GYFG here checking in for the September 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 September 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 September 2016
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
Just three things to point out in case you missed it:
- Income was up 11.6%; Mrs. GYFG had a record income month.
- Real Estate is up 5.4% or $35K due to increasing the value of our primary residence, based on comps in the area. But still held at $30K below what Redfin estimates the value.
- Total Assets are getting really close to 7 figures.
What went down in September?
Mrs. GYFG set a record for monthly fee revenue at work, which resulted in a record income month for her as well. This is the first month this year where our income YoY actually decreased, and that is related to a one-time special bonus of $10K that I received last September.
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 $324,640 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.
A few months ago I mentioned that I would be adding a new chart to track TTM Gross Income. For those of you not familiar with the TTM acronym, it is short for ‘Trailing Twelve Months’. We should stay in the high $300K range through the end of the year. I don’t expect to set a new high until January of 2017, where I am forecasting TTM income of approximently $380,000.
The Juicy Details
- Previous Month: $21,194
- Difference: +$2,451
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.
Spending is essentially flat vs. August.
Since it is a quarter end, I like to review an actual vs. budget variance analysis.
Our income is ahead of plan by $30,000, which is mostly driven by Mrs. GYFG blowing here numbers out of the water.
House Mortgage & HOA is unfavorable by $13,344 due to our unplanned refinance. However, this was mostly cash we used to reduced the loan balance in order to qualify for the lowest rate. You can see it is mostly offset with the addback of amortizations of $11,374.
Food & Dining unfavorable by $4,937. We have gone a bit nuts in this category and going into the holidays is not going to help. We have both been working a lot, and the result has been eating out a lot more often. We would like to get this a bit more under control in 2017 and try to get this back to the $18,000 range.
Shopping & Other This is kind of the slop bucket for everything else that doesn’t fit on one of the other major categories. Mostly due to me being a bit lazy and breaking it out into more detail.
Overall our spending is ahead (i.e unfavorable) of our budget by $13,752. To provide a little more context, spending at this same time last year was at $86,152, so at $91,553 spending YoY is up 6% (income is up 39% YoY). You can see based on the unfavorable variance vs. the budget, that we had planned for a reduction in savings. However, based on our current forecast spending is now looking like it will be flat vs. last year
I don’t feel bad at all to see expenses up 6% with income up 39% YoY. However, based on our current forecast spending is projected to be flat vs. last year.
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.
Expenses are flat vs. last month. Not really much to add beyond my commentary above on our YTD spending through September.
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.
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% (3 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 September we are officially 4.7% there). Don’t freak out, this is only about $5.5M in today’s dollars when you take into account a 3% inflation rate.
Can’t believe we are almost half-way to a 7-figure net worth. 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.
September Net Worth $472,664 (this puts us up $154,938 or 48.8% vs. 2015 with 3 months to go)
- Previous month: $432,743
- Difference: +$39,921
Since publishing the first financial report we have been able to post 21 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:
We moved up the value of our primary residence as we try to do every 6 months to reflect the current market value. This has caused our primary residence to climb to 28% of our net worth. We want to see this move in the other direction. We have discontinued our extra payments to the mortgage as the refinace we completed recently had us bring enough cash to keep us on plan through April 2017. Hopefully we will be able to continue diluting this percentage lower over the next 6 months.
We are currently on track to increase net worth by $177K 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.
The progress chart above shows how much of our goal we have completed. The goal completion percentage is up 0.1% vs. August.
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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