2016 ushered in the birth of this blog. I started this blog as a way to analyze and track my portfolio results in order to introduce a level of accountability to my savings plan and early retirement goals.
I realized early on that I still had a lot of work to do by seeing how far away I was from my targeted investment plan. This blog helped me refocus on my goals and take steps to change that.
I became more aware of my expenses and saw the benefit and motivation that tracking data brings with it.
I saw excellent results in my portfolio driven by both constant contributions and excellent market performance and began to realize that financial independence was a possibility for me.
Through this blog, I began to look inward and assess what was really important to me beyond finances and got the motivation to bring back a side hustle I started in 2013(writing) and give it another try for 2017 as a way to expand my skills and find something to make my post-retirement life more meaningful.
I think a lot of those things happened because I started this blog. I still would have saved money if I didn’t but I wouldn’t have directed it in a way that most benefited my portfolio and wouldn’t have gotten a better understanding of my own expenses and savings rates and how they affect my future plans.
I wasn’t someone who was way out of line when it came to spending or saving or laziness before but this blog certainly brought a new level of consistency to my life. The weekly posts I forced myself to write here at the start became one of my favorite parts of my week towards the end of the year and the continued enjoyment of writing brought along some ideas of how to do more of it in 2017.
- My first portfolio update in 2017 shows a total of $372,838.70 as of 1/8/2017. That’s $86,659 more than the first update in 2016 on 1/10/2016 or an increase of 30% year over year!
- Market appreciation made up 2/3rd of the return and contributions made up the rest.
- I have 0 asset classes that are more than half a percent off their target. My first update had every asset class more than half a percent off the target including some that were 5%+ off.
Those are fantastic results in my mind especially the fact that all of my asset classes are pretty much where I want them to be right now.
I maxed out my 401k and my HSA this year and still have to contribute to my ROTH IRA for 2016. I also had enough additional funds to grow my taxable accounts a little bit and hope to have more next year as my income increases and I have additional funds to invest after maxing out the tax-advantaged accounts.
I did have a step back early in the process as I made the conscious choice to take $15,000 in cash I had on the side out of the market completely and put it into my house fund which isn’t represented in these totals.
Another choice I made was to hold more cash on the side than I usually do which cost me a bit in terms of returns as the market continued flying up despite strong valuations. My asset allocation plan allows me to have a maximum of 10% cash when I feel like the stock market is overvalued and I sat near that level for a good portion of the year. That doesn’t mean I stopped buying anything as money continued flowing into my accounts through automated contributions but individual stock values were hard to find so I didn’t pull the trigger on individual buys as much as I would have in past years.
That’s not quite enough to live on but certainly a good base to work with for the future. My goal each year will be to get Steve a raise each quarter when compared to the same quarter last year. Due to the nature of my holdings, I can’t expect Q1 from 2017 to beat Q4 or even Q3 from 2016 since the payout rates in each quarter differ but I should certainly be able to beat Q1 2016 in the first quarter of 2017.
I’m excited to see what 2017 hold for my dividends and my portfolio as well. There’s plenty of unknowns out there and certainly a chance for a dip of some sort based on current valuations but that doesn’t worry me as I’ll continue to buy and reinvest at lower prices if that happens which is actually better for long term returns for those of us in this for the long term.
I’m not extremely frugal and while that sort of lifestyle works for some people that want to maximize savings; it doesn’t really work for me. I like spending money on some things that help me enjoy life right now and I think that’s OK. I’m not saying that people who live the super frugal lifestyle are unhappy or depriving themselves or something; but that type of lifestyle just isn’t for everyone.
You can certainly be happy while living on the cheap but I like some expensive things and feel like they bring great value to my life. I feel like avoiding them just to bring my savings rate higher would make me less happy right now with the hope of having more freedom and more happiness sometime down the line.
That works for some but it doesn’t work for me. I want my journey to financial independence to be a happy and enjoyable one and that includes doing some things that may impact my savings rate negatively. I believe in moderation in all things in life and that includes the journey to early retirement.
I’m not too concerned about my spending getting out of control because I’m lucky in that most of my hobbies don’t cost a ton and I can maintain a happy lifestyle without very high expenses. It’s just that I wasn’t too concerned this year about avoiding everything in order to maximize my savings rate and don’t plan to be that way in the future.
I think my goal is to make sure that my expenses don’t explode any time soon and if I maintain a similar spending level year to year then I can increase my savings rate simply by increasing my income.
That’s one of the reasons I’ve started a side hustle for 2017(writing) to see if I can get some extra income that will help spur my savings rate. I’m also lucky enough to have a job that pays relatively well and can expect decent if not great salary increases for the next few years. I’m not rich by any means(my salary is under 100k) but it’s enough to support my lifestyle and save a good deal as well.
I took on a new role at work this year as well that helped increase my salary around 14% which was spread through two increases across the year which means that my income will start off a lot higher this year than it did in 2016 which should automatically help my savings rate grow as long as expenses don’t get out of control.
Let’s take a look at where my gross income went this year. Unfortunately, I started tracking this data in March so it only encompasses 10 months of 2016 and 2017 will be the first full year of tracking.
Do note that this does not include February which is generally an excellent month for me as I get my bonus that month so any numbers here for 2016 are likely understated and I would expect 2017 to grow just on that basis alone.
Taxes suck guys! Taxes along with FICA and benefits are almost 1/3rd of my overall gross income and even higher when you include the quarterly payments I made which are tracked in my expenses.
This makes me value the tax-advantaged accounts that I use like the 401k and the HSA because this tax number would be even higher if I wasn’t maxing those out. It’s really eye opening to see how large taxes are as a chunk of my overall income. The federal tax rate may not be huge in the lower brackets but adding FICA and state taxes to the calculation really makes that number balloon.
The good news is that taxes during my post work years will likely be a good deal lower as I can better control my income, take advantage of 401k and ROTH distributions strategically and benefit from favorable tax rates for long term gains and dividends if staying under certain income levels.
The bad news is that my benefits(healthcare) will likely go up quite a bit since my employer subsidizes that now and that might offset some of that tax savings.
My gross savings rate this year ended up at 28.2%. If you add in employer contributions then that number goes up to 33.2%.
My goal here is to get this number before employer contributions to 33% or above on a consistent basis. I think I’ll be closer to that next year once January and February are included and my higher pay rate is reflected through the entire year.
I like looking at a savings rate that ignores taxes and this is what this number represents. It’s a direct comparison to what I’m saving versus my overall accessible income.
The ideal situation would be to have this pie split right down the middle but I think I’m still a good deal away from that level as my savings rate this year came in at 38.5% which jumps to 45.3% when I add in employer contributions.
That’s not too bad and shows how important employer contributions are when it comes to your retirement savings since my savings rate shoots up almost 7% thanks to the employer contributions to my 401k and HSA.
Once again this annual savings rate misses out on January and February which are typically solid savings months. I generally bump up my 401k contributions early in the year to get a head start on maxing it out but also to get a big contribution in February once and if my bonus comes in which helps me boost my savings rate and avoid a big tax withholding that month due to the way bonuses are taxed.
Overall, I feel happy with my savings rate this year. I know there’s room for improvement and hope to see this number be higher next year. I plan to see incremental increases to my income next year that should help with this but also hope to add a few extra dollars every month from my writing side hustle. It won’t be big money but every little dollar helps as all of it(aside from taxes) will go into savings!
It’s clear to see where most of my money goes and that’s towards my rent and my car.
I live in an expensive state and choose to live in one of the nicer towns in the area since it affords me a lot of benefits like safety, good access to parks and walking trials and a solid commute.
That means my expenses on that end are a bit higher than I’d like but the reality is that apartment costs in my area; even in questionable areas that aren’t an hour away from work are a good deal north of $1000 so it’s hard to find anything super affordable. Also note that this percentage includes my g/f’s contribution to the rent so I’m not even paying full boat here and it’s still that high!
I’m starting to consider purchasing a home and that may an idea that gains steam in 2017. That doesn’t necessarily mean lower expenses for rent and I’ll also have to buff up my home savings fund(which I’ll track as a separate expense like short term savings) but it would be a big change in my life and is worth mentioning.
My car expenses are also surprisingly high and are a function of extra payments towards my loan to get that paid off faster.
It’s a low interest rate so it doesn’t really hurt me to make the minimum payments but I’d like the advantage of the extra cash flow if I can get it. There’s also mental benefit of knowing you have no debt that I like. I’ve thought about using some of my cash to pay off the loan right now but I’d rather have the safety buffer of cash on the side and would prefer not to dip into my home savings either with a potential house purchase on the way.
I’m still about two years away from the loan being gone but more than a year ahead of the 5 year loan schedule so hopefully I’ll get that paid off by 2018 and gain the extra cash flow by then. The costs also include any routine maintenance as well as car insurance.
It certainly costs more to buy a brand new car even if it’s not a high end model(Subary Legacy for me – base model!).
It’s definitely cheaper to get a lightly used one and that’s something I may consider with my next car although I hope this one last me for some time so that the next car purchase is way, way in my future. I’m the type of person to drive something until it’s not worth driving anymore so I don’t plan to buy a new car anytime soon if I can help it. I do like some of the benefits of new car ownership like the stress free years where the warranty is still in place and the potential for a longer lifespan. I am glad to have chosen a car that has a good resale value as well so that was something I considered when I bought the car brand new.
Gifts/Short term savings are next in line. A large portion of that is savings I had to make for quarterly tax payments for my 2016 stock sales and that won’t be a problem in 2017 although that area might get replaced with savings towards a down payment for a home.
On the gift side, I don’t mind giving gifts to my family and girlfriend, they’re certainly worth spending money. I am lucky enough to be surrounded by people who don’t require super expensive gifts to exist so I’m not breaking the bank here.
I also spend a decent amount of money on food whether it comes to groceries or restaurants.
I did make an effort to cut out Whole Foods as an expense early in the year and moved all of my grocery shopping to Trader Joe’s which I found saves me a ton of money.
Whole Foods does have some cool items but their prices on the basic items are far too high and while I’ll still drop in there every once in a while; it’s no longer a weekly visit like it once was.
I find that Trader Joe’s has food that’s almost as high in quality but it is much much cheaper. I’ve also heard good things about what’s happening at Aldi recently and may check that out to see if there’s any potential to reduce my budget there.
I do however like doing all my shopping at one store as it saves me time even if it’s not the most cost efficient way to go about it. I don’t plan to chop down my grocery budget heavily as I feel it’s important to buy high quality food. I’ve mentioned before that I have a specific diet that I try to stick to due to some medical conditions and if health is important to you(and it should be) then you don’t want to skimp on food quality.
I will say that living with a girlfriend is very helpful in splitting costs as beyond helping with rent, she does help with groceries about half the time and that’s really helpful on the savings rate side by limiting those expenses. Any time you can split costs with someone, it’s probably worth doing.
I also love good food so I generally go out about once a week and try a nice restaurant with my girlfriend.
I guess you could say I’m a foodie and I totally believe the money spent there is worth it since some of the most memorable moments in my life are great meals with friends and family I’ve had at restaurants. One of the best experiences in the last year was a meal at Blue Hill at Stone Barns and I’m planning on checking out some of the Michelin star restaurants in NYC whenever I can get out there.
Yes, it’s expensive and yes it’s not worth it to some people but to me; it’s worth every penny. I did find myself going out a bit less and eating in more towards the end of the year but that’s more of a function of winter than anything else as getting outside when it’s below freezing and dark at 5pm is a hassle during those weekends.
The one good thing about my love of food is that I’ve become a bit of a food snob which means I don’t spend a ton of money on lunch or coffee or anything small and would rather save my restaurant choices to one high quality meal. I do make sure not to go out too often either as I want it to be a special event rather than something I do every night plus it allows me more chances to cook and make food at home which I also enjoy. I make sure to eat breakfast at home, bring lunch to work and eat dinner at home almost every night besides the few times we go out a month.
There’s not a lot to say on the other expenses. I had some medical tests done this year towards the end of the year that spiked my personal health expenses. I spent a bit more than expected on my pet due to an emergency vet visit or two and was surprised by how much I spend on my internet/phone category but there aren’t many options on the internet side here and I spend a ton of time on the net so I want to make sure I get great speeds.
Parking is high because I work in a city and have to pay for parking in a garage. The annoying thing I found out with my first paycheck is that my bi-weekly payment for parking increased about 14% this year which is quite annoying and makes me wish I could work at home.
Travel expenses were low this year as I really only took one vacation although some of the restaurant expenses happened during that trip so it’s a mixed category. This area may be higher in 2017.
Entertainment was low as I generally don’t spend a ton on that area as most of my hobbies like writing, hiking or gaming(board games and video games) are free or cheap and/or involve the internet. I do spend some money seeing movies and plays and musicals or doing fun things with friends like puzzle rooms but those expenses are generally relatively low when it comes to my overall spend.
All in all, I’m not surprised with what I see in the year end wrap up of expenses. I do think I spend a bit too much on rent and my car and am considering a home purchase if it makes sense financially. My high car expenses will mostly be an issue for another year and a half at most and the cash flow I get from removing payments then will help me increase my savings rate going forward.
I do think there’s some chances to limit spending in certain areas but I want to make sure that I’m still living the life I enjoy while going through this journey which is why I’ll likely try to attack improving my savings rate by improving income(raises, side hustles) rather than cutting spending to the bone.
I don’t believe my spending is excessive but I do certainly have some relatively expensive tastes when it comes to food, groceries, my car and where I choose to live but I think those things are important. I want to live in a safe location, want to drive a safe comfortable car and want to eat high quality healthy and well-prepared food and I don’t want to skimp on that in order to retire earlier. The point of this journey is to allow me to live a similar or higher quality of life after I choose to stop working and it doesn’t make sense to me to limit myself now in order to enjoy these things later. I want to enjoy them now and enjoy them later even if it means working a bit more.
It was a good year and I’m glad to have all this information to set a baseline for the future.
Portfolio growth was awesome! It was great to see a combination of contribution and market growth drive an 80k+ increase in portfolio size.
Steve my dividend employee got to work and earned over $7000 in dividends for the year with more to come next year.
My savings rate wasn’t where I wanted it to be but it was respectable and I know I can improve upon it going forward. I already have plans for 2017 to do just that by improving my income and trying my hand at a side hustle(self-publishing) that will hopefully boost my savings rate a bit.
I’m more motivated now in regards to this journey than I ever was and hope 2016 is just the start of something great for both my portfolio and myself as well. I hope your 2016 was just as good as mine for both your portfolio and personal growth.
Thanks for reading! 2017 goals are up next as well as the first post about my side-hustle which will set a baseline of what my December earnings looked like before I started writing again that month and publishing again this month.