December 2022

A good end to a good year.  

Income: $20,950 

Expenses: $19,900

Gap: $1050

Unfortunately, our gap is likely not really any savings because a large part of the increased income this month is due to a bonus.  Yet, the bonus did not have any taxes withheld, and those taxes will likely amount to $1000+

We had a good month on the income front, but we continue to lack some discipline on the spending front.  

• Groceries/Household – $1525 – Costs are up and groceries fluctuate on events like cooking at home, etc.;  Still think with a little effort, we could probably get this number down
• Restaurants – $520 – We had this under control until we blew it out on new year’s eve.  
• Clothing – $76 -this is where we should be more often, but we spent substantially on clothes in the prior few months. 
• Medical – $35  – thankful for good insurance and having already met deductible
• Auto Matenience – $592 – this was an oil change and new battery along with a windshield replacement, the windshield replacement would be insured but the deductible would have only been left a few dollars – so I just paid for it.  
• Miscellaneous/Entertainment – $380/$377 – New bedding, drill, baseballs, bike helmet for kids, new hunting license, food for Christmas get-together, moves, birthday gifts/food subscriptions, you name it. 
  • Seems like alot, but I’m not really sure how we could have avoided most of this. 
• Kids Activities – $461 – Soccer Registration for one kid, baseball event for another,  monthly dance and baseball costs; 
• Mortgage/School holding steady
• Taxes – $2855 – we do not escrow our taxes so we have to pay them directly; This is helpful as it eliminates the need for the bank to hold an additional amount in the escrow account that neither earns interest nor does anything other than protect the bank; The downside is that we actually have to pay them!
• Giving – $2700 – we gave a bit more than a usual month to end the year; 
• College Savings and Cash accounts held steady at $225 and $220, respectively; 
• Big ticket items – we bought an extra fridge and a new mattress but we only spent about $1500 for both! – Not bad

We review our spending and income from last month to review and see where we can learn and improve.   Of course, the goal is to maximize income and minimize expenses.  The gap between income and expenses is vital to personal finance. 

In November 2022, we had total Income – $14,455 and spent/saved – $11,202

November Gap – $3252

 

 

 

 

 

 

 

• Income is up! As noted in October, one of us has hit the social security maximum, so our take-home pay has increased substantially.  I have no problem with paying taxes, and I disagree with the “taxation is theft” mantra, but it’s insane that approximately 12.6% of all payroll (up to about $140k) is insufficient to fund social security in perpetuity.  I wrote about this more here. 
• We use YNAB to track our spending, which makes preparing this report much easier.  

Expenses ok – some up, others down – 

• Grocery/Household: – $1017 – After a blowout in October ($1709), we got our grocery/household spending under control at only $1017.  Unfortunately, however depending on your perspective, this may be more luck than discipline – with the way the month falls and not cooking a major Thanksgiving meal.  
• Restaurants – $625 – We don’t have to look far for undisciplined spending, as we spent $625 on restaurants in November.  Some of this is related to birthday dinners out or unreimbursable professional meetings, but lots of it is simply we’re hungry and failed to plan ahead of time.  We also like to eat out as a family after church on Sunday, it’s a great family time but the $50+ event adds up.  
• Gas – $378 – unremarkable given that we drove approximately 4 hours to see family for Thanksgiving. According to YNAB, our average gas spending this year is $350/month. 
• Clothing – $1231.  Wow! – This was a blowout month for clothing purchases.  Our average is only $335/month over the last year, so this is certainly an outlier.  This includes a very expensive ($300+ jacket), professional jeans ($150), several pairs of work shirts ($200), and casual shoes ($32 each) that were very cheap independently.  However, because they were cheap we bought several and sort of prepaid our clothing expenses by purchasing several extra shirts and shoes.  This also includes some birthday gifts for kids that are actually clothing. Notably, we spent $770 on clothing in October, which is also way over average.  Seems like we should just say no to clothing spending for the next few months.  
• Medical – Refund of $770. Apparently, we overpaid for a procedure several months ago and received an unsolicited check from a medical provider for several hundo.  Well, thank you! If only medical billing and costs were a bit easier to understand.  
• Miscellaneous – $685.  This is where we need to be much more disciplined.  We spent about $100 on a little birthday gift for our oldest, almost $200 for a donation to a friend’s efforts to improve our community, family pictures ($100), $135 for some sort of home furnishing (I have no idea what), $57 on candlesticks (really?), and probably another $100 on random Amazon items like computer/TV adapters and birthday gifts for our kids’ friends.  
• Entertainment – $770 –  Seems like a lot, but it makes sense when you break it down.  We spent $360 on tickets and concessions to see our favorite football team play a big home game (great date night, and we gave two tickets to a couple), $200 on Topgolf outing with family, $75 on a dance event for only 2 of us, $21 on Nintendo crap (what a waste), and approximately $65 on annual subscriptions to media that we enjoy.  I also bought a book that I’ve not yet read for $21.  
• Cash – we only got $40 cash from an ATM in November – not bad at all. 
• Auto Maintenance – We had the oil changed and wipers replaced on one of our vehicles for about $115.  Not too bad. 
• Kids Activities – $515 – what the hell do our kids do? Well, we had a birthday party art school, a monthly subscription for baseball, a basketball camp, and a monthly dance subscription. Insane how it adds up.  Hopefully, we’re done with birthday crap for a while. 
• Fixed Expenses: We keep our fixed expenses low because we don’t have the discipline to control spending on food, clothes, and fun activities. 
• Mortgage – $1627 without taxes and insurance.  Steady and consistent.  School was up to $2140 from the usual $1815 because we added about $320 to our kids’ lunch accounts.  Utilities are unremarkable and fairly consistent with October, though our electricity bill seems to be going up consistently.  
• Big Ticket items: We spent $320 on a new furniture item that we (my wife) have wanted for some time.  Fortunately, we were able to take advantage of Amazon’s warehouse deal (we cannot tell if the furniture is not brand new) and saved about $200 over the new price.  
• We started our Christmas shopping and spent about $1200 in November.  Man, my kids have it so good.  
• We spent about $375 on a hotel stay for a short trip, but I was able to take advantage of a credit card bonus cash back of 15%, reducing the spend to only $317 for two nights.  Not bad!
• We’re continuing to receive a small monthly deposit of oil royalties from a small inheritance.  I use the money in this account to offset cash that my kids receive and want to deposit in their account.  This is probably why we only had $40 in ATM withdrawals – I use the cash my kids receive for birthdays, etc., and credit their account via a transfer from this online account.  
• We continue to earn a health rental check each month with very little issue.  We love our tenants, which makes the under-market rent sting a  bit less.  We had $155 in rental expenses in November for an annual pest service. 
• Giving – $1500 – We continue to consistently give to our church and other charities. It aint always easy, but it gives us such life!  Proverbs 11:42. 
• Savings – 
  • College $225 – we deposit $225 into our kids’ 529 account on the first of each month.  They each have a substantial balance in excess of $10k.  We don’t even miss this money each month.  
  • Cash Investing Account – $220.  In an effort to duplicate the success of our college accounts, we’re invested monthly into a cash investment account.  Unfortunately, the market has not done well and we’re down a bit here, but we’ll stick it out and come out better in the end.  
• Final thoughts – 
  • Nice progress this month, but our gap is still a bit unsustainable.  We need a gap like this month in the months that our income is not like this month.  We are going to have to fund our Roth IRAs in January for 2023 ($13k), which will kill lots of our momentum.  We need to work to grow our income and minimize our expenses – a few “no’s” would probably go a long way.  

The most important thing about money is the gap between your earnings and your spending. You must save or retain some money each month or you’ll never have any savings, which can fund investments or big purchases.

Fortunately, our margin in October was a healthy $1737. However, when you see how much we made, it sure seems like it could be much higher. You can increase your margin only by earning more or spending less. Of course, some of my spending below is actually saving but it’s saving for a specific item, so I’ve accounted it as spending.

I use YNAB to track spending and it produces the nice reports above.  Blue is giving, green is savings, and light gray is other.

Here is the breakdown of our October financial results.

GAP – $1737.00

Income – $13,845.48

• Total W2 income for the month.
• We also made $1,500 in rent and $14.06 in interest (not factored above). My goal is to avoid spending any rental income except for rental expenses. After several months, we’ll have sufficient funds to purchase another property with CASH!
• Fortunately, I’ve hit the Social Security maximum, so my paycheck is a bit higher for the remainder of the year. It’s almost a $1000/month raise, which is very nice.

Total Spending – $12,122

• School – $1840 – three kids in private school; not that bad considering, but I think this is a big deal and reduces our overall margin dramatically.
• Groceries/Household – $1730 – Insanely over our goal of $1250. A late-month Costco trip certainly did not help. Food costs are up, but we could certainly plan better here. We eat lots of meat and feed a family of 5. We budget all cleaning supplies and household items here. Remember, less categories is much better. This also includes almost $200 at freaking Ulta.
• Mortgage – $1627, plus $200 for insurance, and $300 for taxes, which are no longer escrowed, but I factor monthly.
• Giving – $1614.52
• Auto maintenance – $1,528
  • One vehicle is several years old and requires some work. We had to fix a fuel pump for about $1100 and a crankshaft position sensor for about $475. We also washed our cash for $20, and that’s categorized as auto maintenance.
• Clothes – $771. I hate clothes shopping and generally hold out until the last minute. The problem is once I break the seal, I order lots of crap.
• Miscellaneous – $594. This is such a money suck. This includes several kid birthday presents, Halloween costumes, kids baseball fundraisers, a bathroom rug, mower oil, and just a bunch of crap that you either have to buy or you’re gonna have to fake it or get creative. We ain’t very creative.
• Restaurants – $531. We attended a few events that required lots of meals out. We also picked up the tab at a few of these events, which sometimes inflates the restaurant budget. Overall, given the nature of the events and our payment for others, we did not do that terribly here.
• Fuel – $351. Meh. Almost exactly on budget.
• Kids Activities – $437 – A kid had a birthday this month, plus the normal dance, baseball, and other crap.
• Entertainment – $404 -fundraisers, subscriptions, other crap for the birthday kid, Nintendo crap, concessions at ball games, parking at ball games, you name it.
• Medical – $235 – not bad; keep awaiting a large bill from a recent surgery
• TV/Internet – $182 – Netflix, Disney+, Hulu live, fiber internet
• Electricity – $182
• Water/Sewer – $67
• Car Insurance – $173
• country club – $125
• Cellphone – $90
• Haircuts – $55 – yes we spent $55 on haircuts. Insane.

Savings (factored into the above total spending amount)

• $225/College Savings
• $220/Fidelity Cash Account

Will need $13,000 in January to max out the Roth for 2023.

Since the last net worth update in March 2022, we’re down substantially and well below $1MM.

We’ve taken significant losses in our retirement accounts despite continued contributions. This happens when the S&P500, for example, is down 22% YTD.

Unless this time is different, the market will eventually bounce back and our positions are building like a damped spring. Also, we’ve reduced primary residence debt by $8.8k in about 6 months and continue to fund an expensive lifestyle without additional debt.

Further, real estate prices below are figured at cost basis and likely below the fair market value.

Market losses = net worth drop.

Note: published October 2022

Overspending is the default. Over-eating is natural.

Aggressively fight against overeating and overspending

You cannot outearn overspending. You cannot out-exercise a bad diet.

Steps to reduce spending –

1. Track your spending – I use YNAB to create an online envelope system and only spend dollars that I have.
2. Say No – You cannot do everything – you must chose what matters most.
3. Eat at home – This requires planning and following step 2.
4. Give yourself grace and keep working. – You will fail at times – it’s best to acknowledge it and recommit to your plan.

Steps to avoid overeating.

1. Track your calories
2. Say No
3. Eat at home.
4. Give yourself grace and keep working

Controlling overeating and overspending requires the same discipline.

It’s a lifestyle – not a diet. You will always need to watch what you eat or watch what you spend. Get over it. It’s life.

Failure is normal but not permanent – you can always get back up and keep trying. You must regain control – giving up is not an option.

If you keep trying it gets a bit easier. You will learn your keys to avoid overspending – perhaps it’s not going to the places you typically spend or slowing down during meals and avoiding eating at certain times of the day.

The similarities between overeating and overspending are striking. To win, requires rejecting passivity, taking responsibility, and planning. You cannot wander through and achieve your goals. You must maintain the margin or mind the gap between your income and spending and your calorie intake and your calories burned. If you consistently spend more than you earn – you will never get ahead. If you consistently take in more calories than you burn – you’ll gain weight.

Ultimately, life will be much harder fat and in debt – so chose wisely.

Skinny and with financial margin or…overweight and out of money?

Fight overeating and overspending!

We’re Millionaires!

We track our net worth regularly. It’s a great way to track your progress over time. Net worth is simply the total value of all your assets less any debt. It’s basically stockholder’s equity in your household finances.

For the first time ever, our net worth has surpassed $1Million. This is the natural result of our slow and steady saving and investing over the last decade. As markets have bounced back and are basically at all-time highs, we’re popping the champagne – not literally – we’re just continuing to do what we do. Growing our income, spending with intentionality, and consistently investing.

My net worth calculation includes college savings and cars, two items that arguably should NOT include in a net worth calculation. Cars and college factor about 10-15% of our net worth, so I include it but others may disagree. Interestingly, our car values are up 4.29% (since September) while our investment accounts are up only 2.91% (despite contributions).

Our cars apparently increased in value at a greater rate than our investment accounts
(including substantial contributions). This is probably not entirely accurate (as the cars probably wouldn’t bring the stated amount in cash) but there are certainly some weird things going on with used car prices due to short supply. Hopefully, this subsides soon and potentially creates an opportunity in a year or so to acquire vehicles at a discount.

We’re Millionaires, But, What if We’d Taken More Risk?

Total assets could be significantly higher had we taken more risk over the last 10 years. The market has exploded higher, particularly real estate, stocks, and freakin crypto. I did not invest in crypto early enough to even post it here. Of course, I’d really like to find a 10x or 100x stock or crypto, too. For example, taking my $6,000 college account and increasing it 100x would basically pay for all my kids’ private schooling and college, easily. Further, had I been taking some risk in 2014, for example, and acquired additional rentals, I would have taken on much more debt, but I’d likely be sitting on substantial gain in these properties. I could sell them now and probably have enough equity to pay off house or something else.

The big question is what do we do for the next 10 years. If we act now and take on more risk, will the market cooperate or will we have a similar regret? Ultimately, I’ve learned that I’ve been way too conservative. I clearly have a complex about potentially losing money that causes me to hoard cash. I need to be a bit more aggressive and create some growth. Had I simply been fully invested through the pandemic, our net worth would probably be 20-40% higher. Damn! Need to keep pushing and force savings. Maybe even open a taxable investment account at Fidelity.

Final thoughts – Net Worth Update – October 2021 – We’re Millionaires!

Happy and fortunate to pass the Million Dollar Net Worth Mark. It frankly doesn’t feel any different and probably wouldn’t until my home is paid off, and we’ve got employment optionality and substantial liquid assets. Something to keep working toward over the next few years or decades.

August is my least favorite month. It’s hot and it’s been hot for several months. Waiting for cooler weather is basically like waiting for Christmas.

Fortunately, on the financial front, August was a productive month. Although some spending was over budget, we were able to reduce some expenses and also save money for large upcoming items.

Our actual grocery/household spending of $1,545 exceeded our $1200 budget substantially, but we were able to keep our restaurant spending to only $295.

Grocery Spending.  Difficult to control. 

It’s kind of difficult to determine the cause of our grocery/spending. We’re off by about $345, which is about 1-2 big grocery runs. We did make a Costco run in August, which was about $270. We continued our Hello Fresh experiment but only at an August cost of $136.56.  There are several regular grocery orders that seem to average a bit higher cost than usual.  Some of this is probably due to buying snacks and school lunches for my kids who went back to school in August.  Ultimately, it seems that we simply need to plan a bit better and deny ourself or our kids certain items.  Or just simply go to the grocery store a bit less.  Below is a helpful YNAB report showing our grocery/household spending since August of 2020.  You can see that there were some good months earlier this year but spending has crept up in last 4 months. 

We spent $270 on gas, $382 on clothing, $193 on medical, and only $50 on childcare. All of these are close to the average over the last several months. Our miscellaneous and entertainment budget at ($535 and $563) seem a bit high.

Good Budget Concepts

Before we get to entertainment, a quick note on productive budget concepts. A lot of people will make the mistake of budgeting too restrictively. Or they will have so many budget categories it’s impossible to learn anything from the data. Consider your real life. Don’t try to budget $0 for entertainment or $20/month for food. That’s simply not sustainable and will likely cause you to quit budgeting entirely when you fail. You are going to want to do fun things and spend money. You need an entertainment budget category. and a catch-all category for things you forgot or that only come up on rare occasions.

For example, our August miscellaneous spending includes $220 for passport renewals. It would make no sense to have a budget for passports since it comes up every 10 years. This is miscellaneous spending. Now, back to entertainment. As you can see below, we clearly like to have some fun as we have kicked up our entertainment spending over the last several months per our YNAB report below.

Note that I use my entertainment budget as an overflow for restaurant spending and for cash withdrawals. If I need cash, I withdrawal cash and categorize the cash as entertainment. The cash will be spent on fun things like fast food or other “entertainment”.

Saving for the future.

We saved $1000 for Christmas and paid $522 for our portion of a vacation deposit for summer 2022. My entire side income has been allocated for our car replacement fund, which is now up to $2800. We continue to contribute $225 total to a college savings account for our kids.

Giving.

We donated approximately $1160 in August. This includes all of our standard automatic monthly giving. Unfortunately, we did not give our extra $1000 in August or July. fact, I had to move the July allocation of $1000 to other spending/saving priorities in August. There is so much need, but I think we must build our cash position to be ready to be prepared to make a career move and/or buy a new family car.

Rental Account.

Our rental account continues to generate cash. At August month-end, we have about $4200 in our rental account. I’d prefer to let this fund build up over time and use it on a big purchase of potentially another rental property or for our Roth IRA. My spouse would prefer to give some of it away. It’s a typical conundrum and conversation in our house. As of August, we are simply holding tight.

Conclusion

Overall, August was a productive month. We bolstered our cash/savings position and made progress on saving for the future. Hopefully, we will make further progress over the next few months by spending more intentionally and continuing to growing our income.

• 

Track your net worth!

Track your net worth regularly to develop valuable data about the longer-term impact of your financial habits. Net worth is the value of all of all your assets less any debt.

I use a spreadsheet(Google Sheet) to simply record my account balances on or around the 20th of each month. The formulas automatically tally everything up and produce a net-worth calculation. As you can see below, I exclude certain assets from my net worth calculation, like cars (depreciating assets) and college savings (basically a prepaid expense). I use the purchase price for any real estate as I think it’s simply speculative (and time-consuming) to estimate and factor current market value. Either way, the point is to simply track your net worth in a way that helps you learn and change your behavior as necessary to reach your goals. Intentionality!

August 2021 Net Worth

I tracked my net worth monthly for several years but have failed to update it since October 2020. So, this update shows almost a year of gains. Interestingly, my earliest entry is 10 years ago (August 2011), when my net worth was only $78,135. In 10 years, we’ve grown our net worth 12.7x or approximately a 29% annual return. Of course, a substantial portion of these gains is the result of our contributions to retirement and houses (i.e. employment) and not necessarily a 29% annual market return.

Highlights:

• Net Worth (including cars and college savings) is basically $1MM. Overall good progress but hopefully, we can accellerate the gains and growth over the next ten years.
• 401k growth appears substantial. My 401k increased $91,840 or 32.65%. This includes my contributions of approximately $19,000. So, the earnings may not be quite as good as it should since the S&P 500 is up from 3443 to 4441 or 29%.
• I only earned $10 on $6801 invested in a college fund. I shouldn’t be, but I’m scared to pull the trigger on anything in this market. According to stockchokers.com, I (my kid’s college fund) would have approximately $8,875 or up about 30% had I simply bought SPY.
• My cars are a year older but apparently worth 8% more. Thanks Joe! Note: I let these values float and input whatever Mint says they are worth.

The Roth IRA is a great investment vehicle.  Not only do you earn tax free growth on your investments, you also avoid the headache of tracking your basis and earnings for tax reporting.  I’ve maxed out mine and my spouses’ Roth IRA’s every year since 2010, except for 2014 (when we only contributed $3,500 each).

Contributing to a Roth IRA is nice, but you have to actually invest in stocks or mutual funds. to earn a return on your investment. Duh!  There are millions of investments and strategies, including stocks, bonds, ETF’s, and mutual funds.  I do not have the time or energy to research and invest in single stocks, so I invest via low cost, broad based funds.  I look for funds that either track the market or have a positive long term track record, such as Vanguard Total Stock Market (VTSAX) and Vanguard’s Growth Index (VIGAX).    I also have substantial holdings in a Target Retirement Fund, which automatically rebalances from stocks to bonds as retirement nears.  These broad based market index funds cost of only 0.04% and 0.05%, respectively, compared to the 0.15% for the target retirement fund.

Since 2010, the broader market has had a tremendous run.  For example, the S&P 500 index is up 167% and the Nasdaq is up 250% since 1/1/2010.  With those gains, I expected a pull back and began to believe that I could time the market with a cheap entry point.  Almost every investor will probably feel like they can sell now to buy cheaper later (aka time the market).  Sometimes it might work, but trying to time the market is almost always a money loser.  Here is my story of how timing the market cost my family substantial gains. 

Selling to Buy Cheaper

Early in the pandemic, I moved a substantial portion of my Roth IRA to cash. I thought the market had run up too much too quick and the coming (as I thought) pull back would allow me to purchase at a lower level. 

Specifically, I sold 586.52 shares of VTSAX at $71.79 on May 8, 2020, receiving total proceeds of $42, 106.27.  As of August 13, 2021, a share of VTSAX is $111.98, so my 586.52 shares would have grown to $65,678.51.   In short, I missed out of $23,572.24 of growth or 56% gain on my $42,106.27.   I also sold 103.83 shares of VIGAX on April 17, 2020, at $90.88.  These shares now trade approximately 69% higher only 14 months later.

Not only did I do this in my account, I did the same thing in my wife’s Roth IRA. Ugh!

Here is a spreadsheet showing all our sales in 2020.  Note: this chart includes some sales prior to the pandemic but those were generally intended to consolidate holdings.

Together, our accounts have missed almost $60,000 of [paper] gain on just our major holdings of Vanguard mutual funds.   Had we done nothing, our account balances would be about 33% higher.   OUCH!

A year later, the major pullback still has not come.  I sold shares expecting (hoping) for a pullback that never came, so not only did I miss out on substantial gains – I’m stuck without a good entry point.  If I jump in entirely with all my cash and then the pullback comes – I don’t have any cash to take advantage of it.  If I continue to hold cash, I’m missing out on substantial gains over what I’ve already missed (see above).

Capitulation.

Trying to time the market is dumb.

Realizing my mistake – I have since pulled the trigger on what I believe is the best option available: A systematic weekly/monthly investment in multiple low-cost Vanguard funds. I have not gone “all in” but initiated small weekly automatic investments into multiple index funds. This preserves some cash for a few years to take advantage of the major pullback but also gets us back into the market – by dollar-cost averaging.

Maybe I should go all-in and use my future contributions to dollar-cost average. However, I think if I do that, the market pullback will soon follow. Some research actually shows that going “all-in” may be a better long-term approach. I think I’ll probably increase our weekly investment amounts to push more cash into the market more quickly as a hybrid approach to going “all-in” at this point in the market cycle.

Lessons Learned.

I learned a very important set of lessons. Don’t ever think you can actually time the market. You might get lucky. But, the best long-term approach is to ignore the noise and just keep investing.  Systematically. 

Also, don’t fight the Fed and don’t sell anything. Ever.