This is my first of what will be many quarterly net worth updates. It’s not a portfolio update or passive income update or expenses update … those will be separate articles you’ll see me write about later.
I highlight that because how you see my net worth evolve has little to do with how I’m creating passive income or managing my investment portfolio. Yes, I know that everything is part of the bigger picture to me achieving my goal of retiring at 62 but I want you to know the differences between the updates.
So, before we start diving into my quarterly net worth updates, let’s get aligned with a few rules of engagement or things I’d like you to consider:
- DO NOT compare my situation to yours because it might not be an apple to apple comparison
- DO NOT copy my approach to increasing net worth and force it into your situation – create your own unique approach
- DO get some ideas from my update and determine if they would fit into your approach
- DO follow the money to understand how I’m using my income (paychecks, bonuses, passive income) to increase net worth, impacts debts and assets, and achieve my goal of retiring at 62
- DO understand the composition (i.e. real estate, portfolio, etc…) of my net worth and the changes each quarter
Q1 = $82,184 Increase (+13%)
Where Did My Bonus $$ Go?
My year-end goal of $750,000 net worth was set in a linear fashion even though I know that the first quarter is always a strong one in our household. Every Q1, two bonus checks hit my checking account – one in February and one in March. This quarter saw nearly $75,000 (gross) in bonuses with a net of approximately $42,000.
NOTE: $9,000 of the $75,000 gross automatically went into my 401(k) and the rest were taxes.
As we normally do, we disbursed the Q1 bonus funds in a few directions. This year, we put most of the $42,000 of bonus funds into 4 areas (89% of the funds):
- College Fund – 33% ($14,000 / $42,000) – Kid 2 has 1-1 ½ more year(s) to finish up college and then we’ll have the kids off the payroll. That will be a glorious time.
- Credit Card Payoff – 8% ($3,500 / $42,000)
- Vanguard Taxable Brokerage Account – 36% ($15,000 / $42,000): We are building a dividend portfolio and increasing our cash account.
- Mortgage Principal – 12% ($5,000 / $42,000): We are paying $10,000 extra per year to get our mortgage paid off in about 4 years. We will consider accelerating the payoff if we see a benefit to us meeting our retirement goal.
The equity in my home is now 33% of my net worth, which is down from 35% on 12/31/18. In retirement, I can see the equity in my home ranging in the 20%-25% range.
Where Did My Paycheck Income Go?
Other than paying normal bills, my bi-weekly paycheck allowed us to contribute to our Vanguard taxable accounts ($5,400) and my work tax deferred accounts ($13,415).
I get paid bi-weekly, so we are fans of setting up our bills (beginning and middle of the month) for 24 payments per year. This allows for 2 extra paychecks. We’re committing some of these two extra paychecks to 2 payments of $2,500 each towards the mortgage principal.
In Q1, we already made one $2,500 payment (along with the $5,000 principal payment from the bonus) and we expect the other payment to be made in August 2019.
So even though my bonuses create a big spike in net worth for Q1, my regular bi-weekly paycheck plays an important role to increase our net worth throughout the year.
Which brings us to a great point to make. Whether you get a $500 bonus or $75,000 bonus, you can still use those funds to increase your net worth. Don’t think a smaller bonus isn’t enough to make a difference … it can and will.
And please use your paychecks as a tool to increase net worth too. Every little bit helps. Paying $50 a payment on credit card debt, into a mutual fund, or increasing your emergency fund adds up over time.
Hope you found this interesting!
Mr. TLR