August 2016 Financial Report

August 2016 – Detailed Financial Report #20 – Net Worth $432,743 [+36.2% for 2016 YTD]

Gen Y Finance Guy Monthly Financial Reports 10 Comments

GYFG here checking in for the August 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 August 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.

Shall we begin?

Summary of August 2016

July 2016 Financial Stats

Wonder how I pull all this information together every month?

Note: You may be wondering why I don’t use a bunch of screenshots from personal capital in these reports, and that is a fantastic questions. As many of the other bloggers out there who use personal capital, post nothing but the graphics from within the application. I personally only use it as an aggregation that feeds into my own database that creates all the graphics you see in this post. The tool is fantastic, but I personally think the graphics are a bit limited, and prefer my visualizations.

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 in order to produce this (beautiful) 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!

If you don’t have a FREE account with Personal Capital, stop reading and go sign up for your account right now(Seriously, this financial update will be here when your done. There’s no time like the present to take action. You will thank me later!)

Month Over Month Financial Summary

August 2016 MoM Summary

Just three things to point out in case you missed it:

  1. Income was down 53.7%; this was expected as last month was my mid-year bonus and a 3-period pay month.
  2. Our Gold holding increased by 141.5%; we added a few more Gold coins to our stash.
  3. The credit card float decreased by 86.4% as I paid the balances down early before the automated payment went out.

What went down in August?

For the most part, August was a pretty uneventful month. Well, at least from my standpoint. Mrs. GYFG continues her streak of killing it.

Here is a look at the trend for the last 13 months:

August 2016 Trended Gross Income

I updated the 2016 forecast, and it’s now forecasting gross income of $315,761 for 2016. 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 2022 in the original blueprint.

In a few months I plan to add another chart that will show our income on a trailing twelve months (TTM). What is crazy is that I just took a look at that and on a TTM basis, we have actually earned $333,061 (that is freakin bananas).

The Juicy Details

August Income = $21,194
  • Previous Month: $45,735
  • Difference: -$24,541

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.

August 2016 MoM Expenses

 

Spending is up almost 30% this month over July.

The two main drivers here are the home improvement category and the Shopping & Other categories. It may not be that obvious but we also had a substantial increase in our Travel & Hotel spending; we booked our lodging for our St. Thomas trip coming up at the end of the year. We also booked our hotel stay for a friends wedding in September.

The reason you don’t really see the increase for Travel & Hotel is because it is offset with a $1,600 reimbursement for work related travel from the previous 2 months.

The main driver in the Shopping & Other category is a $500 deposit we made for a magician that is going to perform at our 30th birthday party in October (yep we are both turning the big 30).

Here is the trend for the last 13 months:

Note: 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.

August 2016 Trended Expenses

Expenses are down vs. August of last year. Our average monthly spending has been $10,100 vs. $9,900 last year (all things considered, not too much lifestyle inflation). It seems as though we have found our sweet spot with respect to how much money we need to live our desired lifestyle.

Mrs. GYFG and I also realized that after we finish our last “BIG” home improvement project in 2017, that we should have somewhere in the neighborhood of $10,000 to $15,000 freed up. It’s likely we will re-purpose this money for 2 additional vacations each year, that’s my vote anyways. Or we have also talked about renting a place by the beach for a couple months out of the year, this would take care of that as well. Only time will tell!


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.

Examples:

  1. 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)
  2. My 401K contribution is automatically deducted at a rate that will ensure I max out by year end ($18,000)
  3. 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.


Savings Rate

Below is how we’re tracking to our goal of saving 50% of our after tax income.

August 2016 Savings Rate

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% (4 months to go and we are still on track).

Speaking of savings rate, have you checked out my 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 August we are officially 4.3% there). Don’t freak out, this is only about $5.5M in today’s dollars when you take into account a 3% inflation rate.

Can’t believe we are almost half-way to a 7-figure net worth yet (or what some refer to as the double comma club). It’s 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.

August Net Worth $432,743 (this puts us up $115,017 or 36.2% vs. 2015 with 4 months to go)

  • Previous month: $425,012
  • Difference: +$7,731

Since publishing the first financial report we have been able to post 20 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:

August 2016 Net Worth Allocation

With the refinance closing in April, our primary residence crossed a threshold over our target of “25% or less of net worth” (now 22% of net worth as of August). This means we will be discontinuing our additional principal payments until we can dilute this number to reduce our concentration risk (would like to get this well under 20% before resuming). 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.

We are currently on track to increase net worth by $142K 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 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 (it’s on the list). 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 an additional $400/month.

August 2016 Mortgage Payoff Goal

The progress chart above shows how much of our goal we have completed. The goal completion percentage is up 0.2% vs. July.

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. We should be able to get it well below 20% by January of 2017.

The End

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.

Cheers!

– Gen Y Finance Guy


Oh, you’re still reading.

Do you want to help keep our lights on? You’re under no obligation, but if you were already thinking about it or were a little bit curious, why not help us out?

Here are a few ways you can help us out:

  1. Personal Capital – You know how big I am on tracking my finances, that’s why I totally recommend Personal Capital’s FREE software that helps you see all your financial accounts in one secure and convenient place (checking, savings, investments, and retirement accounts). Without a tool like Personal Capital, these reports would take 2-3 times as long to complete. You want to track your income? Your expenses? How about your Net Worth (who doesn’t like watching that bad boy climb). Just sign up and link your accounts today. Absolutely FREE to you!
  2. Prosper or Lending Club – Lending to consumers is a great industry that’s produced profits year after year for a handful of banks. Now with Prosper, you as the investor get unprecedented access to this market. My personal P2P portfolio is earning over 5%. Open a FREE investment account today!
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Comments 10

  1. Good on you for minimizing your additional paydown efforts on the mortgage for now because it crossed your threshhold (in overall net worth). Mine is 25%. I just can find other ways to invest the money instead of plunking it down into a fixed, historically low return, non-liquid asset. Mind you, nothing gives me more joy, financially, than to see the balance drop every month from the fixed payment.

    Mortgage repayment may be the biggest disagreement you will find in the personal finance/FI realm. On almost a holy war level where neither side can agree. (also runs under the “good debt” vs the “no such thing as good debt” debate)

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  2. Maybe offering a contrary opinion to Daniel above and provide it mostly for discussion as opposed to criticism.

    You both reference not wanting to cross a threshold where your real estate equity exceeds a certain percentage of net worth. Isn’t this an arbitrary number? If grounded in data or some experience fair enough but I’m not sure I’ve seen a rationale for the threshold presented.

    What about your cash allocation? Presumably this represents a 12.5%+ position. Shoudn’t there be a covenant for this as well?

    Have wrestled with both of these ourselves recently and have decided to accelerate our current mortgage repayments as it appears to be the safest after-tax, low-risk return rate I can find.

    Our upper net worth limit for real estate is 55% (ie. 90-age) of which we are currently at 29%.

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      Oswlerscodes – Thanks for playing devils advocate.

      Regarding how I cam up with the upper limit of 25% for the equity in our primary residence. After some research I found that on average the equity in ones home in America makes up 60% or more of their net worth. My thinking is that anything less than this is an improvement. During the early payoff stage, I set a upper limit of 25%, but the longer term goal is 10% or less of net worth..

      I have never really thought about putting a cash covenant in place as currently across all accounts it actually accounts for something like 30%+ right now. I am comfortable having a higher cash stash as a % of the total net worth figure, mostly due to the liquid nature and optionality that cash provides. You also have to consider where in the market cycle we are in…makes sense to me to have far less cash in the depths of a market correction (as you put more cash to work to take advantage of mis-priced assets). On the flip side it also makes sense to me to hold more cash the further you get into a expanding market. We are currently about 7 years into the recovery from the great recession.

      At the end of the day we all have to make the moves and allocations that make sense in each of our individual goals and financial means.

      1. It is an absolutely an arbitrary number (loosely based on my current percentage now). In actuality it will probably cause me to throw some extra money toward the mortgage in the future (since even now it is probably as high as it will go, minus a market correction), but right now it makes a clear case for not doing so. Interestingly house value hasn’t even factored into my retirement calculations, though it represents some 25% of my net worth at this time (it would be down to less than 10% by nominal retirement at 62, assuming I don’t get angry at the mortgage in another decade and start throwing some money at it, in particular when the tax deductible part starts to decrease). I just don’t like having so much capital tied up in an asset that cannot be easily tapped/sold

  3. It’s so amazing that you get to have a positive month EVERY month 🙂 can’t get that kind of returns in the stock market. At this rate, it sounds like you’re going to be come a millionaire in the next 2 years at the latest. Can’t wait to hear your success then!

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      Finance Solver – it has been a great run so far. We are currently in a sweet spot that allows us to continue posting robust gains to net worth every month.

      That said, there will come a time in the future that we we be subject to a decline.

      Although we will try our best to prevent that from happening.

      The goal is to get a little wealthier every month.

  4. I think it is a very cool concept that you lay out all of the details about your finances. I think it makes things more real for people. I really liked the monthly gross income chart which allows you to look back and compare your current month’s income with previous months. It looks like you are on the fast track to becoming a millionaire in the near future! You are already almost half way there. Congratulations on getting your financial house in order, making a plan and executing!

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      Your First Million – First, nice name!

      Glad you enjoy the format. Plans will never make you rich, only execution will 🙂

  5. Looks like the juggernaut that is GYFG keeps rolling on! Nice update here and I’m getting close to catching up as well.. Sure you keep on keeping on as we get closer to the end of 2016 🙂

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