All the Sparkles // 2016 Q2 Financial Update

This is a post I’ve been dying to write for weeks now, and you’ll see as you read that I was powerless to contain the excitement. We got ahead of schedule on our journey to early retirement at the end of last year, which motivated us to up our game even more. As of the end of the first quarter of 2016, we were seeing faster progress from our stepped-up efforts. And now, at the end of Q2, we’re seeing a whole bunch of options open up to us. :::It’s haaaaappppppening:::

A Quick Rewind

Early last year, when this was still a baby blog (with headlines still in all lowercase — ha!), we proclaimed to all the internet that we will retire at the end of 2017, no matter what. If we fall short of the numbers we hope to hit, we’ll figure it out, we’ll adjust. And that was an ambitious goal. We’d previously had what we called The Ten Year Plan, even though it was not much of a plan and had no actual timeline attached, which would have had us quitting around 2022. But at the start of 2015, we both said, “Let’s speed this thing up!” and we set as ambitious a course as we thought we could manage, and were off. But thanks in large part to the encouragement of this smooch-worthy PF community (that means you!), which we love deeply, we ended 2015 ahead of schedule, despite previously thinking that the goals we’d set for the year were a serious stretch.

Coming into this year, we got small raises which we’re sinking straight into savings instead of inflating our lifestyle, and we have the income from the personal loan we made which we’re socking right back into Vanguard, both of which are upping our savings rate. But we’ve also been doing more to constrain our spending with our non-budgeting approach, mainly by putting more money than planned into Vanguard at the start of the month, and then seeing if we can somehow make that work. If we still have money leftover at the end of the month, then we do that same amount again the next month, or maybe even raise it a little more. We found the point where that got painful, and that’s where we’re hanging out now. Kickin’ it at the pain point. (Name of our first album?) The result: our monthly contributions are significantly bigger than last year’s, even though our 2017 FIRE timeline didn’t require us to accelerate our progress each year. Result of the result: we keep getting farther ahead of schedule.

Major caveat: We know that we’re incredibly lucky to earn incomes that are more than we need. And our high savings rate is almost totally driven by the earnings side of things, not the frugality side. Yep, we’ve cut out plenty of things that we used to spend money on, but we’re under no illusions that we’re super frugal people, or even that “frugal” would be an appropriate term to use for people who can insource labor and make lower-priced purchasing decisions out of choice, not necessity. But we’re including this caveat here because we never want to contribute to savings rate shaming. (Boo! No shaming! All saving is awesome!) We save a lot because we earn a lot, and not because we’re superior beings. We’re not better than anyone who’s saving less, we’re maybe just luckier on this particular thing.

Where We Are Now

We now realize that we need no market help at all to hit our goals for the end of 2017, and so long as there’s not a seriously major market crash between now and then, we should end up with ample cushion. This is the Best. News. Ever. for a risk-averse person like me. Instead we find ourselves debating things like whether we could quit even earlier (Your consensus: Don’t be boneheads. Stick it out through 2017). Or whether we could pay off the house this year instead of next (we possibly could!). And we now watch crazy things happen, like our net worth going up this year by more than we’ve earned, with no trickery from upwardly adjusted property values. This is what happens when you do it right, and intellectually we know that, but it still fills us full of childlike wonder to see it happen in our actual accounts. :::Cue the sparkles:::

So with all that said, here’s our 2016 second quarter financial update!

The Big Picture

This has been a big year so far, both in terms of work being super busy and in terms of numbers coming up Milhouse.

Some sparkle-worthy moments so far:

• Becoming financially independent, technically
• Hitting a big net worth milestone
• Upping our monthly savings by more than 50 percent
• Engaging a whole bunch of you in the Road Less Traveled Challenge
• Getting added to the Rockstar Finance list of best early retirement blogs (!!)
• Averaging 40-50 miles of hiking a week since the beginning of May

Not everything is perfect, of course — we’re sleeping far too little, for example, and we’ve taken way too long to get maintenance projects completed at our rental property. Also, my desk is a mess, I’m behind on several guest posts, and I’m not sure when I washed my hair last. So yeah, a little TMI to balance it all out. ;-)

The Specifics

As always, a reminder that we don’t share actual numbers (here are the reasons why), but we do our best to give a clear picture of where things stand through a range of colorful charts and graphs. Let’s dive in!

Let’s start with the most blunt instrument, our net worth. It’s a lousy measure of early retirement preparedness, since it includes equity in our primary residence and rental property (though we haven’t changed their values in our calculations in two years), as well as a lot of tax-deferred 401(k) funds that we don’t intend to touch for a long time.

Our net worth has grown this year, and looks to be approximately on track to continue the trajectory of the past few years by the end of 2016, especially when you factor in our year-end deferred compensation (easier just to call it a “bonus”). But this doesn’t show that our 401(k)s, which we don’t need for 20ish years, are underperforming while our taxable funds, which we do need in the short-term, are growing fast. For that, we need to look at the breakout.

In the breakout, we see that those big 401(k) funds continue to fluctuate. We’ve been maxing out for years, so the savings rate on those is steady, and they’re big enough now that our contributions do little to affect the overall value at this point. But our taxable savings keep growing steadily despite market fluctuations thanks to our near-singular focus on growing them and continuing to increase our savings rate. And the mortgage balance, which includes our house plus our rental, keeps marching steadily downward, thanks to paying the regular monthly payments, and thanks to the more borrower-favorable amortization on 15-year mortgages.

Our taxable account balance is the one that matters most to us at this point, because 1.) our 401(k)s have already exceeded the amount we’ll ever need for age 60 and beyond, assuming fairly conservative growth, and 2.) we plan to have our house paid off by the time we quit our jobs. So growth like this in three months is a cause for more sparkles. But let’s put it in better context.

In this chart, the orange bars are what we need to have saved to meet our projections, and the blue bars are what we actually saved each year. We got a head start going into 2016, and we’ve accelerated our pace — we’re now sooooo close to our year-end target, and it’s only July. Assuming no big market corrections, we should be able to take a big bite out of 2017’s projected total this year, or make a much bigger than expected payment against the mortgage at year end. (Or quit early??) Which leaves us with my favorite chart of all…

We first created this chart for the Q1 update, to show that you don’t need years and years and years to get to FIRE once you’ve cleared your plate of debt and made sure you’re not living in more house than you can afford. We’ve had two very focused years before this one, and we expect to have one more, for four total. We had assets before we started down this path with such intention, and got lucky by finding a house that’s a whole lot less than the banks would have liked to lend to us. We had debt in our early days, too (about $30K between my car loan, student loans and credit card debt), but it’s been gone for years. So we didn’t start from square one. But we also didn’t start, as the chart shows, from especially far along either.

At the start of 2014, we had only about 20% of the funds in our taxable accounts that we’ll need to sustain us in early retirement, and now we have 78%, up from 71% at the end of March. But the best part is: All we have left to save in our taxable accounts is about double what we’ve saved so far in 2016. Even with smallish bonuses and no raise at the end of this year, we should be able to hit this by June 2017 pretty easily — assuming no major market downturns, of course. We still have to pay off the house, so there will be other demands on our money, but saying I’m pretty happy to know we’re on track to hit our numbers early is the understatement of the month. (Just picture me over here shimmying with spirit fingers, and you’ll get a sense of the level of sparkles I’m feeling. Mr. ONL is excited, too, but on him that looks like pretty much any other day.) ;-)

Goals for the Rest of 2016

Our goals for the rest of the year are pretty simple: Don’t let the excitement of this great progress derail us. Stay the course on savings rate. Keep finding our chill on volatile market days (I didn’t look at our accounts through the whole Brexit kerfuffle! Progress!). Find more ways to give back, especially at year-end once we know how bonuses will shake out.

At the end of the year we’ll also do some more calculations, like whether we should still max our 401(k)s next year, how much cash to start stockpiling in 2017 so we have a multi-year cushion when we quit, and how much to budget for health care once we know who the next president will be. But those are all posts for another time! :-)

Your Turn!

Now the floor is yours! How was your Q2? Anything you’re feeling all sparkly about? Any questions you have for us? Please share in the comments! The interactions and friendships with you guys are why we do this, and we love it all. :-)