This last weekend, my wife and I sat down and totaled up our net worth. April saw our wealth climb to $1.1 million. This is a slight improvement of $20,000 over the $1.08 million we had in February of this year. Here is a quick recap of some highlights, as well as well as some thoughts about what this implies for successful wealth building in general.
1. We sold one of our investment properties, transferring approximately $66,000 from real estate equity to cash. We also had to pay closing costs of approximately $21,000 (ouch). We are going to have to pay taxes to the Feds for this big chunk of this, this will is likely to be revised downward as well.
2. We also adjusted the value of our internet business downwards. This is because of the reduced cash flow this business is throwing off.
3. We were successful in opening up two accounts with online stock broker loyal3. We’ve been making small deposits ($10 dollars a day for me, and about $1,000 per month for my wife). So far we’ve got something like $2,500 in their platform and its working out pretty well. There aren’t any fees to trade or hold equity on their platform. Loyal3 is such a great deal that its not clear to me why the rest of the country isn’t using their service. I guess its like the old saying goes…you can lead a horse to water but you can’t make him drink. In the mean time we are continuing to build our positions in MSFT, DIS and KO.
4. We continue to make ongoing contributions to our employer sponsored 401k accounts. So far we’ve got something like $420,000 in retirement. Its heartening to see how this has started to snowball. After a decade of saving, its feels great to see that we’re starting to make progress. I think we are probably going to continue to contribute as much as we can as often as we can. You might be thinking that $420,000 sounds like a lot to retire on, but assuming a 4% withdrawal rate and factoring inflation our current numbers won’t last us through a long retirement, especially considering our current standard of living.
5. We are aggressively paying down our highest mortgage debt. A few weeks ago we posted about this, but we are putting something like $300 bucks a month towards the second mortgage on our primary residence. Dumping your highest interest debt first is mathematically the most sound way to eliminate your debt. By the way – the interest rate on our second mortgage is 7%. So by paying it off, we get a risk free 7% return.
6. I finally got my credit cards paid off. I had allowed something like $1,000 on my chase visa to build up and was starting to pay some of their not-so-awesome 18% interest. Any any rate, that figure is now something like $0. So, I’m pretty happy about that. I should be able to divert more funds to retirement now.
7. Real estate in the DC area has been recovering. According to zillow, we’ve got something like $1.467 million in the local DC market. At this point, a 10% move in the market will yield pre-tax gains of $140,000. So, the asset price appreciation of our real estate has really helped to move the bottom line.
All in all, this April’s theme is: our wealth is starting to snowball. This really started to happen after our net worth broke $1 million, but at this point we just have so much in the stock and real estate markets, that the amount of dividends and rental payments we receive is starting to take on a life of its own. So, in effect, our wealth is starting to snowball. The amount we are getting from dividends and rental payments just gets plowed back into the stock market, which in turn produces more dividends. I think this is one of those secrets that the wealthy keep under their hats – past a certain point your income from your job starts to take a back seat to how much you’ve got coming in from other sources. You just own so much that eventually your earned income becomes secondary to your other income sources.
Another theme that’s come up is that a lot our net worth growth is impacted by the cumulative effect of our choices. My wife Miel has received some inheritance money, but the reality is that we’ve saved and scraped up the money for our investment properties and decided to take the risk (repeatedly over a decade) to invest our money in the stock market. What is also interesting is that we are starting to see the long term outcome of our choices. For example, my wife and I are both in our late thirties, and our wealth is where it is. In contrast many of our peers have not chosen to emphasize their financial well being, or instead have chosen to put their money in disposable consumer goods like cars or furniture. In many instances, their wealth is perhaps a half or a third of ours. In this case the contrast seems pretty clear, if you save and invest repeatedly your choices will eventually catch up with you in the form of significantly higher net worth.