Monthly Archives: December 2015

2015 Year in Review & 2016 Goals

Boy did 2015 fly by! It was my first full year of living in Manhattan and my first full year of living the financial independence lifestyle, and I was busy as ever.

I did a lot of traveling and visited the following countries and states for work or personal trips: Bahamas, Grand Turk, Ohio, Michigan, Illinois, Colorado, Florida, Georgia, New Jersey, Connecticut, Rhode Island, Massachusetts, Louisiana, and Minnesota. I saw lots of friends and family, earned some mileage and hotel points, and ate at some really neat restaurants on work’s dime.

Now although I had a ton of fun in 2015, it did not effect my progress against my financial goals negatively. Back in July of 2015, I wrote a half year update to see how far I had progressed against my 2015 goals. Below were my seven goals for 2015 and some explanations for how I finished off the year.

  1. Max out pre-tax 401k – I was planning on maxing out my 401k by November, but I got antsy and decided to apply most of my bonus in September to my 401k to max it out. PASS
  2. Max out Roth IRA – I maxed out both my 2014 and 2015 Roth IRA in 2015, with my final contribution occurring in September during bonus month. PASS
  3. Max out my HSA – As of my mid-year update I wasn’t sure if I would hit this goal, and was planning on missing it by a couple hundred bucks. After I posted the mid-year update, I realized how silly it was to miss a goal by a couple hundred bucks, so I went in and changed my contribution amount, and this will max out in my final paycheck of 2015! PASS
  4. Pay off my student loans – I go back and forth with this on a monthly basis. I officially have one loan left at 3% and the math tells me to pay it slowly but my mind says get rid of the stupid thing. I paid off two other loans in 2015, way ahead of schedule, but I think I’ll pay off this last one off in 2016, so that I’m able to be completely debt free. FAIL, but on purpose.
  5. Never finance a car again – Well I’m still living in Manhattan, and still car-less so this one is a big, fat PASS.
  6. Save at least 75% of every raise and bonus – As noted above I used my bonus to max out my 401k and IRA for 2015, so I definitely saved 100% of that puppy. I’m also always looking at ways to decrease my spending, not increase, so I’ve definitely been socking away 100% of my raise as well (the portion that doesn’t go to Uncle Sam). PASS
  7. Once all tax advantaged accounts are maxed out for the year, begin funneling all savings into my after-tax brokerage account – Ever since September when I maxed out my 401k and IRA, I’ve been funneling all excess cash flow into my after-tax brokerage account like clockwork. PASS

In 2015, I hit 6 out of 7 of my finance related goals, did a ton of traveling for work and personal, and was able to find time to blog and workout. My other main interest besides travel and financial independence is lifting. I targeted getting to the gym 4x a week in 2015, but fell short and probably averaged 3x per week. I’ll discuss my progress and routine below when I get to my 2016 goals.

Here are my 2016 financial goals:

  1. Max out pre-tax 401k – I plan on doing this in September again.
  2. Max out Roth IRA – I don’t really have a time line for this but it will get done in 2015.
  3. Max out my HSA – the way my employer does my contributions, this will occur in December again.
  4. Pay off my student loans – I only have about $4k left at 3%, but I will pay this off in 2016.
  5. Save 100% of my raise and bonus – 75% was too lenient on myself, lets jack it up to 100%.
  6. Contribute to my after-tax brokerage account as much as possible – I plan on making more in 2016, while keeping my expenses at bay, and therefore these contributions will go up. Looking for a big increase year in the net worth department in 2016!

Here are my 2016 non-financial goals:

  1. Get to the gym 4x per week and hit a 315# squat, 225# bench, and 405# deadlift – I follow a powerlifting routine, and my progress is dependent on how regularly I get to the gym. 2015 was ehhhhh in this department. I tend to go on vacation for a week and not lift, or travel for work or work late for a week and not lift. These are excuses I plan on addressing and hope to get my average attendance closer to 4 times per week in 2016.
  2. Try and negotiate a remote work arrangement for at least six months – I think this is doable if I sell it well. I work for a big bureaucratic company, so usually this request would fall on deaf ears. But I work in a smaller division and we operate fairly autonomously, and my main boss seems to consider my well-being for the most part. I’ll start with a six month ask, which would span from spring to fall and then basically leave it open to working out of an office after that to sweeten the deal for them. I’m still figuring out when and how to request this, but I’ll write about my success or failure (cross your fingers for success) once I request it. My Manhattan lease isn’t up for a few months, so I have some time to plan. Can anyone say geographic arbitrage?
  3. Read more books in 2016 – I’ve definitely read more in 2015 than I have in the past. I just need to stop trying to convince myself to read fiction, as I’m a non-fiction guy. The fiction I like has to be on TV, so I’ll stick to non-fiction books related to finance and biographies as they peak my interest the most.
  4. Travel – I did a lot of this in 2015 but am planning just as much, if not more, in 2016. I have already booked a cruise for February where my girlfriend and I will visit a few places I haven’t been before such as Belize. I also have quite a few weddings, and depending on if this six month work arrangement ends up, who knows where I’ll travel to! I’m also debating if a trip to San Diego for FinCon is in the cards.

I was lucky to have a great 2015, and hope 2016 is just as great. Thanks for being part of my journey, and Happy Holidays and Happy New Year! I’m so pumped for what 2016 has in store!

How was your 2015? What do you have planned in 2016 that has you ready for the new year?

Financial Independence All Around Me

I’ve been on this financial independence journey for less than two years, but in those two years I’ve never really heard of anyone in the “real world” talking about financial independence. That’s partially the reason I started this blog so that I could share my journey and discuss financial independence with like-minded individuals, because it seems to be voodoo outside of this community.

Something happened the other week that took me by surprise. Financial independence and related topics reared their head THREE times in one week! I was happier than a kid in a candy shop. I remember texting my girlfriend right after one of the encounters because I was just so happy and had to tell someone. My first encounter was in a very public environment, which made it that much more surprising.

The Conference

About two weeks ago I was at a work conference in the Midwest. I was in a room full of around 400 accountants and people with financial jobs. At one point during the conference there was a panel of three people with some pretty fancy financial titles from some big companies giving a talk. When it got to the end of the panel discussion, they asked the attendees to ask questions. One woman asked if they could discuss any adversity they have encountered in their careers and how they overcame it.

One of the panelists told a story about how when he was about 30, he was asked by his boss to do some sketchy things at work (accounting things). He hated this and it stressed him out greatly. He told his boss he wouldn’t do what he was asked and called his wife to warn her he might get fired. He told himself that day that he would live a life of financial independence, and subsequently paid off his mortgage and all his debt so that he never had to rely on his biweekly paycheck to live again. Right here I was wondering what was going through everyone else’s head as they listened.

He didn’t want to have to do something his bosses said that he didn’t feel was right, just because he needed the paycheck. I don’t believe he was fired, and it seems like it was a happy ending.

Unfortunately I didn’t muster up the courage to walk up to him after and ask him about his financial independence journey, but he is probably in his mid 40’s now and I am definitely curious if he’s actually financially independent and working because he enjoys it, or for other reasons.

The Business Owner

A cool part of my job is I get to meet a lot of business owners and entrepreneurs. I had a meeting with a business owner down South. I never know what to expect when I go to these meetings as the personalities I’ve encountered are always something different. This time I was pleasantly surprised.

The business owner pulled up to the meeting in a Honda Accord, he wore a Timex watch that had to of cost less than $40, and his khakis which he was wearing were probably given to him for Christmas ten years ago. He was in his mid to late 50’s and had removed himself from the day-to-day operations of his business, which I don’t see very often with many of the type A business owners I run into who have trouble letting go and passing the reigns on to other qualified people.

He had left the room at one point and one of his managers he had in place to run his business couldn’t say enough nice things about the owner – “He is the type of person who knows when enough is enough, it’s a great quality, and you don’t find it in many people anymore.” If I didn’t know otherwise, I would of thought he was an 8th grade science teacher and not a business owner with an eight figure net worth.

Saving His Whole Salary

I was at a work dinner and my boss started talking about his career projection. Who doesn’t love learning the nitty-gritty about their bosses? He talked about how when his wife graduated from law school while they were in their mid-twenties and started working at a law firm, they saved 100% of his salary and about 15% of hers. This continued for eight whole years until his earning potential surpassed hers and she decided to stay home with their kids. I was so into the story as I thought it was awesome, until he started talking about his mansion which he now owns. Of course I Zillowed it and now know where all his net worth is. I’d rather have financial independence instead of a 6,000 square foot home, but to each his own.

I love seeing people practicing financial independence, or at least living within their means. It took two years for me to hear people discussing it in the real world, and somehow related topics came up three times within a one week period. Unfortunately I was brought back to reality on Sunday when my roommate was complaining about how he had to work on Sunday, and I told him to start saving his money so that he doesn’t have to work until 60 and his response was “that’s stupid.”

Has anyone in the “real world” discussed financial independence in your presence? If so, share your story below!

Unicorns Hiding From Index Funds

We are going to change subjects a little bit today and discuss unicorns instead of financial independence. Now by unicorn I don’t mean the mythical horse-like creature with a horn on its head, I mean the startup companies, which are usually in the technology industry, and reach billion dollar valuations in just a few short years.

Back in 1997 a little company known as Amazon was looking for some capital and was ready to expand. So they did what every other company did when it got to this point, it tapped the public equity markets. It had an IPO (initial public offering) and raised $54 million, and after its IPO its valuation grew to $438 million. IPOs give a company capital through selling equity shares, which they use to invest back into the company, and also give shareholders of the company an easy way to “cash-out” and liquidate their investments, and at (hopefully) a decent price. When 99.99% of your net worth is tied up in a tech company you founded, it may be a good idea to sell at least a few shares to diversify a little, wouldn’t you think?

Let’s fast forward to December of 2015. Amazon now has a market cap of $315 billion (yes billion with a “b”). What this means is if you invested $10,000 in Amazon’s IPO in 1997, you would have approximately $4.4 million today (according to Business Insider). For the many index investors in this community, this type of unicorn is a great thing. By investing in total stock market index funds we unfortunately invest in some companies which go bankrupt (luckily the most you can lose is your investment), but at the same time we’re able to ride these unicorns which appreciate our original investment exponentially and in essence wipe out the losses of the companies which go belly up.

But something structurally has changed in the past few years in the way which companies seek to raise capital. Unicorns today don’t act like Amazon. A couple unicorns that come to mind are Uber which has a current valuation of over $50 billion and Airbnb which has a current valuation over $25 billion. Unlike Amazon, we have been unable to ride these unicorns since they didn’t seek our money as an investment through an IPO, but rather tapped the venture capital and private equity markets, which are extremely tough for people without seven plus figure net worths to invest in.

There are a few reasons why these technology companies have not IPO’d like similar companies have in the past, which I have outlined below:

  1. Today, companies are getting venture capital and private equity investments at some pretty high valuations, which back in the 90’s was much more possible through an IPO. These venture capital and private equity markets weren’t as lush as they are today.
  2. There is less regulation for non-public companies. No quarterly reporting requirements, less compliance, no SEC or PCAOB regulation, and less investors and analysts to answer to.
  3. There is less public scrutiny over your business when you aren’t public. Public companies get beat up pretty hard in the public eye. Miss one quarter’s earnings target and the media acts like you’re going under. When the only people seeing your financial results are a few investment firms, it becomes easier to manage expectations.

Now you’re probably asking – so what FF? What does this actually mean? That’s a good question. Could it mean smaller returns for equity index fund returns? Maybe. Could venture capital and private equity money dry up and growing companies start tapping the public equity markets again and find their way into our index funds? Maybe. Could it mean absolutely nothing? Maybe.

If Uber or Airbnb do IPO someday, they’ll be doing it with valuations over $25 billion and not $438 million like Amazon did in 1997. Therefore when our index funds buy these companies’ shares when they IPO, the potential ride higher has definitely been cut short due to how late in the game they are IPOing. I guess for the time being I’ll sulk a little knowing unicorns are hiding from my index funds, but at the same time I notice they may come back in the future.

Have you tried investing in venture capital or private equity? Does it even matter to an index fund investing strategy that companies like Uber or Airbnb are choosing to tap private equity / venture capital markets instead of IPOing?