Happy New Years, everyone!
Performing a detailed and regular analysis of personal finances sucks. It’s also indescribably important if you want to retire early and with confidence that you’re really ready.
So after a 2 year hiatus and many requests from the awesome and loyal readers of this site, I’ve decided to bring back my monthly financial reports that I used to write. I quit writing them in January 2012 because, well, they were boring for me to write and they started to all look the same. At the time I didn’t think much of the decision, but it’s been two years and I still get requests from both new and old readers to bring them back. The public has spoken.
With that said, I do plan on making a few changes to the content and format.
First, I’ll no longer be publishing my salary from my 9-5 job. This is because it varies so much from month to month that it can be misleading or confusing. Some months I get 2 paychecks, others I get 3. Other times I’ll get bonuses or vested stock option. And while all this variation occurs, it means absolutely nothing towards my real goal of retiring and living comfortably on my passive income. This is why I only want to focus on my passive income and any money my wife and I make on the side doing things we enjoy.
Second, I’ll no longer be publishing my total net worth. When I started out this early retirement journey, I published my net worth because I had just read Your Money or Your Life and Early Retirement Extreme, which mostly concentrated on the 3% Safe Withdrawal Rate strategy (SWR). In other words, my ability to retire was directly proportional to my net worth, not my passive income. In the past 2.5 years however, I’ve spent a lot of time transitioning my investments to dividend stocks, interest yielding bonds, real estate investments, and other income generating investments. So now I prefer to track my actual passive and enjoyable income, rather than a fictional (although empirically reasonable) SWR.
This change in approach is heavily inspired by my revised model of wealth, and something you might want to research and consider if you’re on the same path. I won’t and legally can’t recommend this same strategy for you, it’s just a model that I’m most comfortable with.
I’ve also found this investment model of looking at passive income to be a lot more fun. I take great pleasure watching my passive income grow and see investments cover specific monthly budgets.
Hey look honey, Aflac (AFL) is now paying our monthly electric bill! And Pfizer is paying for our electric, gas, and water!
Better yet, this doesn’t just start once you have hundreds of thousands of dollars or you reach FI. Even after you invest your first $5000 into a dividend yielding stock at a 4% yield, that’s still $200/year and $16.67/month! That alone can be put into real terms! You could make that your monthly alcohol budget, covering two $8 six packs per month. You now have a lifetime supply of beer. But it gets better. A few months later, you might see the dividend rise 10% even though you haven’t invested any more into that stock. This means your income rises to $220/year, $18.33/month. Now you’re drinking the $9 import beers.
Tracking income and forgetting net worth also increases the significance of side income created from various entrepreneurial venture. This makes those side gigs more immediately enjoyable to watch grow, it also motivates your desire to make them grow. Maybe this isn’t for everyone, but it certainly is for me and anyone else born with an entrepreneurial spirit.
You can watch as many football games you want, you’ll still be a terrible quarterback. You can watch every youtube clip of great public speeches, you’re still gonna suck at the podium if you haven’t done it before. And when it comes to finances, I can’t stress enough how writing these income & expense reports changed my financial health and perspective. It helped me drive down my expenses by over 50%, and put some real focus on my income growth – all while improving my happiness in life.
Reading my progress may be motivational and give you ideas, but it won’t make you a great quarterback or an exceptional public speaker. And so my challenge to you…
If you have a goal to achieve financial independence, start tracking a similar monthly report. You are free to do this anywhere you want – start your own blog (and send me the link!), create a Google Doc, or keep it in a notepad and let us all know how you’re doing.
I’d also like to offer up my own space here at BNL if there’s interest from people here. I could set up a lightweight forum for people to track their progress using a similar (or different) format than I’ll be using to track my progress. You could update your monthly reports, and have others see it as well. I think it would be a lot of fun if we got enough people tracking their own progress, learning from each other, advising each other with new money saving ideas, and encouraging and motivating other’s to continue their journey. If this interests you, let me know in the comments below or by clicking on the “Contact Me” link. If there’s interest, I’ll set something up before the end of the month.
FYI, I only spend about 2 hours at the end of each month to track my finances. That’s all it takes because I do all the tracking automatically through Quicken Home and Business. I just bought the new 2014 edition a few weeks ago, and prior to that I’d still been using the 2011 edition of Quicken (and prior to that the 2007 edition). In other words, the price looks expensive at first, but it’s pretty cheap if you only buy it every 2-3 years. Alternatively, Mint.com is a free web-based version. Mint is good too if you’re on a tight budget, but I definitely prefer Quicken and I’ve found that it pays for itself simply by helping me reduce my expenses (not to mention saves me a ton of time).
So let me know if you’re interested! Whether you’re $20K in debt, or have $1M saved, I’m confident this could help you improve your financial health.