November 2012 Net Worth Update

I’ve been tracking my monthly expenses since the beginning of this blog. Recently, I thought it would also be a good idea to give readers an update on the net worth progress after the conclusion of each month as well.

Progress

When calculating total net worth, I am leaving out the rental property and any cash (e.g. emergency fund). The portfolio will consist of all holdings contained in: taxable accounts, retirement accounts, and ESPP.

Technically, I still owe taxes on my 401k, since this account is tax-deferred. But who knows what the tax laws will be like when I’m 59 1/2? I also owe taxes on any dividends earned in the taxable account. But, I’m not looking to over-complicate things, so for all intent and purposes, I’m ignoring all tax considerations when calculating my net worth.

Here is the update for this month:

Roth IRA: $35,347.32
401k: $75,972.50
Taxable: $64,996.14

Total: $176,315.96

Thoughts

My target for monthly expenditures is $1500. For the past few months, I have been overshooting this amount due to excessive spending. This past month, I spent close to $1700. And although I haven’t been meeting my set target, I still don’t feel like I’m in danger of losing control of the situation. For instance, I spent more because the Giants won the World Series, so I purchased some memorabilia. This is an aberration that won’t be occurring every month. Frankly, no, I don’t feel like I need to set a budget.

With that said, when setting my monthly expenses to $1500, and a SWR of 4%, I find that I need a portfolio worth $450,000 in traditional retirement. I am now 39.18% of the way there. My taxable accounts currently make up 14.44% of the target.

For someone who is trying to reach early FI, I can see why the need to make up significant ground in a short period of time can force someone to stop focusing so much on the retirement portfolios. I tend to go back and forth on this subject quite a bit. After giving it some more thought, I’ve tentatively decided to stop contributing to my 401k starting next year. At least for the first half of the year. Since I’m now in contract for a second rental property (which may or may not go through, depending on the short-sale lender), it would be prudent of me to have more cash on hand for the immediate term. I should still have enough to keep funding the Roth IRA.

Further, even if the rental property doesn’t work out, and I find myself sitting on a lot of cash on hand, I still don’t want to slow down the progress of the taxable account. That is, even if I re-start the 401k contributions, I won’t be contributing up to the maximum ($17,500). Instead, I will work hard to continue building up the taxable account. Since my goal is to reach early FI, I’ll need the majority of my passive income to come from the dividend portfolio (and rentals), in order to pay for monthly expenses. I’m not currently planning on touching the retirement accounts until traditional retirement age.

The longer I stay in the rat race, the more I desire to check out. I keep telling myself I’ll hold out longer, to fund more into my retirement accounts, but it’s getting more and more difficult with each passing day. In my case, I can’t have the best of everything, and it’s too much of a struggle to try and fund: downpayment, taxable portfolio, Roth IRA, and 401k. Something’s gotta give.

 

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MartinBrick By Brick Investing | MarvinJC @ PassiveIncomePursuitFI FighterLeigh Recent comment authors
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Sam
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Sam

Good progress man. What do you plan to do with the 450k? Withdraw or invest or both?

Sam

JC @ PassiveIncomePursuit
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My net worth makes a steady climb every month. Now I just need the dividend portfolio to start churning off more dividends and I’ll be good. I’ve struggled with the 401k issue as well as when would I finally leave after reaching early FI. In the situation that I’m in now I’ve decided that contribute just enough to get the full match is the best way to go because that’s free money. You won’t get that kind of return anywhere. I’ve also thought about when exactly I would want to finally leave the rat race once I get the opportunity. Sometimes it’s leave as soon as possible, others I think work one extra year and pay cash for either our primary residence with land or for a rental property. But that’s a bridge I’ll cross when it’s actually close. Congrats!

Dividend Mantra
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FI Fighter,

You have a hell of a net worth for someone your age. Great job man.

I don’t fund any retirement accounts at all. I know there are loopholes with ROTH IRA accounts and all that, but I want to make sure that when I do check out, my taxable account can fund 100% of my expenses based on my dividend income. I want no questions. Plus, my employer doesn’t match anything for a 401(k). If they matched, this would complicate the matter. As is, it makes it easy for me to choose.

“The longer I stay in the rat race, the more I desire to check out. I keep telling myself I’ll hold out longer, to fund more into my retirement accounts, but it’s getting more and more difficult with each passing day.” – I also suffer with this. My job is particularly stressful, and the hours (over 50 per week) kill me. I’m doing my best to keep going and keep making progress, but I do wonder if the day will come when I just can’t do it any more. I sometimes think that meeting 50% of my expenses through passive income and working part-time might not be a bad way to go either, especially if reaching FI at such an early age might mean you’re going to work part-time doing something anyway. It’s something I struggle with a bit. I suppose semi-retirement in your early 30’s isn’t too bad. Then again, I really want to reach 100% financial independence so I keep going.

Best wishes!

Martin
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Although I have 401k, ROTH IRA, I like having most of my investments in taxable account because I like to have ability taking profits anytime I want and not waiting until 60-ish of age (by which I can be also dead prior to tapping into my retirement account). So my taxable account must make enough money for my expenses and taxes. That’s the part of the business. Period.

Average Dividend Yield
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Very impressive. So far, all my investments are in an RSP (retirement savings plan) or a TFSA (tax free savings account). I started funding a taxable account last week because I cannot sell puts in an RSP nor a TFSA – it’s the law in Canada. I didn’t want to pay taxes on dividends and capital gains, but i’ll have to take the hit if I want to start selling puts. Keep up the good work and interesting articles.

JC @ PassiveIncomePursuit
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Since your plan is to not have to touch the 401k accounts and you’ve calculated that a $450k net worth can support you in early FI, I’m just curious why you would count your 401k accounts as part of the net worth figure for reaching early FI? Just wondering. I’m hoping to catch you in net worth.

Leigh
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I don’t count the taxes on my 401(k) either. If you calculated the amount of income taxes you would pay on your living expenses today, it’s not very much. So I’m sure you could structre your withdrawals so that you pay very little.

I’m jealous of the value of your investments! Hopefully I’ll be close to where you are (or further ahead!) when I’m your age.

Does your employer match your 401(k) contributions at all? If so, I would consider putting in enough to get that at least. Have you calculated how much you is the most you need in your 401(k)? MMM has a great post on this: http://www.mrmoneymustache.com/2011/11/11/how-much-is-too-much-in-your-401k/ I calculated that in another 4-6 years, I probably won’t need to put any more money in there.

I’ve definitely been feeling the desire to check out the longer I stay in the rat race as well. I’m switching groups at my job to hopefully help with that somewhat, to give me some increased motivation to work harder to help me have enough time to save.

How much are you seeing in dividends each quarter on your investments? You must be doing pretty well in that department with a $176k balance!

Brick By Brick Investing | Marvin
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Very detailed and transparent. I love it! How much are you able to contribute a month to your taxable accounts after all expenses?

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