Q2 2019 Financial Scorecard: Halfway To Financial Independence?

IMG_4082After a setback late last year, 2019 has been good for the ROMT family’s finances.

During the second quarter, we continued to make progress on each of the three metrics we are tracking on our path towards early retirement and financial independence – net worth, 529 account funding, and passive income.

The resilient U.S. stock market was the primary driver of our good results. The S&P 500 rose by 3.8% in the second quarter, as strong performance in April and June offset a decline in May. During the first six months of 2019, the S&P 500 climbed 17% – its best first half performance in 22 years! As the second half of the year begins, the U.S. stock market is once again near all-time high levels.

It has been two years since we introduced our quarterly financial scorecard, and with our target early retirement date now just two years away, our recent progress has me believing we may really be halfway to financial independence!

I. Net Worth: 95.8% of Goal (+4.0% during Q2 19)

It’s always a good sign when we’re able to increase our nest egg at a faster rate than the stock market is growing, and that happened again during the second quarter! The strong returns from the market, and saving a portion of what we earned, boosted our net worth by 4.4% over the past three months. We finished June 400 basis points closer to our long-term goal than we were at the beginning of April. 

The robust stock market enabled us to hit out short-term net worth goal early. We had hoped to get to 95% of our long-term target by the end of this year, but we’ve now passed that threshold, meaning we’re less than 5% away from the net worth we need to declare financial independence.

Since we achieved our interim net worth goal, we need a new one. Our new short-term net worth goal is to get to 97% of our long-term target by the end of this year. If we can do this, we should be on target to reach our ultimate net worth goal during the first half of 2020!

II. 529 Account Funding: 64.8% of Goal (+5.5% during Q2 19)

As with our net worth, the robust stock market boosted our 529 accounts in Q2 19. The value of our children’s educational accounts rose by over 9% since the end of March, driven by good returns as well as additional contributions. As a result, we’re 550 basis points closer to our target funding level than we were three months ago.

Our short-term 529 funding target is to get to 65% of our goal by the end of September. We just missed getting there three months early, and unless the stock market suffers a significant decline over the next quarter, we should be able to surpass our interim target by our next financial scorecard.

III. Passive Income: 38.2% of Goal (+1.4% during Q2 19)

Our passive income target is our “stretch goal” as we pursue early retirement and financial independence. While it would be incredible to fund our lifestyle entirely via passive income, realistically there’s no way it will happen by our Target FIRE Date.

That said, we continued to make progress over the past three months. Our expected annualized passive income climbed by 3.8% during Q2 19, moving us 140 basis points closer to our admittedly ambitious goal. We’re now 38.2% of the way to our target, thanks to larger dividends from some of our investments.

Our interim passive income goal remains to get to 40% of our long-term target by the end of the third quarter. With a handful of additional investments into dividend stocks or corporate bonds, I think we should be able to hit this goal in three months also.

IV. Target FIRE Date: Friday, July 2, 2021

As I write this, we’re less than two years away from our Target FIRE Date!

Over the past eight quarters, we’ve made significant progress on each of the three metrics we’re tracking on our path towards financial independence.

ROMT Goals July 2019

With the exception of the fourth quarter of last year, our progress has been very steady. That’s been driven by a generally rising stock market, conservative spending relative to our income, and saving and investing the majority of my year-end bonuses. While right now we’re very close to achieving our net worth goal, I recognize our ultimate success remains dependent on the returns generated by the stock market over the coming years.

I’ve long believed we could hit our net worth target next year if everything went well, and we’re close enough now that I think this remains a realistic goal. As we learned when our net worth dropped by 7.5% in the fourth quarter of last year, however, there are no guarantees when dealing with the financial markets!

Our 529 goal remains possible, but unlikely. We’ve made incredible progress over the past two years, moving from 33.5% of our long-term goal to 64.8%. But even if we make similar progress over the next two years, we’ll still come up short. We’ll continue adding money to our children’s educational accounts, but outstanding investment returns are imperative if we’re going to hit this target by mid-2021. The S&P 500, which hit an all-time high of 2,996 last week, probably needs to climb to 3,500 over the next two years for us to have any chance at achieving this goal. And my hunch is that’s unlikely, given that we’re already more than a decade into the longest bull market in U.S. history.

Passive income has always been our most ambitious goal. While there’s no way we’ll get to 100% funding of our anticipated lifestyle through passive income over the next eight quarters, we’re going to continue trying to increase that figure every day! I’d view it as a win if we can get to 50% by the summer of 2021!

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