At the beginning of 2008, I set a series of goals for myself and my family which I clarified and challenge-ified a few months later. Since 2008 is now officially over, its about time that I look back on just how well I rose to the challenge.
My goals for 2008 were as follows:
- Master my own hodgepodge of spreadsheet madness
- Save $10,000 on our Special Savings Goals
- Stay within our family budget for the year
- Earn $100 of additional income on the internet
- Increase our net worth to $40,000
Improve Spreadsheet System
Goal Status: Completed
One of my major tasks over the past month or so has been preparing my new budgeting and financial tracking spreadsheets for 2009. As a result of this I have made some further improvements to my spreadsheets, making them easier to read and generally more useful than ever before. I plan on sharing the latest and greatest sometime very soon with some helpful video posts if I can figure out how to talk in complete, coherent sentences without hours and hours of editing.
Save $10,000 on our Special Savings Goals
Goal Status: Destroyed It
Our savings toward our special savings goals totaled $12569.68 – an impressive 25.7% over our stated goal. This saving has really helped our financial outlook. We currently have 6 months of living expenses saved, over $5500.00 for a new car, and enough cash to fully finance ~1/2 a year of my graduate education which we expect to begin sometime in the Fall of 2009. This saving trend is definitely something that we want to continue throughout 2009.
Stay within our family budget for the year
Goal Status: Completed
Even before my family moved and reduced our monthly expenses by over $900 we were well on our way to achieving this goal. In the end, we came in over $3,400 under budget for the year. I am happy with this.
Earn $100 of additional income on the internet
Goal Status: Epic Win
By the end of 2008 we have received $799.51 from online sources. This has come mostly from ventures other than My Family’s Money and has come primarily through Google’s Adsense program. Making money online is a lot harder than I at first expected back in January 2009 and I have learned a lot about it since then. Looking back on things, I could have earned a lot more in 2008 if I had known back then what I know now.
Increase our net worth to $40,000
Goal Status: Epic Failure
This was a goal that I knew was going to be a huge stretch for me and my wife when I set it last year. I took a look at our projected annualized expenses and compared it to our projected annualized income and I saw that we were going to come up short by a significant margin. Things didn’t turn out as bleakly as I had at first predicted, but we still fell short of this goal by $6,272 (15.68%). This is much better than I had predicted, but still not close enough to the goal to be considered anything close to success. In the end though, I am glad I shot high.
Accomplishing 4 out of my 5 goals makes me feel like 2008 was a financial success and I am planning to make 2009 just as good.
In thinking about how to make my Net Worth updates more meaningful for myself and for you, the reader, I have been able to take a step back and analyze the reasons behind my desire to track my net worth in the first place. What I discovered is that I am not really concerned with my net worth per se, but am instead interested in the financial freedom that living off interest, dividend payments, and other forms of passive income affords. Having a sufficiently high net worth is simply the side effect of pursuing this goal.
Traditional net worth updates where I tell all about how well my wife, son, and I are saving are simply not that useful in communicating to myself how close I am to being able to live off interest payments, dividends, stock sales, and other “passive” income streams (like making money online or real estate). Traditional net worth updates have become boring.
In light of this realization, I have put together something that may or may not be useful in communicating how close I am to focusing less on earning money for food and more on accomplishing the things I want to accomplish. It is a synthesis of my family’s current ratio (an idea that Jacob from Early Retirement Extreme turned me on to), the more traditional net worth update, and a “passive” income statement. I call this synthesis … Retire Worth … muhaha, it’s alive!
I will probably be working out the kinks on my equation and assumptions as I go along, so any input would be greatly appreciated.
What Is Retire Worth?
I’m by no means a numbers wizard so I am really flying by the seat of my pants on this one. I have come up with about 4 5 different ideas that I summarily shot down because they were lame or didn’t mean anything until I landed with this one (and it might not even be that good under the scrutiny of those that know more than I).
Retire Worth relies heavily on the principles of the current ratio, a financial ratio that helps determine how secure a company is in the short term by taking the current assets of a company and dividing them by the liabilities that a company must pay over the next 12 months. The current ratio looks like this.
My Retire Worth Equation looks something like this:
Without getting too much into the details, here is a brief definition of what the different categories mean:
- Total Assets – The total amount of my assets minus any assets that produce income
- MExpenses - This is how much my wife and I need to survive
- MIncome - The amount of money that we earn on a monthly basis through “passive” means
Once I plug in my values, I compare the number generated by the equation to my predetermined Retire Worth early retirement number (calculated by taking 110, subtracting your current age, and then multiplying by 12). If the number generated by the equation is equal to or greater than my early retirement number – which is 1008 – than I am officially financially free and capable of early retirement (i.e. not working to eat food)!
I’ll definitely explain this equation in more detail later, but I would love to hear if anyone has any questions or comments on it before I get too far into it. Go ahead, fire away, I’m listening.
2008 has been a pretty good year for me and my family. We haven’t had any major financial problems, despite the complete failure of one of our vehicles and our decision to have my wife stop working to stay at home with our son.
The main reason none of these decisions has severely impacted our financial health is that we have taken some proactive steps to prevent them from being able to. We have learned to live on one vehicle (I now commute to and from work by bike) and we moved temporarily in with a relative until we move to go graduate school. We are extremely fortunate that these options were available to us as they have significantly reduced expenses and saved us a lot of money.
As a result of a naturally high savings rate and these life-style changes we have grown our cash reserves from $15,692 at the end of December 2007 to ~$28,000 today.
Unfortunately, interest rates are nothing like they were a year ago. Rates in my WaMu savings account were above 5% APY in December of last year. The last time that I checked they have fallen to a wimpy 1.5% APY. Oh, how interest rate cuts affect those who horde cash in their bank accounts!
The prospect of earning ~$420 next year for my $28,000 in the bank is not something I look forward to considering that this year (2008) I have already earned well over $600 in interest payments. I need to find a better way to make my cash work for me and my family’s financial goals.
It might be useful to comment on how this $28,000 is allocated before I get to far into explaining my options:
| $13,200 |
6 Months worth of emergency cash |
| $11,450 |
In cash for use in the next 12 months for various planned expenses |
| $3,500 |
Tuition for graduate school |
|
Total: $28,150 |
Nearly 100.00% of this cash is ear marked for use in the next 12 months and needs to be kept highly liquid in case of an emergency. For that, I probably need a high yield savings account that actually gives me back some interest for socking my cash in it.
Let the high-yield-savings-account or CD-laddering adventure begin.
Step 0 (Optional but highly recommended) – Exercise vigorously for 30-45 minutes.
Step 1 – Get into the bathroom, get naked, get into the shower.
Step 2 – Turn on the shower as hot as you can.
Step 3 – Wet hair once the water is warm enough. (40 seconds)
Step 4 – Once hair is wet, turn off shower.
Step 5 – Shampoo.
Step 6 – Turn on shower to rinse hands off – make sure the rest of your body is sufficiently wet. (5 seconds)
Step 7 – Turn off shower.
Step 8 – Lather with soap – bar or liquid works fine.
Step 9 – Turn on shower to rinse hair first, then body. (45 seconds)
Step 10 – Turn off shower and dry off. Bask in your economic and ecological efficiency.
I shower just like this roughly 5 times a week and I have come to really enjoy this type of shower. Sure, I still take the occassional ten minute shower on a Sunday morning – but by taking a shower in just 1:30 I am saving tons of water that I would normally use for “comfort.”
“Comfort” is not really a valid excuse for waste, especially when the comfort provided via a 10 minute shower is not that much greater than that provided by a 1:30 minute shower. I can do something better with the $0.89 I save each week.