First things first. It’s important to KNOW HOW to calculate your net worth. But, it’s important to NEVER VALUE yourself by it. You are so much more than just a silly number.
Having said that, I was quite hesitant to share our net worth and cash flow values with the public. I didn’t like being vulnerable because there was a deep-rooted fear of how others will judge me. But…
it’s not about me. It’s about YOU, my readers and what you can learn from seeing REAL raw data.
There’s something raw and visceral about seeing someone’s financial situation and how they approach life. I first came across this concept reading Budgets Are Sexy where J. Money hangs it all out there. As it turns out, he’s got another fantastic site called Rockstar Finance which actually consolidates my fellow net worth tracking bloggers.
It’s inspired me to do the same and I hope in my sharing (the good and the bad) it will provide inspiration, real-life insights, and help you to stay focused on your financial journey. After all, my site’s all about getting you financially alert! Finally, it will help keep myself accountable with my future goals… there’s no hiding or excuse-making anymore. 😉
Net Worth Snapshot
Finding your net worth is determining your total assets and subtracting your total liabilities. For more detail on how to do this, you can check out my article – How to Budget Like a Badass (pt 2)
Every month, I’ll do a quick review of the prior activities for the month. I use Personal Capital to help me consolidate my data because it can seamlessly tie in multiple bank accounts, investment accounts, credit card accounts, real estate values, and even liabilities. It’s pretty cool in fact.
At 42 years old, I know I am blessed to have a net worth of ~$2.1M. It allows me to have a very comfortable life, and at the same time, I’m driven to grow more. My long-term goal is to grow my net worth to $10 million by the time I’m 50.
Luckily my buddy, Dom, over at GenYFinanceGuy is ready to tackle the challenge with me. We’re gonna kick each other’s butts until it’s done… he’s not far behind and his momentum is insane!!
How I Got to Where I am Today
If you’ve been reading my blog a bit, you’ll no doubt know that I’m a personal development junkie and mind over matter kind of guy. I take a perspective of abundance in this world and see it all around me. I have a very large extended family (~30 aunts and uncles, & ~50 cousins).
Some have done very well for themselves. In fact, without knowing specifics, I’d guess there are at least 2 dozen self-made millionaires in the mix with mostly real estate & businesses as their primary wealth vehicles.
The reason I share this is to illustrate how influential the people are who surround you. Even though my specific family wasn’t that well off growing up, I was close enough to “success” to know what was possible.
“Surround yourself with only people who are going to lift you higher.” – Oprah
Because of this influence, I was always entrepreneurial and always knew I’d be a millionaire one day. Growing up in a broken household and worried about finances in my adolescence just fueled that desire even further.
Expect more from yourself, and hang out with those who expect more from you.
Paying Myself First
In 2001, I landed my first job out of college. I felt super rich! I was making $42,000 a year as an IT administrator and I was still living the life and expenses of a college student.
Since I was continually reading PF books and trying to figure out the best way to manage my finances, I decided to set aside a large chunk of this income into my company’s 401k, an automated savings account ING Direct (now CapitalOne 360), and eventually a Sharebuilder account (automated dollar-cost averaging equity investments).
This simple process allowed me to set up the proper habits of savings which is a huge reason why I’ve been able to accumulate the assets I have today. Over my working years, I estimate I saved anywhere from 35%-60% of my income in a given year. Want a badass budget of your own?
Advantages Along the Way
Full disclosure here. Although I didn’t grow up as a trust fund baby, I did have some advantages along the way.
My father was kind enough to provide full college tuition for me in addition to subsidies. So, although I worked a little bit during college, it wasn’t a requirement and I walked out of school with $0 debt. (Props to those of you who took on debt to get through school and then paid it off before building your wealth. I admire your perseverance!)
Sadly in 2005, my Mom passed away from an aggressive lung cancer (she never smoked a day in her life). I inherited about $135,000 from my Mom’s estate, including a 3.33% fractional equity share in a real estate apartment investment. This essentially doubled my net worth in 2004 to $358,000. Of course, any inheritance is bittersweet with the passing of a close loved one. I vowed not to waste the advantage I was given in honor of my Mom’s selflessness as a single mother.
*Note that even though I had a decent head start than most, advantages will do you no good if you don’t practice sound financial principles. Had I not been given these advantages, I would have still become a millionaire (maybe not as quickly), so don’t let your situation become an excuse for not trying. You’d be surprised what you are capable of. For an example of someone without the advantages I’ve had, but still a 30-something millionaire, check out Justin’s story at RootofGood.com.
Risk taking has been a critical skill towards building my net worth. Probably the number one best return on my investment has been starting, running, and selling a business. I had zero clue how to run a business when we started, but I figured it out. The same held true with real estate investing.
All too often, we get stuck in an “analysis paralysis” mode and fail to act. So, taking a leap of faith is critical (in both business and life). It’s the only real way to grow. Remember, sometimes the riskiest decision is doing nothing at all. Don’t live a life of regret!
Take risks early, often, and with care (i.e. gambling is NOT a wealth-building strategy!).
As I mentioned above, saving a large portion of my paycheck was a huge reason for my current net worth. But, I also made some strategic decisions with my time and money to focus on assets that could help grow my net worth even quicker. These two assets were my business and purchasing real estate investments.
As a 30% equity owner in my IT business, I was constantly trying to figure out better ways to increase the value of our business. Most professional services firms will never sell their company with a large multiple on their revenues, simply because it’s not a super scalable business model. A lot of it comes down to trading time for money. But, in early 2008 I found a way to partially address this issue and I spearheaded a conversion to our business model into a subscription-based one.
It was a pretty tough transition in the beginning as we were early adopters of the model, but now it’s commonplace among IT service providers. Once we figured it out, we were able to secure 1-3 year-long service contracts with our clients which were pure gold. This eventually allowed us to sell our business in 2011 for a low seven figures which was double what other companies were getting without contracts in place.
I also didn’t want to rely on savings or the business alone, so I invested savings into real estate along the way. In addition to my primary home (which I wouldn’t call in investment), I purchased a few other investment homes. Some of these fell flat on their face (like my very first one!) But some other ones have been and continue to perform very well.
Just to give you an example, I purchased a 4 bedroom/3 bathroom house in Las Vegas back in 2011 for $151,000. I put up $15,000 for the down payment, another $8000 for repairs, and financed the rest at 4.5% for 30 years. It currently rents out for $1385/month and spits off ~$200 cash every month. Better yet, as my principal is being paid down by my tenant, it’s appreciated about $100,000 in just 3 years, and I can even depreciate it on my taxes each year. I LOVE REAL ESTATE!!
Again, I want to be 100% transparent with you. There are and have been some challenges. And despite being a millionaire, I’m still human and very capable of screwing up! So, despite being able to save a good chunk of change, cash out equity, and grow some real estate investments, I haven’t figured it all out yet. Far from it!
I am humbled every day reading some other personal finance bloggers and how disciplined they are in their practices and understanding of certain concepts that make my head spin (props to Sam over at FinancialSamurai.com who always makes me think!).
Ever since leaving corporate America and coming home to be a stay-at-home Dad, it’s been a challenge to maintain the lifestyle we’ve become accustomed to. Sure we’ve got a decent chunk of change stashed away, but drawing down on principle is NOT a good practice long-term.
At least with my wife back to work full-time (she worked part-time for a year after the birth of Little L), cash flow has returned to break even on a monthly basis (and we even squeeze out a small profit occasionally). So, if you’re considering taking an early retirement, make sure you’ve got all of your ducks in a row. (Joe, over at Retireby40.org has an excellent grasp of this.)
We’ve also been lucky with the recent bull market of the past few years as this has helped our net worth to increase even as our overall cash flow has been down. This however, is not a long-term sustainable strategy and 2016 will be a year of adjustments.
The adjustments are simple. How do we reduce expenses, and simultaneously increase income? I hope to share these challenges as part of my journey going forward. Needless to say, if I’m going to make the $10 Million goal a reality, it’s going to require a pretty huge shift in net income (positive cash flow).
My Monthly Net Worth Report
Starting next month I will be sharing a monthly net worth snapshot, accompanied by an analysis of monthly cash flow. I hope this will be useful for some of you to see and it will also help to keep me accountable to my own goals moving forward.
I hope you’ll join me for the journey!
As a quick preview to this series, I’ve included a chart documenting my net worth over the past 12 years.
Readers, do you find this type of transparency helpful? Are you tracking your net worth?
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