It was January 1, 2012 and I was 48 years-old. I had just spent the past two weeks on Christmas break and I was going to work the next day – the beginning of the new work year.
As I’d done the prior five years on New Years Day, I was finalizing my year-end net worth in Excel and was staring down at cell L52 that read $155,719. I immediately thought to myself, “Dude, you have to get with the damn program!”
Can you relate to this? This was my nightmare that suddenly became real. I felt that time was running out and a change needed to be made. Here’s some detail of my situation on January 1, 2012:
- 48 years old (wife just turned 50)
- Wife of 19 years was a stay-at-home mom to two kids in high school (oh no, college is coming soon and we aren’t ready)
- Worked at my current company for 13 years with an annual work compensation of $163,000 gross
- Total debt of $284,970
- Portfolio (taxable and tax deferred) of $188,931
- Net worth of $155,719
How Did This Happen?
For the prior six years (2006-2011), we carried credit card balances between $12,000 – $28,000. We were traveling to karate tournaments all over the country. We ate at restaurants often. We were consumers.
In other words, we were NOT living within our means. And to make matters worse, I tried to solve our lack of retirement savings by gambling on small company flyers that would usually crash. The 2000 tech bust and 2008 recession put a significant dent in our savings.
Our 2012 Game Plan
Seriously, it’s actually pretty easy to change once you get mad enough at your situation. Here are some basic changes we made in 2012 and we’ve continued to expand on the list ever since.
Step 1: Cut Expenses
- We focused on the Big 3 (housing, transportation, grocery)
- Plants, furniture, TV’s, etc… all cost money and we reduced these to only those expenses that were absolutely necessary
- We always hang on to our cars for at least 10 years (cars are dead money)
- Reduce grocery bill – Stop wasting food, get good at buying sales, don’t shop while hungry, have a plan at the store (no impulse buys)
- My wife and I discussed any planned purchase over $100
- We agreed to no impulse buying; we leaned on each other for strength
- We agreed to cut our restaurant bill by 50%
- If we use our credit card, it gets paid off quickly because we’ve already got the cash to pay it off
Step 2: Increase Income
For a few years, my wife got a part-time job at the kids school which generated an extra $5,000 yearly.
I got a promotion at work and my earnings have been rising steadily. My average income the last three years is about $233,000 and this year I’ll pull in around $244,000. If I don’t get another promotion during my final six years of work then I should average about $250,000 yearly.
Step 3: Reduce Debt & Save
I’m a firm believer in reducing debt and increasing assets simultaneously.
We raised the percentage to my 401(k) each year. Finally, we’ve started to contribute to our Vanguard taxable account. We’ve increased our cash cushion and started buying high quality dividend stocks.
Our credit card debt is gone. We paid off our $86,000 home equity loan … that sucker is gone now. We refinanced our mortgage to a 10 year amortization and plan to have that paid off in 3-4 years.
Seven Years Later – The Results!
In seven years, our net worth has increased $476,030 (+303%) and we’ve got plans to have it rise even faster in 2019 and beyond.
We’ve gotten even more focused on managing our expenses, accelerating the payoff of our mortgage, and redirecting those savings into our portfolio.
Since I began this article by describing our situation on January 1, 2012, here’s what we looked like 7 years later on January 1, 2019.
- 55 years old (wife is 57)
- Wife of 26 years has not returned to work in several years
- Two kids – One is out of college and living on her own (YES!) and the other will be a senior in college in the Fall 2019. I’ve got one off the payroll and the other is not too far away!
- I’ve been at my current company for 20 years with an annual work compensation in 2019 of $244,000 gross
- Total debt of $139,785 (compared to $284,970 in 2012) – we’ll be debt-free in 3 years
- Portfolio (taxable and non-taxable) of $420,366 (compared to $188,931 in 2012)
- Net worth of $631,749
I hope this was helpful and interesting. It was fun looking back and documenting the journey (though I’m sure I missed a few details). The next 6 years (I plan to retire at 62) will be a fun ride!
Thanks for reading!
Mr. TLR