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What am I saving money for?

What am I saving money for?

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This seems like kind of a horse after the cart type of moment, but I’ve more recently started to wonder what I am saving all of this money for. My retirement nestegg has grown exponentially and overall I think I have done a pretty decent job of saving a significant portion of my income for retirement.

I’ve set goals and have met them and I have toyed with setting new goals for myself. For example I set that $1M for 40 goal 2-3 years ago and never wrote a post as to what, why, or how I was going to do that. Part of the reason was that I didn’t know really the why and well the how part really relied on my investment returns which as we no tend to not be a linear/stable thing you can project over a short period of time like five years.

So take a step back – ever since I was in high school I knew that I wanted to live below my means and let compound interest work its magic. I am sure in high school I was leaning more towards the man if he let this money compound for 50+ years would have many millions of dollars at his disposal at 70 years old.

Then as I left college and began my working career and contemplated a family I knew that the idea of retiring early would definitely appeal to me. In fact my wife was going to school for teaching and shortly after graduation I was seriously considering going and getting a masters degree in teaching so that I could have summers off with my wife and our future family.

Then I realized teachers don’t make much dough so maybe it would be better for me to stay in a high paying field like computer science, get my MBA instead, save like crazy when I was young, and then when I was older and money didn’t matter that much maybe pursue that teaching thing as an early retirement.

In my MBA classes we had a class where you basically figure out what you want from life and what you want your career to be – in the end somehow I settled on college professor. Again I would have summers off, flexible schedule, and well the money was better than teaching high school, but then there is that whole PHD thing.

So while I never had a solid plan one recurring theme was having summers off with the family and saving money early on in my life to give me the freedom to pursue other options where the schedule was great and maybe the pay was not so great.

Well here I sit I am 34.5 years old and have accumulated 4 children that I have grown fond of. I have a retirement nestegg of nearly $370k, another $170k+ in cash savings, and a few other assets. I still have my mortgage $110k+ and some student loans of about $40k. So right now I have a liquid net worth of $400k+, though most of that is tied up in retirement plans that aren’t easily touched before age 59.5.

My career is going very good and I am able to save support my family of six while saving a significant amount of cash each year. I could have actually made probably a lot more money in my career, but have I shunned overtures by my bosses to take on higher roles or to relocate to Europe for the sole reason that I like my current work/life balance and if anything I would like to scale it back even further rather than go the other direction with more responsibility and more money. I have more money than I can use right now and the call of more money, a fancier title with more responsibility, advancing my career, or relocating to fancy places around the world does not appeal to me at all.

My wife has been able to stay home with our children and has graciously put off using that teaching degree until our kids are all in school. Ideally it would be awesome if when she decides to go teach full-time again that I was also able to convince my work to allow me to have a similar schedule if I took a proportional paycut. I am not sure if this will fly or not. I am well respected and valued and I do work for a European company where in Europe many of my colleagues have 6 or more weeks of vacation, but I do work in the USA and my boss even in my last performance review said he was disappointed that I was looking to keep a good work/life balance and not interested in taking on higher roles with my skill-set – so me turning around and asking to reduce my workload by 25-30% more might not go over well.

I could also take another step backwards in my career and go back to consulting and just work it out with a local consulting company that I don’t work during the summers – I think this may be more doable.

Regardless I need to be in an even better financial situation where I am not so dependent upon my primary job to provide for my family. This may require me to start saving more money in taxable accounts that are more easily accessible while I am younger than age 59.5

Conclusion
So if I had to cut this very long post down to a simple conclusion it is that I am saving money so that I have the freedom to spend more time with my family while they are young – especially during the summers. I want the flexibility and freedom from not having to pursue a job that does not fit this schedule.

Whoops I saved another $100,000 and didn’t even try

Whoops I saved another $100,000 and didn’t even try

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Probably one of the more popular things I’ve done on this blog was set the goal of having saved $100,000 in retirement accounts by the time I hit 30. I ended up falling just short of that goal, but overall it was a great exercise.

Since then I have really been in cruise control (probably not a great thing) and I thought I had been doing a horrible job saving for retirement as I was saving fairly aggressively for a new house – in fact that was the reason I fell short of my original goal to save $100k by age 30.

Last January I had mentioned that I had enough money in our house savings that I could pay off our mortgage entirely. A year later and my house savings has grown by over an additional $50,000. It honestly makes me sick knowing that I have that much money sitting there doing nothing for me, but given what we think we want in regards to a large chunk of land out in the country I thought it was necessary.

So here I sit I have over $175k in cash waiting to get lit on fire for a house/land purchase and I feel like the biggest bozo in the world knowing that this money could be used and should have been used to get me very much on my way to becoming financially independent and I was doing the bare minimum when it came to my retirement savings.

I decided to do the math since I completed my original $100,000 by age 30 goal less than 4.5 years ago and it turns out since then I have saved $101,691.90 or about $22,500 per year. While it’s not that impressive by itself is pretty good when combined with the amount of money we also were simultaneously saving for the new house and land.

Since I started this blog at the end of 2004 – I have saved roughly $377,000. That works out to about just under $42,000 per year.

I do not micro-manage my finances as I don’t feel the effort is worth it. I know my wife and I share a similar mindset so it doesn’t take any kind of special effort or sacrificing on our part to control our spending where as a result of our relatively modest income and supporting our 4 children we are still able to save a decent chunk of change.

So what’s next – well the reason I actually went through this exercise was to kick myself in the butt about being such a slacker when it came to saving for retirement. I also have been doing some considerable thinking with regards to what I am trying to accomplish financially here.

I set some great short term goals for myself, but the last few years I have been flying aimlessly in the wind when it came to what I was trying to accomplish next. I have some ideas as to what I want to accomplish and think I have started to piece together some visions I had for myself going all the way back to college, but wasn’t sure how I would accomplish them. I think I now know how I can do this and this excites me.

So look forward to some posts in the near future and a renewed sense of excitement as I set some new goals for myself here.

Interim Retirement Nestegg Report – I broke $300,000

Interim Retirement Nestegg Report – I broke $300,000

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Taxable Account – $2,022.45
Traditional Rollover IRA – $21,071.82
My Roth IRA – $80,604.97
Wife Roth IRA – $46,118.18 149,817.42
Traditional 401k – $152,115.57

Total Retirement Nestegg – $301,932.99

Well seems like it wasn’t that long ago when I broke $200,000 and well it wasn’t. Just 16.5 months ago I broke the $200k barrier and 28 months before that I broke the $100k barrier and 5 years before that I got started investing. This is a pretty vivid example of the power of compound interest. The ball is rolling and most of the heavy lifting was done on my part by setting that initial goal to have contributed $100k to my retirement accounts by the time I reached age 30. It is also worth noting that in only 8 trading days this month my nestegg grew by over $15k.

Now even though I have been slacking by my standards as far as contributing more money to my retirement accounts – it really doesn’t matter as much as it used to and like I always said I can just sit back and watch and turn the spigot to other plans/goals (house savings, kids college, etc) and really I have been able to exactly that and really not miss a beat. Funny I am only 33 but 30 seems like such a long time ago 🙂

Also from a performance comparison its neat to see the various milestones compared to an index at the time.

Date DOW Jones Value MFJ Nestegg
Oct 2008 10,000 $ 69,300
Oct 2009 10,000 (+0%) $100,000 (+44%)
Feb 2012 13,000 (+30%) $200,000 (+100%)
Jul 2013 15,423 (+19%) $300,000 (+50%)

In other milestone related news I am celebrating my 10 year wedding anniversary today. I’ve been blessed with a beautiful caring wife and four great little kids over the last 10 years and I’ve got to say I don’t think things could have turned out any better for me and I am truly grateful for all I have been blessed with. The financial stuff is great, but in the end it means nothing without my family.

I hope to see you again shortly (12 months at this pace?) for my interim $400k post.

Interim Retirement Nestegg Report – I broke $200,000

Interim Retirement Nestegg Report – I broke $200,000

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Traditional Rollover IRA $17,604.34
My Roth IRA $52,623.89
Wife Roth IRA $25,600.70
Current Traditional 401k $104,658.75

Total Retirement Nest Egg $200,487.68

Fell kind of dorky doing this 2 days before the end of the month but wanted to celebrate a mini milestone the day after it happened. Just 28 months ago I wrote my post celebrating that I had broken 6 figures for the first time and as of yesterday I broke $200,000 for the first time.

A couple things to point out. Just a little over three years ago the market was in turmoil and my retirement nestegg had dropped nearly in half. Everything was doom and gloom and even the most ardent long term financial advisers were second guessing the stock market. I kept my cool and stuck with my plan and now have a nestegg that has nearly quadrupled from lows just 3 years ago.

I started investing in 2004 and it took me about 5 years to grow my nestegg to $100k. It took me less than half that time to grow my next $100k, which is starting to show the power of compound interest. No longer am I doing the majority of the heavy lifting with my saving and contributions, now I have the ball rolling downhill and my money is making me money – which is such an awesome thing. Now yes the market has been going gangbusters the last three years, but its still pretty obvious that the longer you are invested the easier it is to make money. Compound interest it is your friend.

When I wrote my breaking $100k post 28 months ago the DOW had just broken through the 10,000 mark for the first time in a year. So exactly 1 year before I broke through $100k the DOW was at 10,000 and my Retirement Nestegg Report was at $69,300. 1 year later my nestegg was at $100,000 and the DOW was still at 10,000. Now 28 months later the DOW is up 30% to 13,000 and my retirement nestegg is up 100% to 200,000. So in the last 40 months the DOW has grown by 30% and my retirement nestegg has grown by 189%. Which means I am doing something right with my investments – which supercharges the compound interest power.

Kind of related to that previous point but I have been doing an absolutely crappy job saving for my retirement the last three years. I contribute the bare minimum to my 401k to get full matching and have not contributed a penny more to my 401k or our Roth IRAs. Instead we have been aggressively saving to purchase a large parcel of land out in the country and build a house. In fact our house/land savings has surpassed our existing $120k mortgage and is growing at a good rate each month.

One thing I have said in the past is I absolutely wanted to concentrate on saving for our retirement as absolutely soon as possible after I got my first job and to completely ignore other things such as our kids college savings. I knew how important it was for us to get our retirement savings on the right track to take advantage of compound interest and always said once I was sure that was on the right track I could worry about those other things such as kids savings in the future – I think the exact quote was “I could just turn my income spigot at their college education if I so chose.”

Well we aren’t worrying so much about the college savings yet but I did move the “income spigot” towards our house savings and was able to save a large amount of money in a short time and I have not seriously set back our retirement goals because I already got that ball rolling. You can never make up the lost time when savings for retirement and those first chunk of years are so vitally important when it comes to the power/value it gives you in compounding that if you just take care of that right away its really hard to mess things up in the future if you do something dumb like save for an extravagant house or your kids college education.

Anyway I hope to be here less than 28 months from now to celebrate hitting $400k and hopefully will be writing this from our dream house out in the country.

My Financial Journey – 5 year anniversary

My Financial Journey – 5 year anniversary

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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 !!

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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

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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.