Q1 21 Financial Scorecard: The FIRE is Getting Hot!

While the Earth remained in the grip of the worst global pandemic in a century, the financial markets continued their inexorable march towards record levels during the first quarter of 2021. The S&P 500 delivered a total return of more than 6% over the past three months, in stark contrast to the 20% plunge during the same time period last year, when Coronavirus lockdowns started around most of the world.

Not surprisingly, it was a good quarter for the ROMT family’s finances. With the stock market continuing to climb over the first two weeks of April, we’re increasingly close to reaching our financial independence and early retirement goals!

I. Net Worth: 109.9% of Goal (+8.4% during Q1 21)

We reached our revised net worth target by the end of 2020, and last quarter’s strong stock market returns provided a great boost to our margin for error. By the end of March, our net worth had climbed by more than 8% during the first quarter, driven by investment returns and the payment of my annual bonus, which was down from the prior year, but still better than nothing! As a result, we have already exceeded our previous short-term net worth goal, which was to get to 105% of our ultimate goal by mid-year.

Our new short-term target is to be at 113% of our ultimate goal by the end of June. While early April’s strong stock market returns have us moving in the right direction, it will still take some work to get there. Our expenses are likely to rise this quarter as the world around us hopefully begins emerging from the pandemic, and we have a couple home improvement projects we’ve put off for a while we’d like to complete over the next few months.

II. 529 Account Funding: 88.9% of Goal (+6.8% during Q1 21)

We also made good progress on the funding levels of our children’s educational accounts in Q1. The value of our 529 accounts climbed by more than 8% over the past three months, moving us 680 basis points closer to our target. Those strong returns allowed us to hit our short-term goal of getting 88% of the way to our long-term target by the end of June early!

Consequently, we need a new short-term 529 account funding goal. As our net worth has grown, it gives us the opportunity to make more contributions to these accounts, so I plan on funding more actively over the next three months. I’d like to be 95% of the way to our long-term goal by mid-year. With our oldest set to start high school this fall, and the market at record levels, I may change our asset allocations to be somewhat less aggressive in these accounts. We’re close enough to our goal that we don’t need exceptional returns to achieve it, and a significant downturn in the markets would be painful, especially once I no longer have a bi-weekly paycheck.

III. Passive Income: 66.1% of Goal (-1.4% during Q1 21)

While we’ve made great progress on our net worth and 529 account funding goals, passive income remains a challenge. Our expected annual passive income dropped by around 2% in Q1, moving us 140 basis points further away from our long-term target. Our passive income has now declined for four consecutive quarters, as we’ve renewed several CDs at much lower rates than we were previously earning. I’m hopeful the recent rise in interest rates will eventually lead to banks and credit unions being a little more generous with what they pay on our savings – but it hasn’t happened yet.

We lost ground on our short-term goal of getting back to 70% of our long-term passive income target by the end of June, but we haven’t officially missed it yet. That said, unless we start earning more on our savings, it’s going to be hard to make material progress on this front over the next three months.

IV. Target FIRE Date: Friday, July 1, 2022

We’re now less than fifteen months away from our target FIRE date, and I’m feeling increasingly confident about the idea of early retirement. I’ve mentally started moving to “when” I will reach FIRE, from “if” I will reach FIRE, which is a great place to be!

Our net worth cushion is now large enough that we can withstand a 10% market correction, and I’m planning to continue investing over the next several quarters to ensure we meet our 529 account funding goal as soon as possible. Once that has been achieved, it may be time to declare victory, perhaps even before our target FIRE date! I’ve given up on achieving our passive income objective by mid-2022, but we’ll continue trying to generate more interest and dividend income.

How has the start of 2021 been for your finances?

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