This is something that I recommend to everybody trying to do better financially regardless of where you are at in your financial journey.
Every year I make sure that I take the time to set up financial goals; realistic ones! Based on what I know, meaning my incipient financial literacy, and what I have experienced in terms of my investments’ performance I start each year setting some new expectations for the new year.
Last year, just like the previous years, I surpassed my goals, which is totally fine and it actually boosted my confidence. With that said, I still keep myself grounded and continue to base my expectations on my real numbers.
Last year was truly exceptional with a 67% net worth increase. Part of that increase was a 50K legal settlement, but even without that windfall the increase would have been 48%, which is still amazing. Especially for a household of 2 adults and 4 kids living on one teacher’s income.
For this year this is how I see things going down…
First, I start with a very broad and general appreciation of 3% of the total amount of our real estate assets, including the home we live in. That’s the first big number at $39,300.
Next is our tax return that usually comes at around 10K. I get a lot of deductions because of the 4 kids, and all the morgage interest we pay. I am starting to think about changing my witholdings so that I can invest the money right away instead of loaning it to Uncle Sam for free.
Then, there is the break-down of the rental income. We have two rental properties, and we just bought a vacation rental in Michigan. We are in the process of figuring out how much we could rent it for. It seems like, according to market prices, we could rent it somewhere between $1,800 to $2,300 per week. So, I calculculated the rental income of this properrty at $1,850. We get about 10 weeeks out of the whole summer season and we are planning on using it for 2 weeks. 8 weeks will pay for the mortgage, and even at the lowest rate we should be left with about $900; maybe for unexpected expenses.
Finally from my teacher salary I manage to save $716, which was originally our student loan payment and after paying it off we repurposed the payment into our savings pot/bank. That amounts to $8,592 yearly.
Investments: I haven’t really put much effort into my 403B plan(Same as a 401K) because we have focused more in real estate investing. Why? Because I like the idea of building more cash flow and the leverage you get with real estate investing. My current balance is $74,441 in FSKAX(Fidelity Total Market), VTASX( Vanguard Total Market), FXAIX ( Fidelity SP500), and very little FXNAX(Fidelity Index Bonds). However, I think I am getting to my limit of how much property managing I want to do. From now on, I will use the cash-flow from our rentals to fuel my 403B plan. Once I hit 100K, I will move on to build up a 457 fund, in case I retire early, quit my job and want to access some of the money earlier than 59 1/2.
All this income comes to a total of $84,911, or 20%. This is how much I am hoping to increase my net worth in 2022. I will be more than thrilled if I shattered my goal/prediction like I have done in the last 3 years. We’ll see!
I just realize I have a disparity between my Mint and Personal Capital net worth. Mint shows $412K and Personal Capital $437K. I am not that concern about it. Mint lately has given me a lot of issues synching with Zillow, so I may consider going by my Personal Capital net worth of 437K instead.
If you read this, I hope this gets you excited about the power of getting a hold of your finances. The hardest thing is getting to the point of starting, committing and wanting to do it. Once you start everything falls into place.
If you have any question or I can be of any help I will be more than happy to share ideas with you for free. Just drop a comment below.
Well, I have been away for quite some time but the family keeps me busy. Having 4 kids at home in the summer is not an easy task and my wife couldn’t do it all by herself, as well as it wouldn’t be fair.
My family and the summer have kept me away from the keyboard but I am still chugging along on the FI road; I can’t believe the year is already over the June hump. Many times I find myself wishing time to pass by quick just because I am thinking of all our financial milestones I will hit on the way but I am trying to correct that mindset; time is our most valuable asset after all.
Anyway, I will give you my net worth update and then add few more personal things in a separate section so you don’t have to read it if you don’t want to.
A Picture is worth more than a thousand words?
Well, not many thousands here but at least some. Here is where we are at and significantly better than a few years back:
It may seem like not much for many people but this really blows my mind. All the way unitl 2017 we were living from paycheck to paycheck, paying down credit cards and bills, gasping for the next tax return to pour it into our credit card balance and pretend to be out of debt for few months or weeks…
Now we have managed to be credit card debt-free through the whole 2018 year and 2019. No debt other than our mortgages and the pesky student loan we are battling.
Still from paycheck to paycheck
We are still from paycheck to paycheck with the exception that now our money doesn’t go to somebody else’s pocket as soon as I get paid but rather to ourselves. We are trying to always pay ourselves first. What do I mean by that? Well, we are easily having extra $800 each month after paying all our bills, but instead of using that extra money to eat out more or buy more things we are taking it straight to the most pesky debt we have, which is our 22K student loan. We have managed to pay almost have of it between last year and this year and hope to be done by 2021. Each month, religiously we take $300 out of my first paycheck and $416 from my second paycheck. Usually we save them up for a couple of months and then dump all that money on the student loan balance. That way the money saved up can be partially emergency fund.
The current balance of the student loan is 11K. By continuing making the same payment the balance should come down to about 8K. I am not that concerned about the interest we are paying; it used to be 6.5% but we lowered it to 4.75% by taking a home equity loan against our rental property.
In the worst case scenario our tax returns are usually around 10K, which should be more than enough to completely pay off this loan and remove those $716 from the debt ledger and potentially go back to fund my 403B.
One of the key factors to position yourself in a good financial situation is to minimize your spending and maximize your earnings as much as possible. Widening the gap between income and expenses will pave your way to FI.
If you make a lot of money but you spend just as much as you earn, your net worth will go nowhere.
In the case of teachers the opportunities to maximize earnings are not quite as easy and usually require extra credit hours at an approved college or institution.
In my case, this year I was able to max out my salary after taking 8 credit hours of coursework. The investment was $900, but this small investment will bump up my salary for almost 6K, leaving me a couple of thousands short of the magic 100K! Woot -woot!
We will be enjoying some new savings once I start my school year. We finally decided to switch from PPO health insurance to HMO. The difference is about half price. I used to pay $220 bi-weekly(went up to $280) and now I’ll be paying only $122 per paycheck to cover my whole family of six people.
My car insurance used to be $100 and I was able to slash it down to $48 eliminating things I really didn’t need such as coverage for my car in case of collision with an under insured motorist a fault. I did this because I really don’t care about fixing my car in case of collision. It would be cheaper to buy another used car.
I also had some supplement health insurance in case of a collision with an under insured motorist at fault, which supposedly would cover medical expenses. My regular health insurance would be enough to cover hospitalization expenses, so I got rid of that.
I am estimating about $4K savings in health insurance and about $624 in car insurance, which I will most likely allocate to pay off our student loan.
The biggest optimization
Almost 4 years ago my wife and I took the biggest leap of faith trying to get out of the neighborhood we were in. If you have read some of my other posts you may know the story. We had to make a choice between selling our house and pocket maybe 5K after owning this house for about 12 years or rent it out for at least a year and make more than that with a positive cashflow of $500 per month.
So we moved out to an awesome area and became landlords. We have rented our first home to the same tenant for 42 months. We were scared to death at first because the only calls we could get were Section 8 recipients and we have heard horrible stories about Section 8 tenants. We had no option. We screened our tenant the best we possibly could and it was overall a pretty good run. The only hic-cup was a rent increase moratorium imposed by Section 8 to landlords due to funds cuts.
We weren’t able to increase our rent for almost 4 years and we were opting for the security of having a tenant that was always on time with the rent at the expense of some more income. However, nothing is forever and this summer I received the infamous call from my tenant explaining that after getting married she would no longer qualify to receive assistance. According to the tenant they couldn’t afford rent even when I didn’t increase it for almost 4 years.
Luckily I put a lot of effort on building an emergency fund that would cover a potential vacancy and repairs. As they started looking for a new place I also started to look for a new tenant. In the process I realized that rent has simply skyrocketed in the area. According to my area rental market I should be able to collect about $500 extra a month, which would leave me with a positive cash-flow of about $850 monthly. From 3.7K annually we were getting, now we will go to 9.9K!
Unfortunately, my tenant changed her mind and decided they wanted to stay with me after realizing they couldn’t find anything cheaper. Sadly, I had to say no. That sent things in a down spiral of nastiness and rudeness but at the end things worked out and she is willingly moving out after a few threats of evicting her. I felt sorry for the family but I can’t subsidize housing for someone who thinks that honeymooning in the Bahamas and going to Disney is more important than affording housing for her family.
This is a huge move for our family! We plan to use all those savings to continue investing and paying off the mortgage of this rental before we invest in another property.
This summer was outstanding. We took a a trip to northern Michigan to bask in the sun and enjoy the unsalted, free-shark waters. We took our camper (used) up there and spent about ten days enjoying each other’s company. I have not calculated the total cost of the trip but I am estimating close to $1000 including gas, food, ice cream and a few eating outs with the fam. We did lots of biking, kayaking, hiking, paddle boarding, fishing, etc. Most of the things for free except for our ice cream nights which ran for about $24 for a family of six people; totally worth it!
In the next two weeks the whole situation with our rental should unfold. Old tenant moving out, new one moving in, Section 8 inspection, and sometime in between I will need to lay down 600 Sq Ft of laminated flooring to replace the rental’s beaten up carpet.
Wish me luck!
Found this awesome Traffic Master floor for $0.49 at Home Depot
In the meantime, I just sewed a couple of holes in my old work shoes and I am just ready to start a brand new school year. I would love to squeeze another year out of my old Sketchers 🙂 My older kids don’t stop saying “why don’t you just buy yourself some brand-new shoes?” They don’t get it yet.
Saving my shoes for another year of rumbling at school
I would love to hear about your summer. How are your financial goals for the year panning out? Are you hitting your financial milestones?
Ohh cars! You gotta love them. How not to? They are such an art! They are designed with such ingenuity. They represent a summary of generations’ hours on end of trial and errors, trying to achieve efficient engines and fuels in order to combust progress and economic growth. Their interiors become every day more and more comfortable, to the point that their seats look more appealing than our couches. They are also loaded with technology that allows you to navigate the radio airwaves or demand phone calls with the command of your voice; as long as you don’t have an accent like mine, that is… a plethora of bells and whistles such as cameras to help your driving, integrated navigation systems so you don’t forget where you grocery shop, heating systems to warm up even the parts of your buddy that never see the sun, safety airbags ready to save your life, and in case you forget to use the brakes they got you covered… Gosh! How not to love them?
Well, unfortunately, it doesn’t matter how much we pay for a brand new car and how new it is, the fact is that it will break down sooner or later. Having a brand new car is no guarantee that it won’t break down, or even worse that it won’t be involved in some sort of collision where you may total your investment and get just a fraction of its cost after the insurance company makes the depreciation calculation. Now, that might be the argument for some people to go ahead and purchase a brand new vehicle and enjoy the perks of a warranty for the first two years or so, plus a hefty insurance policy, just in case.
However, when you calculate the number of hours of work you must invest, and consequently hours of your life, to pay for …what many consider such an investment, you might reconsider your spending.
According to Carfax and similar sources, a brand new car is bound to depreciate 15-20% in the first year of ownership after being driven out of the lot. Twenty percent! To add insult to injury, long gone are the days when you could find a simple car with just the basics. Now with all the bells and whistles that cars are sold with, it is extremely difficult to find a family car for less than $20,000. And once that you are sold into spending $20,000 in a vehicle, why not to spend a few more thousands in all the luxury that everybody craves. What difference does it make if your car payment of, let’s say $500 becomes now $550 for some extra safety features or technology “coolness for your ride?” Right? Just a few extra bucks!
About six years ago my family and I were in need of another car (The one we had got a trans problem). Convinced by a good friend of mine we made it to the Toyota dealer. At the time we were interested in a minivan Sienna. The financing, of course, is always a hook; especially when they offer to finance your 30K+ vehicle at 0%. I just couldn’t wrap my head around the idea of paying such a high price and for such a long time. Also, for something that I knew would end up needing car repairs regardless of how much I care for it.
We moved on from the idea of buying new,Â we spent some time thinking about it and came up with the final decision; we were buying used! We spent some time on Craigslist looking around for options and right away we found plenty. We chose a 2005 minivan. It was year 2015, so at the time it was a ten-year-old vehicle. In the pictures, you could see some rust but in general, it looked great. We went to see it and it was solid. There were no noises, oil leaks, rattling underneath or anything like that, and the engine felt very responsive. Needless to say, we made a move. For $2,000 we bought our next car hoping it would last at least two years. I figure, if it lasts 2 years it would cost me about $83 a month. Much less than the car payments of $550 a month that the dealer had offered me previously for a new Sienna.
We have used that car now for 3 years and it’s still running strong. We take it on vacations, to the beach, everywhere. The best of all is that I don’t care if the kids walk in with muddy shoes or sand. If I have to go and buy some wood at the hardware store I am totally comfortable loading up bags of mulch, pavers, cement or whatever I need. If the dog leaves some hair behind after going to the park or beach I can care less. I own the freaking car; the car doesn’t own me emotionally or defines my life. I am paying, after 3 years $55 a month for this car. If I keep it for 2 more years, which I am planning on doing it, the price will come down to $33 a month ($2,000 divided by 60 months).
The best yet is that if I do decide to sell this car, the Kelly Blue Book trade-in value is between $300-700. My guess is that I would be able to sell it privately for $800 to $1,000. Even choosing the worst case scenario of $700 would leave the price of this car at $1,300. After five years of driving it: $1,300 divided by 60 months= $23. How does that look next to any car payment out there?
When I compare our minivan against my Corolla the difference is significant. I bought my Corolla brand new in 2004. It was pretty basic.Â I paid $16,000 for it and paid it for 6 years. Dividing $16,000 by 14 years and 12 months, it comes up to $95 a month even after all these years. I still have that car and it runs great but it is still almost double than what I pay for my used minivan.
I don’t know you but I don’t think I will ever buy a new car again. When the need arises I will buy something that is at least 2 years old. Although I think that a car between 5 to 8 years old would have more potential for some serious savings.
You may feel very apprehensive about buying something used. I understand. I get it. Here is my recommendation to you: First of all don’t get the same ideas that some of my fellow teachers get. Don’t switch cars every 5 years or so. There is absolutely no need for that. That is the biggest waste of Benjamins!
Second, if you are uneasy about buying a used car, just hire a mechanic! How much can it be? $150? Even if it was $300, it is still worth it. You are saving thousands of dollars that will make a great deal of wealth in your 401k/403B.
Third, internalize that cars are disposable. With that said, understand that as you junk them you are also throwing thousands of potential savings. Literally tens of thousands of dollars!
Not too long ago I decided to hire a cable service. More than the cable service itselfÂ we felt that we wanted the security system offered by one of the big companies in the country.
Sure enough we started with a promotional rate in the sixty dollar range and before we knew it we were close to $100. No much later after that, we decided to move and according to the cable company TV commercial you could just call them up and they would move your service at no charge. So we did.
We moved, settled in, and a month later bills started coming in. To my surprise the almost $100 we were paying, now had become $158!!! That was an immediate what that …!!! I called them up and I was informed that when we moved my service from one house to another they had re-initiated my 2 year contract; of course, at their current rate. I was livid! That was $1,896 a year!
Luckily we were able to find another company that bought our contract out, and we went from paying $158 to $35 a month for only internet connection. We added the $10 no-contract Netflix service, and we never looked back. That is 72% savings every month!
Cable is a terrible option to watch anything. You are paying to watch commercials and roam from channel to channel to find nothing. Cable service and cable companies are deceiving predators taking your money ( You may already know it). Always trying to trap you in a cage of small prints and skim your account; don’t let them!Â Just cut it! Save yourself a big chunk of cash!
What would you do with extra $1,300 a year? Put it in your 401K/403B? Pay and extra month on your student loan? Pay an extra month on your mortgage? Remember, once you cut it the savings will be forever.