2011 Mid-Year Review: Personal Finance Goals was written on July 15, 2011. I’m revisiting the post on April 6, 2021, almost 10 years later. It’s been great to update old articles during the pandemic and clea things up.
We all need good personal finances. It’s easy to lose discipline as the year goes on, just like it’s easy to eat a lot of cheeseburgers after the initial health foray. My personal finance philosophies are very straightforward: 1) save as much as you can without crimping your lifestyle, 2) take advantage of all company retirement programs and matches, 3) build wealth by increasing income rather than just cutting costs, 4) never rely on anybody else or the government for a handout and 5) make personal finances fun while giving some of it away.
When I read stories about 55 years olds having difficulty making ends meet because their 99 weeks of unemployment insurance has run out, it bums me out. But, I also scratch my head because after 33 years of saving and investing, we should all be on the beach somewhere without a financial care!
Saving just $10,000 a year on average over 33 years means you’ll have at least a million bucks saved up if you returned the same rate of the overall stock market in that time frame. Hence, I’m wondering if many folks are just understating their income by hundreds of thousands or even millions of dollars just to take advantage of government benefits. I know one of my friends is.
Not saving and investing over your working life is completely irrational. Depending on government promises to take care of you is also completely irrational. Have you not observed all the corruption, greed, thievery and power-tripping our great leaders have shown over the decades? The government can’t even manage its own finances, how does it expect to help us out. We need to take care of ourselves.
2011 Mid-Year Review: Personal Finance Goals
Take more financial risks
I’ve never been much of a financial risk taker partially because I’m easily satisfied with whatever I make, and partially because I’m too chicken to lose hundreds of thousands of dollars. Although things have recovered, it was disconcerting to observe so much wealth destruction in 2008. The pain of losing $100,000 is at least 2X the pleasure of making $100,000. I haven’t decided whether to open up a new trading account to punt the market with, or buy another vacation or rental property. Maybe I could turn $100,000 into a million bucks and surpass one of my goals from last year? Or maybe I’ll lose $50,000 of it and become an alcoholic for a week. I’m looking to invest in another private company, so if you know of any promising ones out there who need capital, let me know.
I’ve been 100% long the financial markets all year until I cut my equities holdings down to 30% on May 1 after being up 11%. You know from my Twitter stream and various posts that I’ve been bullish for a while now, but a 11% ramp after 4 months was too much of a good thing. On June 13, I raised my equity weighting back to 70%, which is where it will probably stay for the rest of the year. I don’t have a good sense for the markets now after the rally. But, I do know there is one fantastic bubble here in the Bay Area with all the social media and gaming companies going public for extraordinary valuations. The money is flowing in hot and heavy and people have learned from the dotcom bust by quickly diversifying into real estate and stable value investments. Equity investments is roughly 35% of my net worth and the rest is spread between CDs and real estate.
I haven’t taken as much financial risk as I would have liked. The reason is I’m comfortable with a guaranteed 4% return on my cash and I’m just too afraid to speculate anymore. After you get to a certain point, it’s really about capital preservation and creating a steady flow of income. For example, 4% on $100,000 isn’t much, but if you can get 4% guaranteed on a couple million, that’s $80,000 a year risk free and you won’t want to risk that nut as much as if you only had $100,000. The unemployment picture is still murky, and I’m surprised the unemployment rate is still above 9%. I don’t see the S&P500 gaining more than 10% for the year, and I’m there already.
I do have a project on Yakezie.com that will cost me tens of thousands of dollars if I so choose to build. That’s a big risk, since I’ve never spent that much money on an entrepreneurial endeavor before. However, every stock position and private equity position I’ve ever invested in is larger, so perhaps I’m over-thinking things. I should believe in the investment in me, yet I undeniably have my doubts.
2011 Mid-Year Review: Personal Finance Goals update 2021: I wish I took more risk. I’ve just seen too many bear markets and tragedies.
2) Get rid of excess and maintain living expenses.
I’m keenly aware of lifestyle inflation. This is the problem with hanging out with wealthier people, or simply older people for that matter. I’m joining an expensive tennis club and now I’m getting pitched to join this resorts vacation program which costs $130,000 and “only” $10,000 a year for 10 days in any one of their “400 multi-million dollar residences” around the world. That’s the cheap package! If I want 30 days of usage a year, it costs $300,000 and $30,000 a year to join. At least they give you 70% equity. Ummm, no. Stop spending money like Snoop Dogg and simplify life. Break free from things and reduce, reduce, reduce.
One of the greatest challenges will be to remain frugal, but not cheap with friends who are wealthy. The strategy I’ve come up with is to simply spend money on them so they have nothing to say about the way I live. Coffee, lunch, tennis balls, golf balls, dinner whatever… they’re all on me rich buddy. Please, just don’t call me cheap.
I’ve gone to Goodwill 9 times this year, 5 of which was to help donate stuff from my parent’s house. It felt great getting rid of my things and their things. Although, sometimes it was hard to donate from my parent’s heap because of the memories they’ve associated with their items. We saved all the good stuff, like the Kodak slides from the 1950s. But, I found tons of clothes my father had bought 25 years ago which haven’t been used since!
I didn’t join the “Exclusive Resorts” vacation membership program for a crazy $100,000 initiation fee. I haven’t bought anything extraneous, except for several retro Nike basketball and tennis shoes I’ve wanted since I was a kid but could not afford. My biggest expenditure this year was on the $10,000 tennis club membership fee, which was a fair decision in hindsight due to the friends and client relationships I’ve built in the past 6 months. The most expensive purchase this year were a couple tennis rackets that cost about $400. Not bad, since I play 2-4X a week. I’ve spent a lot of necessary money building a business, which feels very rewarding.
My rich friend who called me cheap now calls me frugal, which is nice. I think he could tell from my face that morning his words bothered me and made a conscientious effort to change. Seriously, not many can keep up with his lifestyle, multi-million dollar vacation property in the South of France, 60 acre vineyard in Napa Valley with a tennis court and so forth. But, I do kick his ass in tennis, so that’s cool with me.
2) Save at least 60% of my gross income after maxing out my 401K.
This goal will be on my list every year until I retire. Everything is pretty much automated as I save one paycheck and 90%+ of my year end bonus if I receive one. If for one instance I feel that saving this amount crimps my lifestyle, I will allow myself to spend more by saving 50%. Thankfully, good personal finance is quite basic and logical, which is why I try and write about all the fun things around personal finances instead. Hope you guys feel the same way about personal finance, so we can address some more interesting topics this year.
I’ve continued to save 100% of every other paycheck that I get. If I did nothing else, that’s saving 50% of my after tax income right there. As for the other paycheck, sometimes I save 20-35% of it, sometimes I spend it all. So mathematically, I will save at least 60% of my after tax salary this year. And, if the world doesn’t fall a part, I will receive and save at least 80% of my after tax bonus this year, which will therefore result in 70%+ overall savings for 2011.
Year to date, I haven’t felt that my savings habit has crimped my lifestyle yet. I generally have an excess buffer of 10% most of the time which I save or invest. I haven’t bought many things. Instead, all the big ticket items have gone to experiences and lifestyle: round trip tickets to Hawaii and Rio, tennis club membership, adventures during vacation and so forth while at the same time I’m de-cluttering. With the excess buffer, I’m using it towards a two week Mediterranean cruise I’m planning this fall.
Why hasn’t lifestyle inflation really grabbed a hold of me I don’t know. If you ex out my primary residence, I’m basically living the way I was 7-8 years ago, when I was making 50-60% less. At the same time, I still feel I should live it up more. Do I really have to drive a 11 year old car that leaks and rattles? Can I really not take a 10 minute cab ride home after a late evening of tennis instead of a 30 minute long bus ride? Can I really not spend $400 on an luxurious pair of work shoes that will last forever, and a new LED TV since the bulbs are burning out in my 7 year old projection LCD TV? I should feel able to, but I don’t because I still feel bad and have a propensity to use things until they completely break.
Associating with personal finance bloggers has instilled more frugality in me than normal, and that’s a good thing. However, there’s really no point making money if you don’t spend it on things you enjoy. Hoarding cash is a pretty pointless endeavor after a certain amount. Perhaps I don’t want to spend more because I want to retire early and I know this income is somewhat of an anomaly and therefore won’t last forever. That said, I firmly believe all of us here will die with too much money.
2011 Mid-Year Review: New Mid-Year Goals
* Accelerate a rental property mortgage payoff. At 4%, my SF rental property mortgage is my highest debt interest rate. It’s not high by historical standards, but it’s still 2.4% higher than the best 5 and 7 year CD yields now. Everything is relative, and it’s important to arb the spreads. Given my risk free return goal is 4%, I will add an extra $2,000-$5,000 a month in principal as long as the 10-year yield and 5-7 year CD rates are below 4%. I will slowly pay the rental mortgage off by 2017, which would be 16 years early on a 30-year amortizing loan. It doesn’t make sense to pay if all off tomorrow because it’s important to match cash flows and have liquidity for good opportunities.
* Look to buy rental property in Wyoming, Nevada, or Washington. Although Hawaii is nice, I need to really start looking at some distressed properties in these three livable no income tax states. When I retire, I don’t want my passive and online income to be taxed 10% a year by the state of California. Hawaii has 8.5% state tax, and I want to have the option of having residency either in Hawaii or one of the three no-income tax states, depending on the size of my income. The larger the income, the more worth it it is to be a Washington resident.
I truly believe in building a portfolio of cash flow positive real assets. 10-20 years down the line, there’s nothing better than having a paid off mortgage, a property manager who does all the work, and a recurring income on a more than likely highly appreciated asset. As a result, I’ve invested heavily in real estate crowdfunding across America.
2011 Mid-Year Review: Personal Finance Goals Conclusion
Everything is pretty much on auto-pilot, which makes things kind of boring. I can predict what my liquid net worth will be 12 months from now within a +/- 10% range if I still have a job, which is kind of why I want to take more risks! Daydreaming has helped liven up personal finances at times. I like to drive to the most expensive part of town and go for a jog to get inspired.
I love stopping by any car dealer and pretend I’m about to waste money by getting behind the wheel and inhaling the new car smell. I get excited when readers e-mail in asking for help, as one reader did about a father who was afraid to lose his disability payments if he sold trees on his land. We found a solution, and the father is going to be just fine!
I’d like for more readers to mail in some serious questions that are hard to answer. Try and stump me if you will because we’ve been slicing through money’s mysteries for a while now. It’s fun to use the community here to find the best answer. Thousands of heads are definitely better than just one!
Passive Income X Factor – Starting A Website
It’s been over 12 years since I started Financial Samurai and I’m actually earning a good passive income stream online. The top 1% of all posts on Financial Samurai generates 31% of all traffic. The average age of the top 1% posts is 2.3 years old. In other words, after putting in the hours to write some very meaty content over two years ago, 10 posts consistently generate a monthly recurring income stream that’s completely passive.
I never thought I’d be able to quit my job in 2012 just three years after starting Financial Samurai. But by starting one financial crisis day in 2009, Financial Samurai actually makes more than my entire passive income total that took 15 years to build. If you enjoy writing, connecting with people online, and enjoying more freedom, see how you can set up a WordPress blog in 15 minutes with Bluehost. It’s cheap and easy to start!
Photo: Stray dog under a bridge in the middle of China by Sam.