The Big Scratch – Brainstorming and July 2017 Net Worth Report

These last few months have been consumed with investment property research. I would like to have a larger financial cushion in retirement. Since my independence day is fast approaching, I am considering my options to leverage debt in order to either;

  1. Decrease my expenses, or
  2. Increase my income

 

The first scenario was discussed in a previous post . Essentially, I could cash-out refinance my primary residence in order to build a small ADU on the property. I would long-term rent the primary house and downsize my family to 700 square feet. This would reduce my investment income needs to $1,880 per month. Sounds pretty sweet, right?

Now, I have this great idea to buy a vacation rental in our tourist town. The numbers are scarier. The risk is higher. However, the income potential could boost us right up to our desired retirement spend and we would barely need to rely on our investments at all.

Buying a vacation rental would have us taking advantage of our terrific credit scores and low interest rates. We would enter retirement with greater debt (Ack! This freaks me out!), but a significant income stream.

However, we would be actively managing this property (a little work is okay, right?) and in a recession, we might see a lower return on investment. My current calculations indicate that we would need at least a 30% occupancy rate to break even. Vacation rentals in our town average between 50-70% occupancy. I assume that is a decent margin of error. What do I know? I am not a real estate investor. I am just faking it.

In a way, I like the idea of having a job after I quit my job. I like being downtown and talking to people. I love giving suggestions and advice and I don’t mind cleaning. Trips to the city to buy supplies also appeals to me, like I am off on a mini-adventure.

It would also give Little Miss a job. What a great way to learn life and home skills plus earn a little money. She could even set up a Roth IRA with her earnings.

My biggest hold back is Mr. TJL. He would have to manage (including midnight phone calls and dealing with crazy people) and clean the property at least until I quit work in four years. He doesn’t seem nearly as enthusiastic about this investment as I do and I can understand why.

For now, I am still investigating the possibilities for leveraging debt to earn some money. Do you guys have any great examples for how to do this? Any blogs I should know about with valuable information?

 

In the meantime, we are plugging along and stashing away as much money as possible in our investment accounts. Let’s see if we made any progress, shall we?

 

July 2017 Net Worth

The table shows the balance sheet for the beginning of the month June 2017 and July 2017. Crazy how we ended up with exactly $747,000!

 

Year-to-date results

Net worth in January 2017 was $663,042.

January 2017 to July 2017 difference = $83,958! This total includes:

Increase/decrease in home equity = $3,911

Investment contributions = $49,344

Earnings/losses = $30,703

 

Investment Contributions

Our financial savings goal for 2017 is $83,042. It includes investing the maximum to the 401k, Traditional IRA, Health Savings account and the brokerage account.

This has become a stretch goal for us due to a lower than expected raise and bonus. Regardless, I am going to continue to aim for it and possibly find some ways to generate additional income this year.

*Nearly 100% invested in low-fee index funds (VTSAX – Vanguard)

 

In June, we contributed to:

401k* = $2,416

Trad IRA = Fully-funded!

H-S-A = $454

Vanguard Brokerage = $1,750

Dividends (re-invest) = $1,340

 

Total = $5,961

*My employer contributes a match of 10% of my base salary to the 401k. My contributions to these accounts are automatically deducted from my paycheck. I never even noticed it’s gone.

 

Savings Rate

Our net income savings rate goal for 2017 is 70%. A high savings rate can be reached through decreased spending and/or by increasing income.

In June, we realized a net income savings rate of 63.85%! Not bad for taking a business trip/vacation! Cumulatively for the year, we have a SR of 66%.

If we continue to keep our expenditures low, our saving rate will begin to approach the 70% range.

Savings rate on net income is calculated by Total Saved + Mortgage Principal paid divided by Total Income minus taxes and charitable giving.

NISR = Total Saved + Mortgage Principal / Total Income – (Taxes + Charitable Giving)

 

Investment Income

Our net worth minus our home equity is $481,838. These funds are held in equities and a minor amount in cash. These monies will provide passive income during our FIRE (Financial Independence/ Retire Early) years along with income from our rental property.

ER accounts include Roth and traditional IRA, brokerage and cash

 

We will consider FIRE when our investments and cash reserves equal $937,424, each bucket is fulland the rental property is paid off. This conservative goal allows us a safe withdrawal rate of 3.5% assuming we need $32,800 investment income per year. We will also have an annual profit of $7,200 from the rental property bringing our allowable annual retirement spending to $40,000.

We aim to live off of $35,ooo or less in retirement so this FI goal should allow flexibility.

Despite our spending levels being elevated so far this year, our savings rate remains very good. I am pleased by our mid-year progress. The rest of the year should be smooth sailing.

How is your mid-year financial health?

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2 Responses to The Big Scratch – Brainstorming and July 2017 Net Worth Report

  1. Great job as usual. You are doing a fantastic job saving and investing.

    You mentioned that your savings goals include investing the maximum in your 401k, but I see that your 401k goal is $28,850. For a 401k the maximum yearly contribution is $18,000 or 100% of salary, whichever is lower. Does this imply that one of you has a salary of $10,850 and you’re putting all of it in a 401k?

    • ska@thejollyledger.com says:

      Hey MC! My 401k contribution includes both the maximum yearly contribution ($18,000) plus my employer match of 10% of my base salary ($10,850). It might actually end up being a little less than this by about 1k due to a lower raise than expected.

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