The steps to accumulating wealth are dumb-simple, as described here: https://www.frugalprofessor.com/start-here-the-recipe-for-wealth-accumulation/. In those 3 posts, I’ve essentially exhausted my ability to say anything more on the topic. Step 1.) Be frugal. Step 2.) Minimize your tax burden. Step 3.) Invest your savings wisely.
In an effort to have this blog contain more than 3 posts, I’ll track our journey on a monthly basis here. Hopefully someone can find it to be a useful template to follow. This is actually the first time in my life that I’ve tracked our spending. Prior to now, we simply avoided frivolous purchases and watched our net worth climb drastically over the past decade. Our monthly update will contain the following sections:
- Balance Sheet (how our wealth is stored)
- Income & Expenses (how we generate savings, the difference between income and expenses)
- Where we put our monthly savings
- Asset Allocation (what specifically are we invested in)
- Investment fee audit (how much we’re paying in investment fees)
One thing this spreadsheet should illustrate, I hope, is that savings are a result of living below one’s means, not something we actively do. When we were kids we were all taught to get a piggy bank and set aside x% of our incomes every month. I think this is a fine starting point, but this approach gives free reign on the individual to spend (100-x)% of their income. The more disciplined approach is to only spend money on what will truly bring you happiness and to avoid spending money on what won’t. The difference between your income and your spending is called savings. It’s simply what’s left over, not something you did.
A few notes on our spending. We have a 15Y mortgage, so our mortgage payment is inflated by about $1k relative to a 30Y mortgage. This fact is adjusted for appropriately in the Total Monthly Expenditures – Reimbursable Expenses – Decrease in Mortgage Balance row, which I believe is the most accurate reflection of our monthly spending. Also, we have 5 kids, so spending is higher than it would be if we had a smaller family.
After a few years of these posts, I hope to convey how simple it is to slowly grow and manage a massive investment portfolio, one that can support our family through interest alone, without the help of any financial expert like a financial planner.
A few anomalous expenditures for October 2016 to point out:
- $1.5k deductible for new roof
- $600 in car registration fees (OUCH!!!!!!!!!!!!!!)
- $400 for new ping pong table lumped into “other expenses”
- $100 extra in gas for road trip to see grandparents
After an unusually high month of spending, hopefully we’ll come back down to $3500 next month. Our grocery expenditures are erroneously low in this update. This will be remedied next update.
Life lessons learned for October 2016:
- In the future, I will more readily pay $150 to have garage door professionally fixed rather than risking my life messing with torsion springs and several hundred pound doors. Most of the time my frugality is an asset, but from time to time it gets me in trouble. This month I learned to never mess with garage doors again.
- Taking the kids trick-or-treating last night was a blast. The sense of community surrounding this event was fantastic, but unfortunately it’s so temporary. I don’t know what the solution to this is when everyone is over-scheduled and overworked, but this article I read last week seems to be a step in the right direction: http://www.countryliving.com/real-estate/a40069/tiny-house-village-trend/.
(If you’re on an RSS reader, unfortunately you may have to visit the site to see the financial update image below.)
- Don’t lend money to friends/family.
- I lazily approximate home value using Yodlee’s embedded SmartZip estimator.
- I have a 15Y mortgage; which results in a faster rate of repayment. The true cost of the mortgage should exclude repayment of principal, which I show above.
- $15 internet and $0 cell phones as described here.
- All expenditures at Costco & Walmart are classified as “Food at home” for simplicity (even if it’s laundry detergent, clothing, etc).
- I prefer Vanguard funds but my employer offers Fidelity instead. Also, Fidelity mutual funds work better at my Saturna HSA.
- Nobody knows the perfect asset allocation. Just pick one and run with it. Use a target date retirement fund as a benchmark if you want some guidance (link).
- My low portfolio expense ratio is the primary reason why I don’t hold target-date funds, which have expense ratios anywhere from 0.16% to 0.75%. I can achieve a much lower expense ratio on my own due to Admiral shares, etc. And it’s not hard. Plus, a DIY portfolio allows one to tax-loss-harvest more easily.
- The only other administrative cost not captured by my expense ratios is a $19/year administrative fee for my HSA at Saturna Capital.
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