Freed by 50

Back in January I laid out my financial goals for 2019.  Since then, I’ve reached some goals, I’ve questioned others, I’ve completed a major home renovation, and had a mid-range setback.  I’ve also been mulling over net worth and whether I like it as a success indicator, but we’ll get to that at the end.

Minor Goal 1: Maximize my ESPP contribution: In January I set my ESPP contribution to 15%, which is the maximum I can contribute.  Each period runs for six months, and it’s looking like this August will be roughly a 42% ROI, less taxes (which I usually figure at about 33% of the profit).  You really can’t beat that for a short term investment.

Minor Goal 2: Maximize my 401k contribution: As I said back in January, thanks to a couple of raises, this was an easy one to hit.  I’ve set my percentage to make sure I hit the maximum contribution.

Major Goal 1: Increase our emergency fund from four to six months of savings: We hit this milestone in May.  Having six months of savings in a money market isn’t my favorite thing.  My wife likes the security of knowing the money is just sitting there, but I hate that the money is just sitting there.  We’ll earn about $4 in interest on it for 2019.  I’m trying to convince my wife that it may do us a lot more good in an index fund, which would also help reach one of my new goals (to be named later in the post).

Major Goal 2: Get the mortgage below $350,000: I’m really waffling on this one.  I’ve spent a lot of time wallowing through articles debating whether it’s better to pay off one’s mortgage or invest.  There are good arguments on both sides, but it looks like in my personal situation, it might benefit me more to invest long term.  One of the main reasons I’m leaning this way is because we’re sitting on $200k in equity in the house already, and I’m overpaying the mortgage monthly as it is.

New Goal 1: Invest $50k in index funds: This is where I can cheat by moving our emergency fund into the market, rather than watching it collect dust at our bank.  Moving our $36k into the market would mean I would just need to add another $14k to reach this goal.  That’s slightly more contribution than what I’d outlined for Major Goal 2 above.  Plus, that amount of money invested should start showing noticeable returns (roughly $3500/yr at 7%), which would motivate me to ladder this up to $100k.  While I’d love to have a paid off house, I also like the idea of having my money make money.  The security of owning my house outright is nice, but the security of knowing I can pay for anything (including the house someday) is nicer.

Setback: If you’ve ever owned a pool, you know they love to nutshot you right when you least expect it.  I once had the pool pump erupt in a fireball in my face the first day of the season.  This year it was the liner.  We knew we’d need a liner someday, but never thought it would be just a few days after we finally got the chemicals balanced and salt levels right.  $200 wasted on salt/chemicals, probably $200+ on my upcoming water bill to replace all 36,000 gallons, and $4200 for a new liner.  We keep a small, $3k, emergency fund (I call it the “Oh shit the ___ is broken” fund) for times like this, so that’s been wiped out plus another $1300.  I have to backfill the fund with money from my next two paychecks, but otherwise this didn’t hurt as much as it could have.

Renovation #2?!: Like many people, my house has a kitchen in it.  The kitchen seems to function reasonably well.  When I put things on the pink Formica countertops they tend to stay where I put them (because I spent ages leveling them with shims).  The sink doesn’t leak, the fridge keeps food cold, the dishwasher cleans dishes, and the cabinets generally hold our food and other kitchen wares fairly well.  But a closer look would show that the over the range microwave is dead.  The refrigerator doors pop open if you don’t go out of the way to push them closed.  The cabinet doors are all hanging a little and the hinge screws have run out of wood to be tightened.  The cabinets themselves are coming apart in the corners and some seem to be showing signs that they’re ready to part ways with the wall.  Also corner cabinets are garbage and I hate them with the heat of 1000 suns.  All that said, depending on a number of factors, we may consider heading off what’s sure to be a disaster in our near future and bite the kitchen reno bullet this fall.  I just have to find the pants that I left that $50k in…

On net worth: I’ve been reading a lot of personal finance books this year and many talk about calculating your net worth as a gauge of financial progress.  I see people on the reddit boards touting their net worth all the time as a gauge of financial independence.  On the whole, I like this because it makes me feel pretty good about my number.  But I feel like there are some big caveats here.

First, in order to calculate net worth many people advocate taking inventory of everything you own and guessing a possible sale price if you were to liquidate your life.  Screw that noise.  Yes, in a perfect world if I decided to have a massive life liquidation sale and unload everything I own, the computer on which I’m typing this may sell for $500.  My cashmere sweaters may fetch $25 each.  Each of my stereo’s that retailed for $700 (and I didn’t pay that) may earn me $100.  I don’t care.  Taking stock of literally everything of worth in my home is a worthless venture.  Lets call it $2000 worth of junk and be done with it.

Second, most of my net worth is tied up in my house and retirement funds.  If I wanted to declare myself financially independent at 40, about 90% of my net worth is inaccessible to me on short notice.  The retirement funds would be decimated if I had to live off of them and my house would have to sell in a timely manner.  Plus I’d then have to find another place to live, further reducing my net worth.

Third, sites like Personal Capital (which I’ve quit thanks to their sales calls/emails), like to calculate my restricted stock units as part of my net worth.  That makes me feel really good, except that the stock is restricted and if I lost my job tomorrow, it’s gone.  And it’s all pre-tax money.  And it’s not fully vested for another four years.

All told, my feel good net worth including the things listed above (especially the $2k in crap I’d earn at my massive garage sale) is actually close to $1MM, which is staggering to me.  Then I remember that this is pre-tax, so closer to $500k (I live in NY, so it’s probably closer to $100k after they pick my bones clean).  Also that includes RSU’s, equity, and retirement accounts I can’t touch until I’m on death’s door.  So I suddenly feel bad about my number.  Such is the life of a pessimist in the financial world.

Guess I’ll have to make more money!