Sunday, January 20, 2019

2018 Personal Finance Update (updated - see follow-up post and reread) .....


2017 was the year of eliminating debt. 2018 was the year we began focusing on investing. At the beginning of last year I set some personal finance goals, including the following:

·       Establish emergency fund consisting of 6 months of living expenses (cash)
·       Live off 35%, save 50% and give away 15% of bring home pay
·       Look for real estate investment opportunities
·       Drastically increase retirement and non-retirement investments
·       Create additional income streams
·       Increase my earning potential
·       Read at least once personal finance book per month

2018 was a successful year. After building up our emergency fund in our credit union money market account, we started investing the majority of my wife’s paycheck into her 403b account. Next, we created a brokerage account with Fidelity, allowing us to take advantage of their low fees, and maxed out IRAs for both 2017 and 2018, choosing index funds that pay regular dividends. We then started investing in non-retirement accounts, using the same investment strategy. Additionally, we bought a minority stake in an investment partnership. After conducting some research, we found a high yield saving account (Synchrony) which paid more than 3X our credit union money market account (2.2%), where we transferred the bulk of our savings, along with purchasing several high yield CDs that pay significantly higher than average yields (this was done to offset volatility in the stock market). Finally, we began using cashback credit cards, generating more than $800 in returns for simply spending money were were already spending, without paying a penny of interest. I earned my Six Sigma Green Belt Certification and started looking into the C.F.P. program at UGA. Finally, I read 18 books this year, the majority related to finance, as I looked to improve my money acumen.

We ended up very close to our established spending goals of living off of 35% of our bring home income (we lived off of 34%), saving/investing 50% (we saved/invested 49%) and giving 15% (we gave away 17%).

Despite a bad year in the market (the Dow was down 6.3% and my personal investments were down more than 10% overall), we increased our net worth by more than 7% (7.3%), thanks mainly to employer retirement contributions and a high savings/investment rate of almost 50%. Overall, the breakdown of our net worth change was as follows:

·       Retirement Accounts: -0.1% (market losses were offset by personal/employer contributions)
·       Savings/Personal Investment Accounts: +349.5% 
·       Real Estate: +13.9% increase in value 

Compound interest is a great thing. In 2017, we increased our net worth by 28%, the majority of which was the result of paying off debt and excellent returns from the stock market. In 2018, despite a market drop, we increased our net worth by 7.3% thanks to a major increase in free cash flow.  However, our overall increase in net worth the past two years adds up to 37.4% thanks to the power of compounding.

I failed to invest in real estate in 2018 despite 2 opportunities which both fell through, likely due to my being too conservative and walking away when counter-offers did not meet my expectations. I will continue to look for potential cash-flow purchases, while avoiding taking too much risk in the coming year.

We look forward to 2019, including looking to increase our cash % of net worth to 7.5+% (currently at 5.9%), starting work on my C.F.P. (Certified Financial Planner) certification and continuing to increase returns from dividends, interest payments and cashback rewards. We will attempt to live on 33% of our bring home pay, while saving/investing 52% and giving away 15% and will also continue to read at least one book each month in an effort to increase investing knowledge.



No comments: