Monday, May 16, 2016

How we've increased our net worth over the past six years

We started tracking our net worth way back in September of 2010, so not quite six years ago, and have made quite a bit of progress over that time. For whatever reason, my graph is super keen to repeat the "Net worth over time" multiple times, just to land the message. ;-) Please ignore.

As you can see, things are moving along in the right direction. Our net worth has most definitely gone down, but it's not visible here, as I only used end of the year numbers to streamline. Between May of 2011 and October of 2011, our net worth dropped by $260K, when the housing market bottomed out. 

I wish I had all of the magic solutions on how to get the same results with your net worth, but I don't have that. I can, however, tell you what worked for us. Your mileage will obviously vary.

  1. We invested in our retirement accounts, early. I've been investing since I was 22, and maxed out every year for about 17 years. M got a slightly later start, but has also been maxing out. What does this mean? Lots of compounding interest. We've also had employer matches, which always helps. We're not quite to the one million mark, but hopefully over the next couple of years. 
  2. We bought a house at the high end of our price range, way back in 2005. I wouldn't recommend that strategy, but our salaries have gone up, making our primary residence (now rented, in Seattle) affordable over time. 
  3. We improved our property. Again, our now rental property in Seattle, but we put in quite a bit of cash to remodel before we rented it out.
  4. We refinanced into great mortgage rates. Our primary residence is at 3.25%, and our vacation house is at 2.5%.
  5. We have no debt, other than our rental house & vacation house. 
  6. We knew that we would spend our income as it grew, unless we stretched ourselves. As a result, we bought a vacation house. This is another strategy that probably wouldn't work for most, but for us, it would have been a great strategy, had we not moved. ;-) It definitely forced us to divert more of our income every month to real estate, vs spending. Now that we need that cash flow to buy in California, it's caused more of a challenge for us. Hindsight. 
  7. We kept our spending in check, even as our incomes grew. This has been hard for us, but we prioritized traveling & trying to keep our vacation house, which made it easier to cut back on more frivolous purchases. We are far from perfect, but do track our expenses every month.
  8. Speaking of, we track our expenses, This has made a huge, enormous difference in #7. I can't begin to imagine how I budgeted way back when I would create the budget at the beginning of the month, and then reached the end of the month trying to figure out where all of the money had gone.
  9. We don't consider ourselves wealthy. Because, we don't give ourselves a lot of disposable income. See #6. 
  10. Every month, every dollar has a place - college funds, mortgage savings (for a California house), travel funds, taxes, an emergency fund, groceries, etc. If we leave it to chance, it will get spent. ;-)
  11. It's not really a tip, because much of this is outside of your control, but we've grown our income every year. In some years, by significant amounts. This has come with major down sides as well (work life balance), so it's not for everyone. Even us. We've furthered our education, moved for jobs, increased travel, increased work load, taken on new challenges, and rebuilt our skill sets, as jobs have required it. 
And, those are the tips that have worked for us. Some were intentional, some were risky, and some were less thoughtful than others. What about you? What has helped you grow your net worth? Where are you at on the growth curve? Just starting out, or a bit further along? 

12 comments:

  1. We did many of the same, particularly retirement accoubts early and more education-increased earnings. We thiugh bought low end and kept housing costs very low compared to average. I feel comfortable-but anxious about more dives in the economy.

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    1. If the housing market tanks, it will be a win/lose situation for us. We can likely finally afford something here, but will lose value on our other properties. So, silver lining? ;-) We have a reasonably diversified portfolio, so I look at it that, if something big enough happens to create a major challenge for our portfolio, the price of goods & services would also likely come down, so our purchasing power would remain relatively stable. No idea if that's accurate or not, but that's my reassurance at night when I can't sleep ;-)

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  2. We were saving a lot until college hit. Then our savings rate dropped. Three kids in private colleges is very expensive. Now the youngest is probably going on to 4 more years (wants to go to medical school). Even if he takes some loans we want to help him. I added up all the tuition, plus the expensive summer programs, and the help we gave to get them started while they lived in pricey urban areas for first jobs. So far, tally is $700,000!! That means we needed to earn $1,400,000 gross. Kids are expensive if you are the type of parent who can afford to give them pricey educations and not spend on yourself. Hope it pays off.

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    1. Oh my goodness! That's a crazy amount to add up. I used to keep a running tally of the childcare expenses, but it got too depressing. It's still a lot, although we're more in the $25K range/year.

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  3. Those are some great tips for people especially in their 40's. We ,unfortunately ,did not get any advice or guidance even when we were young. My husbands parents(divorced) were quite well off but since we moved from the east coast to the west, they sorta ignored us. Both my parents died young so no guidance there. We are definitely feeling it now as we approach retirement. Well, I don't work anymore since I lost the best little job in the world, because of my ongoing cancer treatments which keep me in a VG remission. We are maxing my husbands 401 but as much as it will help, its maybe a little too little too late. But I'm positive about things and we will do what we need to get by. We're going to look into a refi but the rate is still 4.1 so not great but it would lower our payment and thats really the bottom line for us if we want to stay in our small house. At least we're not underwater anymore. when we had our loan modified under Obama's plan our rate was an incredible 2.2 or something but each year it went up under the modification. This fall its too cap out at 5. 2 so thats why er'er trying to do a Harp refi( no qualifying, no appraisal etc). i have learned so much in the last 7 years since I seriously started budgeting, I just wish it had been sooner. Good for you guys!!!

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    1. We didn't get much advice, but my parents were a pretty good example. They paid off their house at 40, on a teacher's salary, by living frugally and carrying no other debt. I'm so sorry that you had to give up a job that you enjoyed - that's really a hard tradeoff to have to make.

      Maxing out the 401k is not too little to late- it's taking an active step in the direction you need to go as retirement pends. You are doing great!

      And, I'm like you, I've learned so much since I started tracking. Wish I'd start 5 years earlier - we'd have a lot of flexibility now if I'd begun this adventure pre-kids.

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  4. Most of our net worth/money is tied up in our house. It is paid for and we have no debt at all, but it feels like "house rich, cash poor." Also, our daughter will be starting college next year and we are hoping to help her graduate without crushing debt. It is worrisome! At 50 years old, my husband and I are getting very anxious (stressed) about retirement and outliving our money.

    You did what every financial advisor says to do: Start saving and investing early, ideally with your first job. If only we had done that!

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    1. I can definitely relate on the house rich, cash poor! If we do end up buying a house in the Bay area, that will definitely be the case.

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  5. That's very impressive that your net worth nearly quadrupled in 6 years!!! Ours has little more than doubled. I will be thrilled if it doubles again in 6 years.

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    1. It's been a little crazy, honestly, and it feels like the snowball just starts to get bigger & roll faster. I also think we've started to really build the right habits, and each year keep those & try to add new ones to our toolkit.

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  6. That net worth increase is FABULOUS! We're no where, NO WHERE near your ballpark but I'm happy, no I'm thrilled to report that we went from a negative net worth as of last year (and basically every year prior to that) to $22,000 at present. Progress is progress :)

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    1. Awesome work!!! Super exciting once you are out of the red, and making progress on the growth. Congrats!

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