I’m more in line with Go Finance Yourself, who doesn’t do a detailed expense budget. Let me explain further by showing what I don’t do and what I do do.
Do do? Ha!
First what I don’t do. I don’t set a budget whereby I try to limit spending to a certain amount in each expense category. For example, I don’t have a budget of $500 for groceries and then get anxious when I spend $700. To me, that’s what people normally speak of when they talk about budgets. It’s a way of controlling spending behavior.
I can imagine someone doing this if they don’t have much leeway, or if they need to live on a tight early retirement income. I get that, and it’s a smart approach. I’m curious if this actually helps people control behavior or if it just describes behaviors they already have. At any rate, it doesn’t help me much. I don’t care about a few hundred dollars here or there as long as I’m paying the bills and regularly achieving my goals.
So here’s what I do. I maintain a cash flow timeline where I project my income and expenses a few months out. It looks like this (although this is a simplified example):
As you can see, I know how much is coming in and approximately how much is going out. I update the numbers when my credit card statements arrive. I also include money I’m setting aside for goals, like the IRA and the 529 plan. And I can see my final balance.
So let’s say I need to buy a car in late summer (which I do). When I look at my timeline, I can see that I’ll have $22k available. I want a car in the $15-18k range, so I’m prepared for that lump expense. If my balance starts to get tight, I can easily adjust by postponing an IRA transfer or something. Not a big deal.
Does that make sense? This does not seem like a budget to me. When I put $5,000 on my credit card, I don’t really care how much of it is groceries and how much is electricity and so on. The only thing I care about is if I have enough available cash to pay the bills, absorb the lumps, and set aside money for our priorities. If I can do that, I’ll meet all my goals, which I’ve set up ahead of time.
What do you think, is this a budget in disguise or something else?
Ok, enough of that. Let’s take a look at my Net Worth numbers for April and I’ll share some observations. Click on the chart for a better view.
So far this year, my net worth has grown by $12,550 per month. Outstanding! I won’t keep that pace, but I’m on track to meet my goal of $1MM at the age of 45.
I have 4 main categories that make up my Net Worth, and goals for each category. Here’s my progress report.
I think a lot of people who read personal finance blogs do so because they want to see in public what most people keep private. It’s financial voyeurism. Money porn.
What’s funny is we receive around 2 readers per day who, apparently, are searching for some combination of “money” and “porn.” I don’t think a personal finance blog is what they have in mind. Imagine their annoyance. “Hey, this isn’t money porn! It’s just a couple bloggers who are cousins bickering over nonsense!”
My question is, what the heck are they actually looking for??
Don’t answer that.
Ok, let’s have a look at my finances for the month of March. First, net worth.
In March, Mrs. Rich and I got paid 3 times. That’s the primary reason our net worth jumped by $22,488. Our average net worth gain per month in 2017 has been $12,358, waayyyy ahead of the pace we need to reach my goal of $1MM when I’m 45.
Now for the bad news. We won’t be able to maintain this pace, because we’ve got some lumpy expenses coming up.
OUR EXPENSES ARE LUMPY
I’ve been tracking my expenses for 3 months now. I’d never done it before, but I thought it’d be interesting money porn for you and our readers. Have you found it … exciting?
I think I’ve confirmed 2 truths about my budget that I had suspected. First, we spend a lot on food (average = $2,200 per month). It’s more than I expected, but not ridiculously more than I expected. We’re not frugal when it comes to food, I knew that already.
Second, I’ve confirmed to myself why I don’t usually track regular, recurring expenses. This will sound crazy: I don’t think they matter in my situation. Look at this chart (click image for a better view):
Everything is in a narrow, somewhat predictable range, and then BOOM — half a year of preschool for 2 kids for $12,000. In the past 2 years, we’ve spent, I don’t know, $60,000 on preschool-related expenses. We more or less had to send our kids to this preschool because we’re in a foreign country, but even without preschool we’d still need full time child care. In the past 5 years we’ve spent $150,000 on preschool + child care. Conservatively.
My goal is to have a million dollar net worth at age 45. Specifically, before I turn 46 in September 2021. When I started tracking this in September 2015, I had a net worth of $455,169.63. Today I’m at $568,367, a gain of $113,197.37!
Pretty good, but I’m not quite on track with my goal. To reach the goal I needed to average an increase of $7,600 per month, but so far I’m only averaging an increase of $6,658 per month. Doh! Consequently, I’m $16,002.63 behind the curve. Here’s a graph showing my progress. The blue line is the pace I’m on, while the black line is the pace I need.
Reasons for hope: Mrs. Rich and I both got promotions in the past year. Our retirement savings alone get us close to $7K per month, and certain gains tend to come in chunks (like our business LLC). Reasons for despair: Every month that we’re off the pace will make it harder to make up ground.
Here’s a breakdown of our net worth as of the end of February.