Q3 2017 Financial Scorecard: 75% Of The Way To FIRE!
As we head into autumn, the leaves are changing colors, the baseball playoffs are underway, and football season is heating up as the weather is cooling off.
Which can mean only one thing for the ROMT family: it’s time to report on our financial progress during the third quarter!
Publicly tracking our progress towards financial independence and early retirement has really focused our attention on the topic. I’m pleased with the progress we made over the past three months on our Net Worth, 529 Account Funding, and Passive Income goals. We still have a lot of work ahead of us, but during the third quarter we were heading down our path to FIRE with all cylinders firing!
Without further ado, let’s take a look at our progress as of September 30, 2017:
I. Net Worth: 75.8% of Goal (+2.7% during Q3 17)
During the third quarter we made good progress on our net worth goal. Our actual net worth (excluding home equity and 529 accounts) rose by 3.8% during Q3 17. I view this as a solid result in the context of the S&P 500 being up almost 4% during the quarter, as not all of our assets are invested in the stock market, and money we contribute to the children’s 529 accounts is not included in this figure.
In the third quarter we moved 270 basis points closer to our FIRE goal. We’re now 75.8% of the way to our target net worth, so passing the 75% threshold was a nice achievement. Some of the large expenses that negatively impacted our net worth during the second quarter, such as purchasing our home solar energy system, did not recur in the third quarter, which helped our results.
Our next big target is getting 80% of the way to financial independence. If our earning and spending patterns remain reasonably consistent, and the stock market doesn’t experience a major correction, I think we can pass the 80% mark by the end of Q1 2018!
II. 529 Account Funding: 37.3% of Goal (+3.8% during Q3 17)
I’m very pleased with the progress we made towards our funding target for our children’s 529 accounts during Q3. The total value of our 529 accounts climbed by 11% during the quarter, driven by both additional contributions and market appreciation. We improved our 529 funded status by 380 basis points, to 37.3% of our target, from 33.5% at the beginning of the quarter.
I am a little concerned the stock market is overvalued, so I moved 25% of our 529 holdings into a more conservative age-based option, from the most aggressive equity-focused option available. If the U.S. stock market keeps hitting record highs on a weekly basis, this will cost us some earnings going forward, but given lofty valuations and geopolitical uncertainty, I’ll sleep a little better at night knowing we took some action to mitigate potential downside risk.
We plan on using the 529 accounts to pay for educational expenses in less than a decade, so I think a small move in the direction of capital preservation makes sense. I haven’t made any changes to the relatively aggressive asset allocation in our retirement accounts, as we don’t plan on touching that money for at least 15 years.
We still have a long way to go to hit our 529 account funding target. We will need many more quarters with both strong investment performance and additional contributions to achieve our goals. Fortunately, our home state offers a state income tax credit on a portion of our contributions, so we remain incentivized to continue funding our college savings plans. I expect we’ll be over 40% of the way to this goal by the end of the year.
III. Passive Income: 26.0% of Goal (+2.7% during Q3 17)
Our passive income target is our “stretch goal” on our path to FIRE. I don’t think there is any way we’ll be able to fund our anticipated early retirement lifestyle solely through passive income by 2021. We’d have to increase our net worth by an insane amount over the next four years, and invest most of that money into dividend stocks, bonds, and cash flow positive real estate, to have any chance at achieving this goal.
That said, we made some real progress on this ambitious target during Q3, as our expected annualized passive income rose by almost 12% since the end of June. This is an area where regularly writing about our finances has really helped me focus on achieving our goals.
After writing my post on investing in bank products, I took a hard look at how we were investing our cash. We held most of our cash in a credit union account paying 1%. This was a respectable rate for the current interest rate environment, but it took just a few minutes of research to determine we could easily do better without locking our money up for too long. During Q3 I moved some of our cash into 11 to 18 month online certificates of deposit with Ally Financial and Synchrony Bank, which offered materially higher annual percentage yields than our credit union. Helping matters further was the fact our credit union increased the rate it was paying to 1.25% last month, which will enable us to earn more on the money still held there. Dividend increases on stocks we already own, plus additional purchases of stocks and a corporate bond, also moved us in the right direction.
As with our 529 account funding goal, we have a very long way to go with our passive income target. All of our efforts improved our funded status by just 270 basis points during Q3, to 26.0% of our target, from 23.3% as of July 1st. It’s great we’re moving in the right direction, but with just 15 quarters between now and early retirement, the math is not on our side to achieve this goal. As I wrote about last month, a long forgotten Dumb Financial Decision also negatively impacted our ability to generate passive income today!
IV. Target FIRE Date – Friday, July 2, 2021
Another quarter of tracking our financial performance for Retiring On My Terms is in the books, and we have less than four years left before our Target FIRE Date!
If I were a betting man, I’d wager we can reach our Net Worth Goal in 2020, and our 529 Account Funding Goal by our Target FIRE Date in mid-2021. Math tells me our Passive Income Goal is not achievable within four years, but that doesn’t mean we won’t keep trying!
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