GYFG here checking in for the April monthly financial report. If you have been reading these reports for a while you will notice that I introduce each month with the same intro month after month. I do this for two reasons, a) for the newbies to the site (which make up about 50% of the sites traffic) and b) to remind everyone what these reports are all about. By all means if you have read the intro at least once, then please feel free to skip down to the “Summary of April 2016” section where the new content begins (click the orange link to be taken there automatically).
For those of you that are new around this corner of the internet, I wanted to fill you in as to what these reports are all about. These monthly reports are about full transparency. They are just as much for me as they are for you. It’s a hard decision to make all of your financial details public, but it’s also a very motivating one. It’s not just the post, but the process of putting this post together that really benefits me.
My sincere hope is that my transparency will inspire you to take the helm of your own financial ship and be intentional with its direction. I truly believe that anyone can reach financial freedom, if they are willing to do things differently. If you earn an average salary and have an average savings rate, then you can expect an average result! That means you will likely have to work at a job you may or may not enjoy until you’re 65 and then maybe you can retire IF you’re lucky.
Hey, there is nothing wrong with average. If you’re happy with average, then by all means keep doing what everyone else is doing. Not sure how you feel about that, but I have no interest in living an average life. I want EXTRAORDINARY.
Most people don’t want to live below their means in order to reach FINANCIAL FREEDOM, because that’s painful. They think it involves cutting out all the joy in life. You know what I’m talking about, those financial gurus that tell you that in order to get rich you need to cut out the $5 lattes and stop going out to eat. Then after 40 years of diligent and above average savings and super low spending, you will be a millionaire. Basically, you have to live like a college student and suppress all the things you want to do in life and then when you’re old you will be rich.
Okay, that doesn’t sound like the plan for me either.
The good news is there is another way. This site and these reports are here to show you the OTHER path to financial freedom. There is a way where you can have your cake and eat it too. I believe and hope that over time I will be able to convince you of the following:
In order to reach financial freedom you can choose to live below your means by cutting expenses to the bone and living in a state of scarcity or you can expand your means and live in a state of abundance by increasing your income and enjoying the $5 latte or other indulgence of your choice.
Not only that, but if you’re diligent you can reach financial freedom a lot sooner than anyone has ever led you to believe.
Our Mission Statement:
To Humanize Finance, Build Wealth, and Reach Financial Freedom.
I know I don’t have to publish my juicy details every month, but it’s important to me that you know that I put my money where my mouth is (because not that many finance blogs or people giving financial advice do this). I publish all of my financial details not to brag, but instead to show you what is working as well as what’s not working. Sometimes finance can get pretty dense, but I think real life examples and numbers can help slice through the complexities (and BS). Personally, I have always enjoyed the financial reports put out by other bloggers around the blogosphere.
As always, you can find all my previous reports on the Financial Stats page (as well as annual trends and a few other financial metrics not found on this report). In these monthly reports the plan is to give you a month over month update on Gross Income, Assets, Liabilities, Net Worth, Expenses, Contributions, Savings Rate, and progress on the mortgage pay down goal.
Summary of April 2016
Wonder how I pull all this information together every month?
We use Personal Capital to aggregate and consolidate our transactions from across all of our financial accounts (checking, savings, retirement, credit cards, mortgages, HSA, and other investment accounts). At the end of the month I then drop that information into my financial stats spreadsheet for this monthly report.
Tracking your finances is, in my opinion, the best way to stay on top of your finances. You can’t optimize what you don’t measure. You can’t make informed decisions if you don’t know what you having coming in vs. going out. Without a holistic view of how much you spend every month, there’s no way to set savings, debt repayment, or investment goals. It’s a financial freedom must, folks.
Month Over Month Financial Summary
Just three things to point out in case you missed it:
- Cash took a -20.2% hit due to our refinance we just completed, and will take an even bigger hit next month as we deploy $50K in the form of a hard money loan at 8% (with my in-laws).
- The liabilities side of the balance sheet improved significantly overall due to the refinance. We amortized mortgage debt by $23,432 in April.
- Our credit card float increased substantially from $1,942 to $7,068 for a 264% increase.
What went down in April?
Last month I was forecasting a drop in income down to $18,200/month, yet we beat it again thanks to Mrs. GYFG. She continues to blow her numbers out of the water bringing in an additional $5,000 in income again this month (that’s 4 for 4 for anyone keeping track).
Since this extra income from Mrs. GYFG is not guaranteed our current forecast still has income dipping to around $18,200/month, with the exception of July, which is currently forecast at $43,400 due to my mid-year bonus. There are several factors that could help us exceed expectations:
- Mrs. GYFG is still killing it. The last four months she has brought in an additional $5,000/month above and beyond her salary from monthly bonus payouts and notaries.
- There is the potential for a mid-year promotion to VP that I am working towards. This could lead to a substantial increase in both my base and bonus compensation.
But we won’t count our chickens before they hatch.
Here is a look at the trend for the last 13 months:
I updated the 2016 forecast, and it’s now forecasting gross income of $300,158 for 2016 (based on new information, and I think we will actually come in closer to $315K or more). If you’ve read my blueprint for how I plan to reach $10M, you will notice that we have jumped about 6 years ahead of schedule on the income front.
I didn’t have us at this earning level until 2021 in the original blueprint…which will obviously need to be updated (post to come probably late April).
The Juicy Details
- Previous Month: $21,906
- Difference: +$974
Now where did all that money go?
I have come to the realization that there are always going to be unplanned expenses. Our goal is to save 50% of our income and live off and enjoy the difference guilt free. With that type of rule governing our financial life, it is a free pass to inflate our lifestyle, but only proportional to our income. You can see prior financial reports here. We do however try to line up expenses with expected income as much as possible.
Notes on April Results:
1 – House Mortgage & HOA was up $25K or 543% over March. This is due to the cash-in refinance we just completed. We refinanced our 5/5 ARM at 3.625% into a 3/1 ARM at 2.25%. In order to qualify for this rate we needed to bring in enough cash to increase our equity position to 20% of the current market value.
Bringing in this cash also allowed us to get the refinance done for about $1,200, as we had no points and no loan origination fee. It also helps that my wife was able to waive our escrow fee since she is in the business. Some of this was prepaying property taxes and we will be refunded our current impound account balance in May (about $2,000). This helped reduce a large chunk of debt on the liabilities side of the balance sheet and increased our mortgage payoff goal from 7% to 14%.
2 – Home Improvement should continue to slow down as we had front loaded the year.
3 – Condo Mortgage & HOA we had property taxes due in the amount of $1,070, these are not impounded, as we have elected to make the payment separately from our mortgage.
4 – Travel & Hotel has a nice $3,070 favorable variance as we had pre-booked our Costa Rica trip in March and paid for our February trip to Nicks Cove in March.
5 – Auto & Transport we had our car registrations due on both cars.
6 – Health & Fitness I ordered a 21 day detox program that I did back in 2012 to get my eating and nutrition back on track. I will talk about this more in my goals update for April.
The refinance is the major driver this month for expenses being up month over month. But January through April tend to be our most expensive months of the year.
Next month expenses will come down substantially. A big part of that will be due to the one-time items I called out above, but also due to the fact that we will not have a mortgage payment due in May.
Here is the trend for the last 13 months:
I have now changed the chart to reflect the add-back of loan amortizations to reflect what I call “real spending” above. This is done because amortizations are really just a balance sheet transfer from cash to pay down liabilities, it has no impact to net worth.
CALL OUT: It is crazy how slippery money can be. Because of this I totally recommend you automate as much of your finances as possible, especially the saving and investing piece. We set our financial goals at the beginning of the year and then automate the process of reaching them.
Our mortgage payment is automatically set up to pay $1,600 in additional principal.This will be put on hold until further notice (see below)
- My 401K contribution is automatically deducted at a rate that will ensure I max out by year end ($18,000)
- My HSA contribution is automatically deducted at a rate that will ensure I max out by year end ($6,750)
All of these things take priority over any spending that we do in a given month. We monitor expenses but don’t really manage them. Instead we manage savings and investments and let the expenses work themselves out.
What were Investments and Contributions?
- Contributed $0 There is no longer any tax benefit for us to contribute to my wife’s IRA due to our income level in 2016.
- Previous month: $0
- Difference: -$0
- Contributed $962 Into my 401K. Contributed $7,065 so far in 2016.
- Previous month: $962
- Difference: -$0
- P2P Lending $0 We now have $6,000 invested here (post to come soon). We opened an account with Lending club last month. Trying to spread the love 🙂
- Previous month: $0
- Difference: -$0
- Rich Uncles REIT $0 This was from reinvested dividends. We currently have $5,555.
- Previous month: $0
- Difference: $0
- Increase in Savings $0 This includes checking, savings, and CD’s.
- Previous month: $0
- Difference: +$0
- HSA Contribution $488 This is set up to max out by the end of the year. We currently have $8,000 here.
- Previous month: $488
- Difference: -$0
Total Investments & Contributions $1,450
- Previous month: $1,450
- Difference: -$0
You will notice that we have not been making much in the way of contributions to other investments. This has been intentional as we have been preparing for this refinance we just completed as well as a $50,000 hard money loan we will be making to a family friend that is in the real estate business (he does a lot of volume of flip and rehabs). We are going in with our in-laws, who are putting in $200K, and will be receiving 8% interest on our loan. The duration will be anywhere from 6 weeks to 6 months.
This is all done with the proper paperwork, we are just playing the part of the bank. The worst case, which we think is very unlikely, is that we end up getting into another rental property. The property is collateral for the loan and we (and the in-laws) are the sole and primary lien holders on the house.
Below is how we’re tracking to our goal of saving 50% of our after tax income.
You can see that although our goal for the year is 50%, we bounce all over the place on a monthly basis.
So far in 2016 we are still on target to hit our goal of 50%.
Speaking of savings rate, have you checked out my recent post where I mathematically prove the importance of your savings rate as a higher priority than the compound return? If you’re trying to build wealth quickly, then you have to read this post.
Net Worth and Mortgage Pay Down Update
My ultimate goal is to build up a Net Worth of $10M returning 6% a year or $50,000/month in gross income (at the end of March we are officially 3.7% there). Don’t freak out, this is only about $5.5M in today’s dollars when you take into account a 3% inflation rate.
I am not anywhere close to a 7-figure net worth yet (or what some refer to as the double comma club). However, it is growing at a very respectable rate (just take a look in the side bar for growth at a glance). If you want to see how I plan to get there you can read all about it here (soon to be reviewed and updated
in April of 2016 at some point).
April Net Worth $370,744 (this puts us up $53,017 or 16.7% vs. 2015 with 8 months to go)
- Previous month: $368,985
- Difference: +$1,759
Since publishing the first financial report we have been able to post 16 consecutive months of positive gains to Net Worth. Let’s see how long we can continue this trend. The larger the number becomes (and the more invested we become), the more difficult it will be to continue this trend.
Net Worth Component Break Down:
With the refinance this month, our primary residence has crossed a threshold over our target of 25% or less of net worth. This means we will be discontinuing our additional principal payments until we can dilute this number to reduce our concentration risk. This doesn’t really effect the pay down goal, as the refinance forced us to bring in enough cash to satisfy our scheduled extra payments through April of 2017.
Speaking of net worth, the next 3 months should bring some very healthy increases. We are currently forecasting an increase of about $38,000 over the next 3 months. We are currently on track to increase net worth by $119K in 2016 vs. our original goal of $112K.
Something I have been thinking about and worth pointing out is that our net worth was actually negative to the tune of almost -$300K back in early 2009, so we have come a long way in a relative short period of time. Until now I had only reported our ending net worth from 2012. I am thinking up a post that would give the full story of how we started so negative right out of college and how we have improved it so dramatically in such a short period of time. I mention the first drag in this post about our investment condo.
Note: I think people tend to glaze over the fact that the savings rate plays a much bigger role in increasing your net worth than the rate of return on your investments (in the early days of your journey). In the short term, savings rate has a bigger impact on net worth. The goal is to eventually build a big enough asset base that the gains from compounding will eventually outpace the gains from savings. Actually, check out the post I recently wrote: Savings Rate – The Most Important Variable to Wealth Building [and the math to prove it]
Progress On Our Mortgage Payoff Goal
You can read about our strategy to pay off our mortgage in 7 years (and 3 months). When you break it down and follow the 3 simple rules, it’s not as hard as it sounds. We bought our house in February of 2014 and then refinanced it into a 5/5 ARM in September of 2014 to remove PMI and free up cash-flow to put towards the principal and keep us on track to pay the mortgage off at an accelerated pace. We have since refinanced again into a 3/1 ARM at 2.25%, which has freed up almost $400/month.
The progress chart above shows how much of our goal we have completed. Last month we were at 7.6%, which means we picked up another 650 basis points in April.
This goal will move a bit slower over the next few months as we work to reduce the concentration of our net worth in this area.
I hope these reports inspire and move you to action. Don’t take a passive role in your finances and hope for the best. There is a famous Jim Rohn quote that I think everyone should keep in mind:
If you don’t plan your future, somebody else will. And you know what they have planned for you? NOT MUCH!
You have to be intentional with your finances if you ever want a fighting chance to make it to financial freedom. It doesn’t have to take 40-50 years of slaving away for the man before you have the option to retire. I personally think that 15-20 years is really all you need, and for the folks that are more aggressive (i.e. extremely frugal, not us) or very high earners you can probably reach financial independence in 10 years or less (maybe us, it’s yet to be seen but income is our focus vs. expenses).
I am looking forward to chatting with you all in the comments below. How was your month? Also, if you have a blog, I encourage you to write a monthly financial report and come back here and share the link. I would love to be part of your support and accountability.
One last thing before we go. If you are new or even if you’re not new and you have been wanting a more guided tour of the blog, I finally launched a “Start Here” page. I highly recommend you check it out.
– Gen Y Finance Guy
Oh, you’re still reading.
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