Credit Card Debt
If you’re a new reader, let me start out as usual by explaining the credit card debt. I’m actually taking money from 0% APR balance transfer offers and instead of spending it, I am placing it in high-yield savings accounts that actually earn me 4% interest or more, and keeping the difference as profit. Along with other deals that I blog about, this helps me earn extra side income of thousands of dollars a year. Recently I put together a series of step-by-step posts on how I do this. Please check it out first if you have any questions. This is why, although I have the ability to pay the credit card balances off, I choose not to.
Retirement and Brokerage accounts
It seems like the markets were relatively idle over the last month. We made $2,141 in pre-tax 403(b) contributions. Not much else to report here, although our 403(b) plan did announce some new lower-cost fund choices for later this year, which is nice. I should do another portfolio update soon.
Cash Savings and Emergency Funds
Our mid-term goal is still to have $30,000 in net cash put aside for emergencies, which is 6 months x $5,000 per month in estimated expenses if both of us find ourselves unemployed. We are now a bit over halfway there at at $17,526. This fits in with our overall “just-in-case” focus for this month, hopefully we will also be getting some life insurance soon.
Home Equity
Another $500 of loan principal paid off. Housing values look to continue to be dropping a bit in our neighborhood, although nothing is really selling so it’s hard to tell. I’m definitely aware of this, but I’m still not going to try and re-value my house every month. I’ve found that Cyberhomes.com offers some good data on tracking median prices by zip code. Again, can be tricky to apply if only a few houses sell in your zip code and they aren’t really comparable in size or neighborhood.
Overall, a relatively quiet month financially. You can see our previous net worth updates here.
(By the way, my post yesterday on emergency planning was messed up due to some typos which cut out some parts, you can re-read it if you’d like.)
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I’m a new reader, so maybe I’ve missed this in other posts. It looks like you’ve reached and surpassed your emergency fund goal based on the amount of cash you have. Is this (cash) money earmarked for something else? Could you explain? Thanks.
Oops! I just realized that the bulk of your cash is from credit cards and, therefore, you are not counting it as “real” money towards your emergency fund! Sorry!!
Well done making quick work of that emergency fund. My fund is right around 3K right now, and I’d like to get it up to $5K ($10K between us), but I’d also just like to keep making progress saving for a down payment, a replacement for my 15 year old car, and a wedding.
I suppose if I have an issue that costs more than $3k it will have to come out of one of those funds.
I see that despite what you say in the blog (and what one of your
blog ads touts) you are NOT making even close to 4%….
no offense, but I’m a rate chaser, too, and that sort of thing
just reaches out and grabs my attention. 😛
Wow that is really good. You sure did save a lot of cash, you must have a very high income. You should put up what % of your income you are saving so we can all compare that to ourselves. It wouldn’t be possible for me to save as much as you since I am only earning around $800 per month :).
I know that you had goals a while back about traveling to different locations. Do you put money aside into a travel fund? If not, do you just use regular savings?
As David mentions, it is very difficult to ascertain how you are accomplishing your goal of financial freedom.
All we see is a boatload of cash being added to your total assets each month. This obviously implies you earn a very high monthly income.
On the other hand, we don’t really have any visiiblity as to where your monthly expenses go…for example, monthly food, utilities, transportation expenses, etc…
Are you actually saving a very good percentage of your high income, or are you earning such an astronomically high income that you don’t even need to bother much your daily expense needs.
Jonathan,
Just curious is any of the $518 in loan principal repayment “extra” money your kicking in our is it all part of the normal amortization?
Dave, John – We currently save somewhere between 50-70% of after-tax income. This is something I would like to dig deeper into, but tracking spending hasn’t been a high priority recently. We don’t have a set budget.
Luke – We just pay for travel using our cash, no real side fund.
2million – No extra principal prepayment right now, just regular amortization. Focusing on the emergency fund for now. Will probably pay off 2nd loan next, and then I’m hesitant to aggressively pay it down any more since I don’t see the gov’t doing much about inflation in the long term and I’d probably keep a sub-6% loan as an inflation hedge.
Putting away $6400 a month seems very high. Most people don’t make $6400 a month, let alone saving that amount after expenses. It must be easier to save money with such a high income. Do you feel your advice is still credible and realistic for people making less than $100K a year?
People People, based on what he’s said else where, why don’t you just assume that he and his wife earn about $250,000 a year gross. I think it may be higher, but this is just a guess.
I think they probably get about $13-16,000 per month income after taxes.
So, on one hand, reading this blog’s numbers does make you feel like crap every month, but on the other hand, he lives like the rest of us low-middle classers and provides loads of very useful information.
Aside from housing, there doesn’t seem to be any real effect of “a higher cost of living”, that they are trapped in. I imagine this is due to not keeping up with the Jonses and being frugal.
There are plenty of blogs that do the same with “average” incomes if you are interested in typical numbers that won’t make you feel like a slave 🙂 I like to look at them first 🙂
Dave –
His advice is credible, his net worth and savings aren’t realistic for many. However, this is only one post per month 😉
I think eveyone needs to go back and see where he has come from in terms of his monthly net worth increase. Income from this website, along with increases in his and his wife’s salary have contributed to the increase. It did not happen overnight, and as someone who has been reading this blog since day one, it shows that hard work pays off.
So I guess you’ve decided not to have your Roth IRA serve double duty as your emergency fund. I really don’t see why not — since the principal withdrawals would be tax and penalty free. And then you could pay down the 2nd mortgage quicker and save money.
mimi – I think for everyone, they would have define what an emergency constitutes. There are rare emergencies and then there are really rare emergencies.
What if an emergency was a one time opportunity to make a great investment or get a fantastic deal or the car was totaled in an at fault collision. I don’t think you want to use retirement savings for that. I’d touch my retirement for life saving causes, but nothing else.
@Jon-Looks like all his hard work is paying off, thanks for the insight
@mimi-Speaking of Roths, if principal is withdrawed can it be paid back?
Aside from what may be high-paying jobs I’m guessing that the blog itself earns at least $5,000 per month in ad revenue. So that is certainly helping the cash position.
chris – I seriously doubt that his blog is earning 5K a month.
Many of the posters are “surprised” at his net worth increases… and I agree that certainly it is dependent on salary. There’s just no way a single person earning $40k per year can save much money…but that’s not really what matters. Giving Net Worth only tells 1/4th of the story. Another quarter is income, another quarter is expenses, but one huge part is that he is married and has spouse also earning income and not having any kids! As a single person it is much harder to save money than a married couple *if* the spouse also earns and has similar habits. My wife and I manage similar increases on two engineering salaries (~$80k salaries, but also in a much lower COL area) and save ~70% of our incomes as well, and I can say that to do so requires that we do make good incomes, but we also are investing wisely and not spending money where it is unnecessary. But we still travel and have fun, etc… but no starbucks, and we drive old cars (and not very far). So for Jonathan to have similar increase probably means the same thing… good salary yes, but he also is a prudent spender and a good investor. Not to mention that as your NW increases, it becomes much easier to have large jumps per month from investment earnings and interest, and particularly after you buy a house when your expenses become much more “fixed.”
Dave – I don’t know if my advice is realistic, that will have to be left to the readers to decide. As for credible, I would think saving lots of money would be good; should I ask for a pay cut? 😉
Jon – Thanks. Long-time readers will note that in 2006 our combined gross income on our taxes was under $60,000. I went back to school, and that investment/risk has paid off handsomely since. I understand the feeling though, it’s hard to feel like you can easily replicate something if it is seems like a big jump from your own reality.
mimi – We are no longer eligible for a Roth IRA, as you might guess from all the other comments. 🙁
Brian – Great comment, lots of good insight. We probably won’t be keeping this up forever as kids come into play. I think it is important to take advantage of low-expense periods in your life when you can. (single income and young/just out of college, dual income no kids.)
i second what brian says. as a dink (dual income no kids) myself, if the couple earns similar incomes and live on one income and save the second income entirely by simply living below ones means, you end up with our net worths after few short years. transitioning to a single income kid in a couple months will have my net worth go from increasing 6-8k/mo to $1k/mo.
and yes, i doubt this blog earns 1/3 of that 5k someone suggested. if it does, i will quit my day job and do this…
justin: A $600,000 home isn’t living lower middle class like the rest of us. His other expenses and charitable givings may be lower middle class. I can’t say I suffer from the same feeling you do when reading his blog.
Jonathan: I wouldn’t dream of asking you to ask for a pay cut! The numbers really don’t reflect much. If Bill Gates were to put away $6,000 per month nobody would accuse him of living frugally. The point is to minimize unneeded expenses and your blog does a good job demonstrating how to do that.
I’ve been a reader of this site for a while, and have done fairly good for myself in terms of investing, savings, etc.
But, I must sadly say, that this site has outgrown its purpose in my opinion. You’ve basically reached all your goals. All you have to do is keep your jobs, invest the same, and extrapolate.
There is nothing revolutionary or new here anymore. I’ll still visit, but its just not interesting anymore.
Thanks for the ride
Wow, $5,000 a month in expenses. Someone is ‘living the high life’. Experts typically do recommend saving 6 months or more in expenses for an emergency fund. I just wrote a post on emergency funds, and I think that if you’re going to save up $30K, you’d be wise first direct cash towards long term savings and then perhaps place the dividends in the emergency fund.
I love it. Half the time I get “stop living like a hobo” and the other half is saying I’m “living the high life”. I guess that’s the price of revealing your finances to the world. It’s good to know what people are thinking, though.
QBondnet – I can only hope that things will be as easy as you suggest it will be. 🙂
hello, how do you figure out one’s estimated home value? Thanks
I’ve been checking this site for a while, but only sporadically. Since you mentioned that you went back to graduate school, could you share if you had any students loans? If not, how did you pay for graduate school and how much did it cost? One more question; how much money in a lump sum did your wife bring into your conjugal Net Worth, initially? Thanks.
Hi, Please settle a dispute with my husband and I. I have 2 young children and stay at home. About a year ago, I found this great part-time 2 day a week job. It was only temporary but in 8 months, I earned 30k that we otherwise would not have had. 25% of it went to childcare, a few thousand went to home improvements, a $1000 went to the college funds, and 6800$ went to paying off the mortgage. My husband is pretty mad that I put 6800$ into the mortgage. But the facts are that we contribute 15K to the 401k and max out both Roths (We just make the eligibility requirements.) and contribute to 2 college funds. My kids are age 2 and 1. If I’m putting all my savings- college and retirement into the stock market, I thought it would be appropriate to diversify our savings and pay off some of our huge mortgage (425K at 5.25% 10 year fixed for a 30 year term). We do keep a small emergency fund and it makes very little interest these days. We are 32 and 34. Was I wrong to put that money into our big mortgage?
And I do agree with some of the previous comments. It is a lot easier to save without kids and with 2 people working full time.
Have you taken a look at http://www.zillow.com –for real estate values based on nearby sales –it’s pretty accurate around the country. Never really had someone tell me accuracy out of California but it’d be interesting to see if it is… Let us know your findings!
I was wondering if you could post your credit score because one thing that would have me worried is all the credit cards being opened up. clearly with such a high level income and not as much debt you’re probably in good shape either way. thanks.
@Joe – We’ve all determined that Zillow just doesn’t work well enough.
@shifty – a 20,000 “loan” from the credit cards probably isn’t much of a ding with his income given his typical credit. If you do it on one or two cards and have plenty of available credit, it drops the score about 60 points if everything else in order.
Having 10 cards each maxed out with 2000 each would be something different, but people that make $250,000 a year don’t have credit cards with $2000 limits.
That’s a great way to figure out your net worth…
Assets
Liabilities
The difference between the two.
I also liked how you increased your net worth by over 3% in one month.
When You get more assets and less liabilities you are increasing your net worth..
That’s what your doing.
Very smart!
David King,
I love this blog. I drop by every day. I don’t have anywhere near the cash flow that Jonathan has but I’m always inspired. What’s important is to just start where you are. Create a plan of action and then stick to it. I’ve increased my income by nearly 47% in four years. I didn’t do this by sulking that I didn’t have what somebody else had or the same opportunities, or whatever. I did it by deciding I wanted something better and going for it. I earned my college degree as a 30-something single mom of two. Yes, it takes determination and refusing to let anything get you off track. There were so many nights that I wanted to quit school because the stress of raising two kids alone, working full-time and going to school full-time was too much. But I kept my eye on the goal and made it through. Now I’m pursuing my graduate degree. Thanks for all of the great information and willingness to share, Jonathan!
regarding home values:
In this chaotic market, I think the best way to estimate home value is to use the recent home sales (comps). This should be part of the net worth calculation b/c many owners now owe more than the current value of their house.
Take the estimate and tack on settlement costs, in case you need to sell the house and realize this profit/loss.