How We Increased Our Net Worth by $86,000.00 in Ten Months
Quarter 1 of 2018 Update – Day 2763…….264 days in.
No. That is not a typo…that’s the number. $86,000.00. I was in disbelief myself when I did the calculations. I believe I actually said, out loud, Holy Smokes Batman!!!
Now before I get into the meat of how we accomplished this almost supernatural feat….Let me say this, it is NOT lost on me, read that gain…it is NOT lost on me, that that number is more than a huge chunk of Americans (the world really) makes in a year. I absolutely do not take for granted that my husband and I are very fortunate to have incomes that put us pretty high up there on the income scale. I also recognize that, even before we factor in our incomes, we start out in a place of privilege and opportunity. I do not, however, feel guilty about what we earn. We have both worked our butts off to get here. Both of us come from very simple beginnings and what we have accomplished in our careers was accomplished through our own blood, sweat and tears (Not so much blood, but some sweat, and a LOT of tears).
I also, STILL, believe in the American Dream (but that’s a soapbox for another day).
….You’re still here? I haven’t lost you yet? Good, because I firmly believe the lessons we have learned on this journey to Financial Independence are for EVERYONE, irrespective of incomes. It’s more about YOUR income, the percentage of YOUR income that goes to debt service and the percentage of YOUR income that goes towards savings for retirement.
When I first found the FIRE (Financial Independence/Retire Early) community last March we were drowning in debt, mostly due to our student loans. Ironically, we had been Dave Ramsey fans for years. I even led Financial Peace for many of those years. The problem was our student loans were so large (think several hundred thousand dollars large) and it was taking so long to make any significant gains – that over the years we lost motivation and the life-style creep came back. We also had not saved anything because if we were following the “Baby Steps” we could not move on to savings until we paid off our debt. We became discouraged. The older we got with NO retirement, the more anxiety we both had about what our future was going to look like. Finding the FIRE community gave us hope when we had none. Whereas before, we were resigned to die with our student loans, we now had HOPE that we could not only pay them off, but save for retirement at the same time. HOPE. Hope and a PLAN work magically together.
What was different? Dave Ramsey’s principles are sound – but as I have discussed before, they are also not perfect, nor do his principles translate to every situation. Ours included. We were middle-aged with no retirement and debt in the six digits, several times over. What finally clicked for me was that, given our situation, it was OK to save AND pay down debt at the same time. It was also possible to increase our percentage of savings significantly – far more than most Americans – and still live happy fulfilled lives.
Hearing from others who had a savings rate of 30%, 40%, 50% and some even more than that, not only intrigued me, but it inspired me.
Now that we were inspired and FIRE-ed up, we began drafting a plan.
We started by evaluating where we were, then focused on areas we could cut expenses DRAMATICALLY, then looked at how we could increase our savings, and, finally, discussed ways we could increase our incomes.
If you want to change your circumstances as well, look to these three areas: expenses, savings and income.
One of the best ways to immediately create more cash flow is to see where you can trim your discretionary spending. The following are some common areas you can find savings.
- Food budget
- Eating out
- This includes COFFEE! I grind my own beans daily and its AMAZE-BALLS!
- Transportation expenses
- Insurance (can you get your rates lowered, do you need to shop around?)
- Cutting cable
- Bottled water/water delivery service
- Cell phone plans
- Kids extra-curricular activities (The buggers will live. Put them in something that doesn’t costa a small fortune. Remember, it’s temporary.)
- Gym memberships
- Personal services (hair, nails etcs..)
- Reducing housing/utility expenses
With some of this savings, you should be fiercely paying off your consumer debt as quickly as possible. Once paid off, the amount you were previously spending on debt service can now be allocated to savings.
With the reduction in many of the above expenses for our household, as well as paying off several lines of credit and one of our cars, in ten months we were able to reduce our monthly expenses by $3,300.00.
This reduction in spending allowed us to not only make significant progress in paying down our debt, but also, increase our savings significantly.
From May of 2017 to the end of March, 2018, we reduced our total debt by, $25, 351.89.
One of the pitfalls of living paycheck to paycheck and spending everything you earn, is that when someone tells you that you need to save money, your brain says, “I can’t afford it.” And when you believe you cannot afford it – you remain stuck.
Believe it when I tell you this is a false mind-set. You CAN afford to save money. In fact, putting money into retirement is the FIRST thing you need to do, before you spend what you earn.
After cutting our expenses significantly. Curtis and I decided to test the above principle to see if we could still afford to pay our bills if we maxed out our retirement. Can you guess what we found out? We absolutely COULD afford it. We still had enough money to pay our mortgage, feed our family of 8 AND put extra towards debt. It was almost like magic. I am still not entirely sure how the math worked, but it did.
The best way to put money into retirement is to make it automatic. Either, set it up to take it out of your paycheck or set up automatic withdrawals with the investment provider you have chosen. That way, it is done and you don’t even need to think about it.
What Curt and I decided was, and it helped calm some of our fears, that in the worst-case scenario, if we could not make the budget work AND max out our retirement accounts, we would reevaluate how much we were saving and reduce it, if absolutely necessary. We have not had to do that.
Following all the above principles, we have increased our retirement accounts by $22,994.57 in just 10 months!
Sometimes, you cut all that you can cut and it’s just not enough to get your savings or debt repayment where you need or want it to be. If that is the case, you have an income problem that must be addressed.
First evaluate – is there any way you can increase your income?
- A side-hustle
- Second job
- Are you due a raise?’
- Can you negotiate a raise?
- Career change
- Position change
Your income is your greatest asset. It can also be a hindrance if it is not sufficient to cover your needs or prepare you for your future.
In this instance, we took my husband’s annual raise and put it into savings – we did not spend it. We intend to do this for every raise from here on out. He also began lunch duty coverage – the school district pays him an extra couple hundred dollars a month and it does not add any hours to his work-day. Also, I began a side-hustle (that will hopefully become a full-time gig) in real estate. The commissions I earn from my real estate business will be used to pay off our debt at a faster pace.
These increases have helped us achieve some of the above numbers, but we have also taken some time to put some of our money into projects that have increased the value of our home.
We do NOT view our home as an investment, but it does factor into our net worth. Could our home value change depending on what the housing market does in our area? Absolutely. Which is another reason why we are very thoughtful about what repairs and improvements we make to our home.
We were very fortunate to have found our home when there was still a slight depression in the San Diego housing market. We also were able to buy a fixer-upper in a really great neighborhood, which was also pretty lucky. (or Divine providence – whichever floats your boat.)
With every repair or upgrade we make to our home, our guiding thought is, “will this increase our home’s value?” Second, we try to do as much of the work as our skill and middle-aged bodies will allow. Finally, we have gotten pretty good at finding really good deals and never paying full price for any of the materials or appliances we have put into the house. Negotiating with contractors has saved us thousands. My mother-in-law used to say, “closed mouths don’t get fed.” If you think a contractor’s bid is too high, ask them to reduce it. Worst they can say is no. But if you don’t ask, you will always miss out on savings.
Since purchasing the home in 2016, a conservative estimate of its current value puts us at about $140,000.00 in equity. (Crazy, right?) If you have the patience to buy a fixer-upper, the sweat equity you put in can reap amazing rewards especially in a seller’s market.
We are mindful of market fluctuations and that we are not guaranteed any of the equity we currently expect to get out of our home, unless and until we sell it (and the market doesn’t crash). But still pretty exciting, nonetheless!!!
The increase in our home’s value since October of last year, makes up the remaining $38,000.00 of our increase in net worth since starting this journey ten months ago.
So, there you have it. That’s how we achieved an increase in our net worth of $86,000.00 (Well, it’s really a reduction in our negative net-worth, but who cares….we are $86,000.00 better off than we were last May and that’s pretty spectacular!).
If you need help budgeting, or want to bounce ideas of how you can increase your net worth, shoot me a message! I am always down to chat finances.
Love and Prosperity,