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.
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
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.