January 2018 Financial Update: Proceed with Caution

This is the next post in a series that will provide regular updates on our personal financial situation and performance.  All of the metrics and relevant data points you will see here are things that I have tracked using a combination of Personal Capital* and my own spreadsheets for the past 5 years.  For privacy reasons, I’m not going to display dollar values for some items, but will show trends and ratios.  My hope is that by seeing how I track my own finances, you may get some ideas for how to better track yours.  Feedback appreciated, as always!

Summary

After a banner 2017, 2018 started off with a bang.  The stock market continued its seemingly never-ending upward climb, which continues to give our financials some nice tailwinds.  January was the single largest month growth in net worth we’ve experienced in quite some time.

PVF Note: This was written before the big market correction last week.  Unless something changes, all those gains are coming back out in February.

So how come I labelled this update “Proceed with Caution?”  The reason was I fell pretty flat on the goals I set out for myself at the beginning of the year.   I was really hoping to start out 2018 on the right foot and didn’t quite measure up.  The one goal I was really trying to stick to – staying within our budget – was the one we missed by the most.  More details on that below.

Here are a few additional summary items for the first month of 2018:

  • 44.3% after-tax savings rate.  It’s up from last month since we regained dual-income status, but continues to slowly decline as a 12-month rolling average.
  • 2.9% growth in net worth, mostly coming from investment gains
  • No material change in asset allocation or progress towards financial independence

Goals Progress for 2018

Earlier this year I laid out my goals for 2018 in three broad categories: financial, personal and for the PVF blog.  I created a simple green, yellow, red tracking sheet so I could keep tabs on how I was trending on each:

  • Green = at goal or on track to reach by the end of the year
  • Yellow = not at goal and at risk to not meet by the end of the year
  • Red = not at goal and will not meet by the end of the year without corrective action

January 2018 Goals

On financial goals, the only one I definitely am good on is maintaining our coverage metrics for things like emergency fund and irregularly occurring expenses.  Our FI metrics were pretty flat, but given market movements they should have improved.  The big negative was our spending, which was over budget in a number of areas. More detail on that below.

On personal goals, I did a pretty good job on these, but didn’t make any progress towards my goal to lose weight.  Some combination of our family has been sick since December and we are also still trying to figure out schedules with both of us working again.  That just didn’t leave any time for working out, which I need to do.

The blog was the one decent area of progress.  I was able to increase my output to nine posts this month, but at the expense of a consistent posting schedule.  I also was able to write another four posts for February already.  My pageviews, visitors and Twitter followers continue to grow, but it’s tough not to compare to others.  I’m interacting more with other bloggers too, primarily on Twitter or the Rockstar Finance Forums.

Savings Update

It’s not what you earn, it’s what you keep.  After-backing out tax withholdings, we have pretty consistently saved around 40% of our earnings, which should now be easier since we’re back to earning two incomes (although we now have two daycare bills as well).

January 2018 Savings Rates 12 Month Average

The savings rates above are on a rolling 12 month basis, so the big bump up from March to May was a hangover from my higher-paying prior job.  We budgeted a savings rate of about 41% before employer matches this year, so we should be able to maintain sometime in the 40-50% range all in.  I’ve automated all of our savings, including transfers to a taxable brokerage account, so hopefully have set ourselves up for success.  The test will be whether we can stick to our spending budget or if we need to back off on savings a bit to adjust.

January 2018 Savings Rates Table

Spending Update

I created a detailed spending budget for our family for 2018…and then quickly threw it out the window.  Almost every single of the main categories of our budget missed projections.

January 2018 Spending Budget vs Actual

Some of these were easily explainable, but others were not.  The main sources of variance were:

  • Cold weather caused our heating bill to be bigger than expected.
  • The way the days fell and when daycare is billed resulted in a extra week or so being billed.  We’ll earn this back over time.
  • A couple of dinners out when we should have stayed in and cooked.
  • The amorphous blob that is “shopping.”  There were some things in here I know were big impacts (new dress shoes for work, kids outgrowing clothes, etc.) but the rest of the variance is a mystery to me.  I need to dig in here more.

Because we missed our budget on spending, that’s all money we won’t be able to save for the future (it’s not dollar for dollar because most of our spending is on credit cards and won’t impact cashflow until next month).  It will also negatively impact our financial independence metrics since the higher than planned spending necessitates a bigger portfolio, all else equal.  Our FI metrics should have improved this month with the big jump in net worth we experienced, but that was offset by the impact of our higher spending.

Net Worth Update

Our net worth grew again in January, but at an even higher clip than what we saw last year.  It’s getting real hard to not think the market is overheated, but I’m sticking with my asset allocation and will ride it out.  Whatever the direction..

January 2018 Net Worth GrowthJanuary 2018 Net Worth Growth Table

* Total net worth – home/vehicle equity – unvested 401k balances – estimated deferred taxes

** Baseline net worth – 401k/IRA retirement savings – 529 college savings – life insurance cash value – real estate crowdfunding investments

Our total net worth was up 2.9% in January, almost exclusively from investment portfolio gains.  Those gains vastly outweighed the impact of our savings and other changes in net worth.  The market has given back some of these gains in recent days, but it still far exceeds anything we’ve seen in the last 12 months.

January 2018 Change in Net Worth

January 2018 Change in Net Worth Table

Investment Portfolio Update

I track all our investments in Personal Capital which is useful for having asset allocation tracked automatically.  Here is our asset allocation at the end of January.  It hasn’t moved that much in the past few months despite how much movement has occurred in the stock market.

January 2018 Investment Portfolio Allocation

None of these buckets are materially different from our target allocation, so no rebalancing is necessary.

January 2018 Investment Portfolio Tax Allocation

In addition to tracking our investment portfolio asset allocation, I also track the distribution by tax status.  Our investment portfolio comprises tax-free Roth IRAs, tax-deferred 401k’s and taxable brokerage accounts.

As we get closer to financial independence, this will become more important as I start to think about drawdown strategies.

Conclusion

January was a month of positives and negatives for us.  While our net worth grew meaningfully due to the market, it also showed the risk we have for not sticking within our budget.  Every dollar we spend is a dollar we don’t save and that puts us that much further away from our goal of financial independence.  I need to really stay on top of this going forward.

Onwards to spring…

John started Present Value Finance in 2017 to share his experiences and insights on personal finance to help people make better decisions and take control of their financial lives.  

He achieved financial independence in 2016 by walking away from the high stress world of corporate finance to focus on his family. He’s a husband, father, family CFO, and all around finance geek.

He uses Personal Capital* to track his spending, investments and investments for free and recommends you do too.

* Affiliate link.

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