Q2 21 Financial Scorecard: Nearing the Finish Line!
The ebullient financial markets continued to reach stratospheric levels during the second quarter of 2021. The S&P 500 returned 8.6% during Q2, pushing the market higher by more than 15% for the first half of the year. Those fantastic results boosted the ROMT family’s finances, moving us closer to our early retirement and financial independence goals!
As I noted last quarter, my mindset has shifted to “when” I’ll reach FIRE, from “if” I’ll reach FIRE, and strong stock market returns in recent weeks haven’t changed the way I’m feeling. That said, uncertainty in the U.S. remains elevated, with Coronavirus cases and deaths climbing again, a new administration that seems hell-bent on spending and taxing its way to higher inflation, and continued social unrest and increased polarization among our country’s citizens. While it seems like a strange time to potentially walk away from a steady paycheck, there’s always going to be something crazy happening somewhere, and the numbers suggest our financial position is sound. During Q2, I let my boss know I was unlikely to be around for the long term, so at this point, it’s just a matter of deciding when enough is enough!
I. Net Worth: 115.9% of Goal (+6.0% during Q2 21)
We reached our revised net worth target by the end of 2020, and this year’s strong stock market returns have boosted our margin for error. Our net worth climbed by over 5% during the second quarter, driven by strong investment returns, and we’re now at nearly 116% of our target. That exceeded our previous short-term net worth goal, which was to get to 113% of our ultimate goal by mid-year.
As a result, we need a new short-term net worth goal. Our expenses are likely to climb materially over the next several weeks, with our first family vacation since 2019 coming up, as well as an expensive project to replace our ailing HVAC system scheduled. Positively, I’m still receiving a bi-weekly paycheck, so hopefully we’ll continue moving in the right direction, despite those expenses. Our new goal is to finish 2021 at 118% of our long-term target.
II. 529 Account Funding: 97.1% of Goal (+8.2% during Q2 21)
We also made good progress on the funding levels of our children’s educational accounts in Q2. The value of our 529 accounts climbed by more than 9% over the past three months, moving us 820 basis points closer to our target. Those strong returns allowed us to hit our short-term goal of getting 95% of the way to our long-term target by the end of June!
Consequently, we also need a new short-term 529 account funding goal. As our net worth has grown, we have the opportunity to make more contributions to these accounts, and we’re close enough to our goal now that it’s time to make a push to get across the finish line. I’d like to reach our long-term goal by the end of the third quarter – the big question is whether the markets alone will get us there, or we’ll need to make additional contributions to hit our target. With our oldest set to start high school in a few weeks and markets near record levels, I plan to also 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 regular paycheck.
III. Passive Income: 66.2% of Goal (+0.1% during Q2 21)
Our passive income goal has been our biggest challenge since we started tracking our finances here four years ago, and we won’t be able to reach our target before I leave the workforce. The positive news during Q2 was that our expected annual passive income actually rose slightly during the quarter, marking the first time it increased in over a year. Negatively, we still failed on our short-term goal to get to 70% of our long-term target by the end of June.
Lower interest rates have crippled our ability to grow our passive income. Even though I continue to make occasional new investments into dividend-paying stocks, every time one of our certificates of deposit comes up for renewal the interest rate we earn drops by 50-75%. In retrospect, I wish the money we have in CDs had just been in the stock market over the past couple years, but unless I stumble across a time machine, there’s no way to go back and fix that now! Our new short-term passive income goal is to get back to 70% of our long-term target by the end of the year.
IV. Target FIRE Date: Friday, July 1, 2022
We’re less than a year away from our target FIRE date, and the only question now is whether I’ll actually wait that long before saying goodbye to the daily grind! Once we hit our 529 account funding target, there’s really nothing else to achieve, as I know we won’t be able to reach our passive income goal.
I’m increasingly concerned inflation will be higher in the coming years than we’ve experienced for most of my lifetime, so I could try to talk myself into working longer to build a larger financial buffer, but that’s the type of thinking that could keep me chasing more money for another decade or longer. At some point, it will be time to trust the numbers I’ve been refining for the past several years, with the knowledge I’ll probably find a way to earn some money in early retirement doing something that interests me more than continuing to grind away for someone else. Moreover, after working in corporate America for three decades, I’m confident I can find a more traditional job with a steady paycheck at some point in the future if I need to. So while the race is not yet over… the finish line is in sight!
How was Q2 for your finances?