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My Financial Journey – 5 year anniversary

My Financial Journey – 5 year anniversary

Wow – I can’t believe its already been five years since I started this blog. It really seems like its only been a year or two but looking back at where I started and where I am today its pretty obvious that some time has passed.

As I look back to those first couple posts back in December of 2005 – it amazes me how far I’ve come and how a few simple blog posts five years ago greatly affected the financial success I have achieved so far. In my 1st Retirement Nestegg Report I reported a total value of $24,616 and just 7 days ago I reported my November 2010 Nestegg report with a value of $155,708. Such tremendous progress, yet it happened step by step with lots of small mundane actions over the last 5 years that resulted in nestegg growing by 732%.

Five years ago today I knocked out four blog posts that set the foundation for this blog and my financial planning. I can’t emphasize how important it is to get your thoughts and goals written down somwhere – there is some magical power that comes from actually taking thoughts from your head and getting them down on paper/computer that drives you towards achieving whatever you wrote down. Do it!

Two posts from five years ago that really laid out my financial future were the blog posts “What are My Goals” and “Goals Rough Draft” In these posts I talked about the following goals for myself.

  • Make $100,000 a year by the time I turned 30.
  • Save $100,000 for retirement by time I turn 30.
  • Have $1,000,000 saved for retirement by time oldest kid starts college
  • Become financially independent early in life so that I can spend time doing whatever I want
  • Help family and friends learn about money
  • Save some money for my kids college education
  • Have $10,000,000 put away for my retirement

Make $100,000 a year by the time I turned 30.
This was a goal I almost forgot about and really didn’t know if it was realistic and while I didn’t quite achieve it I came close enough to call it a victory.

Save $100,000 for retirement by time I turn 30.
This was probably my most open and visible goal and that one that seemed to get the most attention on this blog – see the status meter on the side bar. While in my final writeup I did admit to falling just a tad short of my goal – it is another goal that when I set it didn’t think was going to be possible, but in the end I was successful.

Have $1,000,000 saved for retirement by time oldest kid starts college
This one again I can’t believe I had as much foresight in 2005 as I did. I have been thinking of how to set my next financial goal for myself and turns out I already took care of it in 2005. I will be writing up a full post on this goal and this will start tracking it just like I did my $100,000 by age 30 goal.

Become financially independent early in life so that I can spend time doing whatever I want
The previous goal and this goal sort of go hand in hand and at same time they could be sort of contradictory. Having $1,000,000 saved for retirement is great, but at the time I will only be 43/44 years old and I can’t touch any of that money for another 15 years because its all in retirement accounts, so that means I won’t exactly be able to quit my job or take a low paying flexible job. This one needs more thought and I really need to decide what I really want from this goal.

Help family and friends learn about money
Regarding this goal I think I’ve done an OK job. I am certainly a person that a lot of my friends and family look to when it comes to money questions, but in the original goal I sounded a lot more ambitious about getting my younger family members into investing which I don’t think I’ve successfully done.

Save some money for my kids college education
Check – I have 529 College savings plans that I setup up for all 3 of my kids as soon as I got their social security number. I don’t contribute much to them ($15 per kid per month), but honestly at this point I’m not too worried about paying for their college education. My retirement takes priority and if my kids had to take on some college loans or work to pay off their own college it wouldn’t be the worse thing in the world. Besides by then I will be a millionaire (har har har) and could just turn my income spigot at their college education if I so chose.

Have $10,000,000 put away for my retirement
Well this was the pie in the sky end game goal and is something I think is feasible – its currently not date bound, but by my original projections I had created back in 2005 I had anticipated hitting $10M at about age 65. Now granted that assumed I would put away about $23k a year in my retirement accounts which I have not done the last two years as I have instead saved $70k for a new house we might build. It also assumed I would make 10% a year on my investments each year which is a pretty lofty task – though I have been pretty successful with my investments so far (I need to calculate my overall annualized return these last 5 years so see if its a realistic number)

Well its been a great five years for me and this blog has been so invaluable to me to be able to set goals for myself, track my thinking and decisions throughout time, get great feedback from other people in the personal finance community as well as those kind enough to leave me comments for me. I’m amazed at how often I refer back to my own blog when trying to figure out if I am on track for retirement or to send a link to a friend who asked me a financial question that I just happened to have a blog post about (all without them knowing I am the actual author of the post). This blog to me is clearly the single best financial decision I ever made and even if you don’t want to make your goals and financial status/decisions public like I have – I can’t urge you enough to write them down and keep track of your plans and thoughts over time. It is so valuable to be able to go back and re-read what you were thinking 5 years ago and what you had hoped to accomplish.

To those of you that have been kind enough to leave me comments and stay up to date with my blog over these years I want to say thank you. The readers and comments were an unexpected bonus of this whole blog experiment and have really helped me grow over these last five years. It has been a great give years and I hope the next five will be even better!

Interim Retirement Nestegg Report – I broke $100,000 !!

Interim Retirement Nestegg Report – I broke $100,000 !!

Traditional Rollover IRA $10,782.36
My Roth IRA $31,604.25
Wife Roth IRA $17,183.87
Current Traditional 401k $40,916.17

Total Retirement Nest Egg $100,486.65

Well as you can see from above nestegg report I broke through the 6 figure mark for the first time in my life. What does this mean in the grand scheme of things – pretty much nothing, but it is a fun milestone to know that the value of my retirement nestegg reached $100,000 shortly after I turned 30.

On the flip side another milestone that I reached a little late is I now have contributed over $100,000 to my retirement accounts in fact $100,357.96 to be exact. So as you can see I am a horrible investor. After 5 years of living below my means, and consistently contributing a large percentage of my income to my retirement accounts on a regular basis I have amassed $128.69 in investment gains or 0.13% return over 5 years which annualized is even uglier. Far cry from the 10% that most people including myself use for rough planning on how much they will have for retirement huh?

Well there’s more to the story that makes me look slightly better. Over the same period of time the S&P 500 has returned a -2.0%. So while its not exactly apples to apples I am actually slightly beating the market over this year period of time. Woohoo!!

Another very interesting comparison is that the DOW just passed 10,000 for the first time in a year and is at a 52 week high. If I go back exactly 1 year ago – my retirement nestegg was $69,300. So while the DOW has returned 0% over the last 12 months – my retirement nestegg has grown by 44.8%. Even if I take out extra contributions I made during this time I still have a 33.44% market return – which crushes the market return.

Why is this? Is it because all of a sudden I turned into an investing genius? Yes and No. The biggest reason for my market beating returns in the last year was because I did not get freaked out when the market was crashing and everyone was predicting the end of the world. I did not pull my money out of the stock market and I did not stop contributing new money – I did the opposite.

In fact going back and reading my posts from a year ago I did a pretty good job of keeping a level head and taking advantage of the depressed stock prices and kept my purchasing during the huge downturn right on schedule – in fact in many cases I tried to amp it up the best I could and now am reaping the rewards. The simple mantra of Buy Low is not nearly as simple in practice as it sounds, because when things are low everyone blows things out of proportion and tells you the world is going to end and any money invested in stocks will vaporize in a short period of time. Ignoring all of those voices and trusting yourself is not an easy task, but luckily I did ok in my first test as investor and things have turned out ok.

So in the grand scheme of things what does $100,000 mean? Actually pretty much nothing other than I am heading in the general right direction – which is pretty much all you want to do with most long term efforts. Do a number of a little things right and they starting adding up to bigger and bigger accomplishments.

Now I tried this once before and it worked so I figure I would give it a try again. Personally $100,000 is great – it makes me feel good – I can pop an expensive bottle of water and celebrate my conquest of reaching $100,000, but in the grand scheme of things I would much rather see my retirement nestegg fall back down to $50,000 than go up to $150,000 at this point in my life if it means the market is going to tank again as I’m still very young (that’s what old people say each time they reach the next decade of age) and in the long-term I’d be much better off while I am still a net purchaser of investments to have those investment prices depressed.

That being said I look forward to the day my retirement nestegg grows to $200,000, $500,000, and $1,000,000, and beyond.

Holy crap I’m 30 – my 20s financial review

Holy crap I’m 30 – my 20s financial review

Well it seems like just yesterday I was in high school math class learning about exponentiation when a light bulb went off on my head about the power of saving money with compound interest on your side and now I’m 30 – holy crap time flies.

Since this is a pretty historic milestone in my personal finance journey as well as my life in general I thought it would be a good time to sit back and look at the good and bad from the last decade. Some of the items I list may or may not be entirely financial at first glance, but I’m certain they have all affected where I stand financially today.

Things I accomplished financially in my 20s

  • Earned my Bachelor’s degree in Computer Science
  • Got Married
  • Had three children
  • Bought a house (not sure that’s an accomplishment given the times I bought it in and well my position on the financial benefits of a house)
  • Earned my Masters Degree in Business
  • Started 401k, Roth IRA, 529 College savings fund (STARTING is the most important thing)
  • Own two vehicles without any auto loans
  • Never carried a balance on a credit card in my life
  • Basically attained my $100,000 by Age 30 retirement nestegg goal
  • Able to have my wife stay at home and raise our children
  • Saved up $35k for our dream house fund
  • Never had an argument with my spouse about money problems (I’m the luckiest guy in the world here where my wife and I see eye to eye when it comes to money)
  • Never had to worry about how to pay the bills (I get extremely nervous when our checking account falls below $2,000)
  • Created this blog

Overall from the positives I really was lucky enough to “get it” financially at a young age and then be lucky enough to get married to a person who thinks and acts the exact same way as me. Now don’t get me wrong we aren’t a pair of tightwads who don’t know how to have fun or enjoy life – its just that we both know whats truly important in life and what will truly make us happy. We don’t need to drop $30,000 on a new car to realize after the fact that owning something new and shiny is not going to make us truly happy.

For us the peace of mind of knowing that by forgoing so called pleasures now will give us the security and freedom to do what we want with our lives and not be worried about trying to pay down debt or being stressed out wondering where the money will come to pay the bills. Money doesn’t control our lives in fact I think its just the opposite – we control our money and are able to live our lives the way we want it – instead of so many people who have it backwards and don’t bother to learn how to manage their money because they don’t care or don’t want to deal with money when deciding what to do or what to purchase and then it ends up running them the rest of their lives.

Overall though I’d say from the list other than marrying an awesome wife – would be my degrees as they are the drivers of my income – amazing how a little work to get a few degrees early on in your life can change the trajectory of your income for the rest of your life. Quite possibly the best investment you can make. Obviously staying clear of bad debt and managing our money is good too, but I’d probably have to put starting this blog very high up on the list. This blog has been invaluable to me to get me thinking about my finances, setting goals for myself and writing them down (amazing how powerful this is), and then being able to constantly be able to come back to my thoughts and plans on this blog really has been a tremendous benefit. I’m sure everyone at some point in time starts planning out their lives or what they want to accomplish, but so many people don’t write it down somewhere and then after a few months/years those plans/thoughts are completely lost. The added benefit of doing it in a blog format is you can get incredibly insightful feedback from people who are kind enough to provide comments or emails on your content (this being a prime example).

Overall I am very happy where we stand today, but as you can see from the list below it wasn’t all easy and mistake free and I wasn’t exactly a model example in my 20s.

Financial Mistakes I have made or areas where I’ve fallen short

  • Buying individual stocks on a whim when first starting out
  • Investing $1700 of “dream house” money into individual stock
  • Purchasing a whole life insurance policy
  • Philanthropy
  • Don’t have a will

Certainly the two stock related items on the list I probably knew better before hand, but can chalk it up to experience. When I first started out I had no clue what I was doing and like 99% of people should have invested in low cost index funds from vanguard and left it at that. I invested all the money at once in 4 individual stocks that I knew nothing about and looking back now lost a fair amount of money – in fact one of those stocks is now bankrupt. Before I bought those stocks I actually got talked into buying a whole life insurance policy and a rather large one at that. I understood compounding and didn’t understand the stock market at all so this was an easy way for me to get started “investing”. The more I read up and learned the more I realized what a horrible “investment” whole life insurance was and eventually cashed out for a term life insurance policy that I purchased over the internet and invested the rest.

Another area where I feel I have fallen short of so far is Philanthropy. My wife and I give to our churches, we pitch in on special items such as donations to Heifer International, family members running marathons for LLS, I volunteer at church and am a member of a Lions Club, but I feel that we could do a lot more with the amount of money that we give to charity and the regularity that we give to charity. We get better each year, but in the end I’d like to see us get at least to 10% of our income in cash donations. I have no idea where we stand on this right now, but I know its probably less than 5%.

A will – I have brought this up a couple times on this blog, have a family member who works for a law firm and can get us a family discount, have over $1M in life insurance, 3 kids, and still have no will. No excuse and this is something we need to do this year.

Things I have not accomplished but should in the next decade

  • Create will (this year darn it)
  • Build house
  • Find job that gives me even more time to spend with family and travel during summer

I have an entire other post that I am working up with goals for myself before I reach age 40, but in general I see the next decade as my major earning years and at the end of the next decade I really hope to be in good shape. About the only stupid thing I plan on doing in the next decade is to build a house. Other than that I hope to continue my retirement savings and build up a nice nestegg heading into my 40s.

I have not calculated out my nestegg values going forward in quite a while but I know a few years back when I did I expected to hit $1 million dollars in retirement accounts by about age 42. This was very dependent upon getting good returns in the stock market, but in general I think by the time I hit 40 things should really be in cruise control. I hope to have most of my house paid off and a very nice cushion in my retirement accounts. When I hit 40 my oldest kid will be 14 years old and I hope that at this point in time since money will be less of a concern that I can become a free lance consultant, become a teacher, or do something that will afford me considerable free time where I can enjoy summers off and vacations with my family. Again look for a post on my XX by Age 40 goals.

In conclusion I feel like I made a number of positive steps in my 30s, I made mistakes that I can learn from, and hopefully in 10 years when I am writing up my “Holy crap I’m 40 – my 30s financial review” I will feel as good about the next 10 years as I did the last 10.

$100,000 in principal by Age 30 – Final Recap

$100,000 in principal by Age 30 – Final Recap

Well 3.5 years ago I wrote this original post where I set a goal for myself to have saved $100,000 in principal by the time I reached age 30. By principal it meant money that was contributed to my retirement accounts only and not the current value of the accounts. This allowed me to have complete control over whether or not I reached my goal as I would not have to worry about market fluctuations (like those ever happen anyway 🙂 ). It seemed like such a steep goal because at the time I barely had $30k put away for retirement at the time.

The whole purpose of the goal was to put me on a solid track for saving for retirement. I understood the power of compound interest at an early age and knew the cost of waiting to save for retirement. $100,000 is really not an important number and there is no science behind it, I just knew that if I had roughly $100k put away by the time I reached age 30 I would be on a very good track where if I were to sluff off on retirement savings to do other things (build dream house, pay for kids college, etc) that it would not hurt my retirement as bad because I had done the grunt work up front and had 30+ years and the power of compound interest on my side.

Over-simplifying things, but if I had $100k in my accounts at age 30 and never saved another penny and it earned 10% annually in the stock market for the next 35 years I would have over $2.8 million in my retirement account at age 65. Again over simplifying things, but that is the general concept. Save as much as you can as early as you can and get time on your side and saving for retirement will seem easy, especially compared to those that wait till they are 40 or older to start saving.

Below are the final results of my goal. I’ll provide more detail after you review the results.

The gameplan

Year Age Roth IRAs Traditional 401k Roth 401k Total Contributions
2004 24.5 $6,000 $1,146 $0 $7146
2005 25.5 $8,000 $8,268 $0 $16,268
2006 26.5 $8,000 $0 $9,380 $17,380
2007 27.5 $8,000 $0 $11,424 $19,424
2008 28.5 $10,000 $0 $9,710 $19,710
2009 29.5 $10,000 $0 $10,281 $20,281
Totals 30 $50,000 $9,432 $40,795 $100,027
The Actuals

Year Age Roth IRAs Traditional 401k Roth 401k Fully Vested Matching Funds Total Contributions
2004 24.5 $6,000 $1,146 $0 $0 $7,146
2005 25.5 $8,000 $8,268 $0 $0 $16,268
2006 26.5 $8,000 $0 $10,592 $0 $18,592
+$1,212
2007 27.5 $4,750 $13,852 $2050 $3,134 $23,786
+$4,346
2008 28.5 $8,700 $14,505 $0 $3,386 $26,591
+$6,881
2009 29.5 $0 $3,867 $0 $2,548 $6,415
Totals 30 $35,450 $41,638 $12,648 $9,068 $98,804
-$1,196

As you can see the first thing you probably noticed is that I fell short of my goal. I will address that in a little bit. The other thing you might have noticed is that there is an additional column where I decided to count all of the matching money that my employer has contributed that is 100% vested. Originally I said I was not going to count on this money, which is good when setting a goal, never count your eggs before they are hatched, but in the end this money was contributed to my retirement accounts and it is 100% mine so its really no different than if I had contributed it myself. I made a conscious decision for taking this job over others and the retirement package was one of the reasons and I think I should be able to count those contributions.

Now to address me falling short. This certainly was not because I couldn’t reach my goal, its sort of that I decided reaching the goal wasn’t as important as saving for our dream house. As much as I like to go on and on about saving for retirement and how buying houses may not be the best financially for some people (wow had some foresight there) as was pointed out to me so eloquently by Doug in this post – you have to balance long-term savings vs spending some money now and enjoying life today. While this may sound goofy as I’m forgoing one savings to save for something else, I sort of view saving for a house as a short-term lets waste money on something and enjoy life now thing versus anything that would be smart financially. We already have a house it suits us fine and there is no reason we could not live here the rest of our lives. We just want something bigger and better and one of us has some crazy ideas on ways to waste money 🙂

So while I fell woefully short of my intended savings for this year – in the last 2 years I’ve been able to save $35,000 for our new house. In fact an automatic deposit today went to our house fund for $1,175 which ironically would have put me right at $100,000 if I had directed it to our retirement savings instead. So all in all while I feel some disappointment for falling just short of my goal – I do feel very good about where we sit financially right now and think our retirement savings is very much on track. The last two caveats I will throw in here are that originally the goal stated Dec 31 of the year in which I turn 30 which I will easily get (I changed the goal about a year ago when I thought the goal was getting too easy) and I also have $8,382 of contributions that I am not counting because they are not 100% vested until Jan of 2010. So I guess depending upon how you look at it I may have actually met my goal. Like I said this wasn’t rocket science I just wanted to make sure I was headed in the right direction and I feel very much so that I am.

Retirement Nestegg Report – April 2009

Retirement Nestegg Report – April 2009

Well not quite as good of month as last month, but pretty darn good. I guess I will take 17 or 18% gains every month. I’m really going to be disappointed when things return to normal and I’m not having 15% swings in either direction each month. The last 2 years in the stock market sure has been a lot of fun!

One thing I will mention in this months report is that I pretty much have all but abandoned making my $100,000 by Age 30 goal. It was within my grasp, but I made a conscious decision late last year to start saving up for a new house and that has trumped my retirement saving here in the short-term. I still will come close by my 30ths birthday ($90k+), but am afraid I will not actually meet my original goal and I am ok with that.

Anyway here is the report.

Traditional Rollover IRA – $9,440.31 (+15.79%)
My Roth IRA – $ 26,509.50 (+22.32%)
Wife Roth IRA – $13,932.31 (+18.91%)
Current Traditional 401k – $27,418.91 (+13.32%)

Roth/Traditional % = 52.32% (tax free)

Total Retirement Nest Egg $77,301.03 (+17.56%)

$100,000 in principal by Age 30 – 2008 year end recap

$100,000 in principal by Age 30 – 2008 year end recap

Well it is time for my annual check up on my $100,000 by age 30 goal. I guess I had a little foresight when setting up this goal as it is based solely on principal (my contributions) and investment performance does not matter. This way everything is under my control and I am not hurt or helped by short-term swings in the stock market. Which is good because currently my contributions are roughly $19,000 of my current nest egg value 🙂

The whole idea of this goal was to make sure that I was in a good situation in regards to my retirement planning. You can go ahead and read the original post here, but idea was to give myself an aggressive savings goal that would have me well on my way in my retirement planning. You can see where I currently stand vs my original plan below.

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Update on my $100,000 by Age 30 Salary Goal

Update on my $100,000 by Age 30 Salary Goal

I almost forgot I even wrote a post about this, but in September of 2006 I wrote about my other $100,000 by age 30 goal where I mentioned that I word sort of like to be making six figures by the time I turned 30. At the time it seemed pretty foolish as I was only making about half that and it’s not exactly easy to double your income in just a few years.

From that post

Well maybe I am too narrowly focused, but the only way I could think of to judge yourself was by how much money you made. I had gone to a pretty reputable college and was majoring in a pretty lucrative profession (computer science) and so I figured if I was making $100,000 a year or more by age 30 I would probably be doing pretty good. Now part of the reason I don’t mention it is because even at the time I knew that was somewhat of a stretch for my profession. I’d have to be really successful or come up with ideas for extra revenue streams (start side companies, etc).
……
it’s a pretty daunting feet and even if I do all of the things right that are in my control there is a very good chance that I could still fall incredibly short of that goal, but I suppose now that I actually wrote it down and know that people will make fun of me when 3 years down the road I’m still 40k short it will motivate me to get my act in gear.

Anyway this is a very soft goal as while making $100k a year sure would be a nice thing, it’s not something I actually need to support my family, plan for an early retirement, put my kids through college, etc. At same time if I do have the skills, talents, and education to make it happen I probably owe it to myself to give it a decent effort.

So mark my words 2 years 11 months I’ll be pulling in 6 figures 🙂

Well here we are just a year and a half later and I’ve made some pretty good progress on this goal. I’ve since taken a new position with a different company and have been promoted to manager of my department. Things have gone so well in fact that I think I might even have a shot at attaining this goal this year (I turn 29 in August).

Let’s take a look at my income this year

Base Salary $81,142.88
Bonus received in February $1,636.66
Bonus received in March $10,074.38

That puts me at $92,853.92 for income that I have or will have received from work this year. Which puts my awfully darn close to $100,000 a year and makes me think I better do something about it.

I do have some other side income that I receive for developing and maintaining some ecommerce sites for a friend as well as a small amount of income I make off this blog that results in an estimated additional $3,000 a year which puts me at just under $96,000. So I guess if I can find away to make an extra $5,000 in the next 7 months there is a very good chance that I will achieve my goal and really since I turn 30 next August is the last chance I have to break six figures.

So I guess it is up to me to be creative and think of ways to make that extra money. The most obvious way for me to make that extra money would be to pick up a side development project as that would probably be the easiest and fastest way to make the extra money. The problem is finding the client and the extra time to do the work.

I do get $1500 for every person I refer at my place of employment and did refer once person last year and got the bonus and almost had one of my referrals get hired this last week. So in theory I could just refer 3 people for jobs and I would be set (although this is unlikely).

I guess the $100,000 income goal isn’t important enough to me to actually go out and get something like a part-time job just to get me over the mark. My time is much more valuable than the extra $5k and achieving some rather meaningless financial goal. So I guess what I’m looking for is using some talent I have that will allow me to make some extra money without dedicating a bunch of time doing something I normally wouldn’t be doing if it weren’t for the money.

In other words I view this goal more as maximizing my talents and abilities to earn as much income as I have the ability to rather than the specifics of reaching a certain salary ($100k). I view it more like a basketball player who has 25 points, 12 boards, and 8 assists and who’s team is winning by 15 points looking to get the additional 2 assists in the last few minutes so that they can brag that they had a triple double when regardless its obvious they had a great game either way.

So I guess there are a couple of reasons that I drug up this post. First off it is another example of me putting a goal down in writing and in just a short period of time making pretty incredible progress towards achieving the goal. Second it gives me a chance to be creative and try to figure out additional ways to make some extra money that will not require a lot of additional effort or time (things such as donating plasma, signing up for online surveys, etc.). Finally it forced me to evaluate my progress – there really is no point in coming up with a goal if you don’t track your progress over time and figure out whether or not you are on the right track. With this goal even though I may or may not fully achieve it I think I’m definitely on the right track.

So I guess I’ll turn the conversation over to you. Anyone got any ideas for good side gigs to earn some additional cash?