Penny — you and our readers have no doubt noticed the lack of writing on the blog. The reason: normal life. I’m probably the busiest I’ve ever been professionally and personally. Days oscillate between work, family time, and a few free moments. When those free moments emerge, I want to be reading or exercising. Sometimes living life crowds out writing about living life. At least in my case, the reasons are good ones.
Still, there’s a benefit to this exercise of taking a step back and taking stock of my financial picture, and posting it on the blog means I can review it again in the future. Today, I’m going to take a quick look at 2017 and a quick look ahead at 2018 in order to divine if I’m still on the right track.
2017 NET WORTH PROGRESS
Interesting. With all the ups and downs of the year, all the changes and hoopla, I’ve ended up almost exactly where I wanted to be in terms of my net worth goal. Looking back, I was behind the pace because of a large preschool payment last February. I gained back ground because I was still not paying rent, my LLC value went up, and I made hay in months were I was paid 3 times (March, August). Now, my pace has slowed considerably, but I’m finishing the year with a gentle slope and a new high water mark.
Year End Net Worth Total: $660,558 ($950 ahead of the pace needed to meet my goal).
Total Net Worth Gain: $106,788
A six figure gain is not too shabby.
How was I able to make a projection so close to reality? Simple, really. The bulk of our saving is done automatically in 401k accounts. It’s the epitome of the automatic millionaire strategy — save consistently and don’t sweat the details. Check out my retirement chart:
The red line — actual savings — is tracking projections almost exactly.
Will it continue in 2018? Should it, or should I change things up?
1) Stay the course on retirement. No reason to change this. I’ll do this via the 401k. I don’t think I’ll make IRA contributions this year, because I want to build cash / reduce debt. Therefore, the green parts in the chart above won’t get much bigger. I’m ok with that.
2) Build cash / reduce debt. My debt is all 0%, so it’s not “costing” me anything except mental peace. That said, mental peace is important. I’d like to get rid of the debt. I’d also like a cash build in case something comes up. For example, we have a car with 120,000 miles on it. Never know.
3) Start an HSA / reduce taxable income. In 2018, my health plan will allow HSA saving, which will reduce my taxable income. The limit is $6,900. With a top tax rate of 24%, that’s a tax savings of $1,656. Other ways I’m reducing taxable income: 401k ($37,000 for me + Mrs. R), Dependent Care FSA ($5,000), and Limited Health FSA ($2,000). All together, these pre-tax savings plans will reduce taxable income by $50,900, which is $12,216 in federal taxes.
4) Spend mindfully. Normally, I try not to worry about spending as long as we’re saving. However, we have more big expenses now (rent, kid activities) so the only place to be mindful is in small things. The best way to look at this is not to fret, but to see the positive benefit of mindful spending. For example, I was spending $15 per month on HBO and not watching HBO. In a year, that’s $180. If we find 4 areas where we’re regularly spending $15 per month for no good reason, that’s $720 we can put toward a family vacation. Sure, we’re still spending, but we’re spending it on something we actually want. Empty spending is like an empty calorie — it might feel good in the moment but has no nutritional value.
5) Use frequent flyer miles / close flyer mileage credit cards. We have a bunch of miles and I’d like to use them for 2 reasons. First, travel is still a priority and we can save a bit on airfare. Second, I have 4 frequent flyer credit cards with annual fees. I opened the cards to get miles and I use them to make sure miles don’t expire. But, the annual fees run from $60-$90 per year. Over time, they cost more than they’re worth. So, closing them will save $200-$300 per year. In fact, I think I need to clean up my whole credit card situation. More on that another time.
6) Non-financial goals. I want to: improve my french language ability; be more patient with the kids, take some great vacations; workout 4x per week; continue increasing leadership capacity at work; read more books.
2018 FINANCIAL PROJECTION
So those are my 2018 goals, and I still have the big picture goal of $1MM at age 45. To stay on track for that, I need to grow net worth by around $90,000 this year. This should be achievable. In our 401k accounts alone, we should see an increase of $70,000 with very little risk (i.e. not dependent on stock market returns). The remaining $20,000 should come from LLC income and appreciation. Plus, we got a tax cut — not sure if it’s good for the country, but there it is — and our household income is up by $20,000 over last year.
So is reaching my goal a sure thing? Anything can happen, but I feel good about my chances. The X factors would be overspending or some unforeseen emergency. Of course, there could also be a positive surprise. My “stretch goal” would be an increase of $100K: $70K retirement, $20K LLC, and $10K cash build / debt reduction.
Finally, I always try to remind myself that these financial goals are not the most important things in life. They are rooted in more important values: relationships, personal growth, and freedom.
And that’s all for now! Happy new year …