Q1 22 Financial Scorecard: One Step Closer

The first quarter of 2022 was another turbulent period for our world.

While the COVID-19 pandemic may finally be waning, it appears we could be living with endemic conditions for the foreseeable future. A year ago, the recent rollback of many pandemic restrictions we have experienced would probably have been greeted enthusiastically by the financial markets. Alas, times have changed.

Russia’s attack on Ukraine is the most significant military action in Europe since World War II, and has led to unimaginable suffering for the innocent victims of an increasingly unhinged Vladimir Putin. The Russian offensive also contributed to volatile financial and commodity markets around the world, despite generally favorable pandemic trends.

Closer to home in the United States, inflation remains at the highest levels we’ve experienced in decades. Thus far, Federal Reserve Chairman Jerome Powell and President Joe Biden have proven themselves much better at empty rhetoric than substantive action that attempts to improve the lives of the average American.

The end result from a financial perspective was a broad U.S. stock market that fell as much as 13% from the end of 2021 through early March, before rallying to finish the first quarter of 2022 down nearly 5%. That decline had a material impact on our finances as we get closer to potential early retirement. Fortunately, we received our annual bonus for 2021 in early March, which helped offset the paper losses we experienced.

I. Net Worth: 121.1% of Goal (+1.2% during Q1 22)

Our relatively conservative financial positioning, with a decent amount of cash, helped ensure our portfolio didn’t move as dramatically as the broader financial markets over the past three months. Coupled with our bonus, our net worth actually increased a bit during Q1, which is certainly a good result given everything that’s happening in the world.

That said, inflation continues to eat away at the purchasing power of the cash we do have. The Fed is certainly in an unenviable position where it will need to thread a pretty narrow needle to tame rampant inflation without throwing the economy into recession, with the degree of difficulty likely exacerbated by financial markets addicted to the trillions of dollars of quantitative easing that have occurred over the past decade-plus. While our personal financial position is sound right now, I am concerned the purchasing power of what we’ve earned and saved over the past several decades could still erode rapidly in the coming years.

While we’re feeling pessimistic today, it’s important to remind ourselves we still made progress in Q1. Our short term goal at the beginning of the year was to get to 125% of our long-term target by the end of June. That feels ambitious with a stock market that’s lower than it was at the end of March, but we’ll hope for the best over the next couple of months and see what our personal balance sheet looks like at the end of the quarter!

II. 529 Account Funding: 100.8% of Goal (-3.2% during Q1 22)

The weak stock market in Q1 had a significant negative impact on our 529 accounts over the past three months. While we remain slightly above our long-term goal, those balances have been moving in the wrong direction, as the additional purchases we made were not significant enough to offset the decline in the value of what we already owned.

Our short-term 529 account funding goal has been to get to mid-year with 106% of our long-term target in the educational accounts for our children. Clearly, we’ll need the stock market to bounce back and to make some additional contributions to achieve this, given the hole that markets have dug for us over the first three months of 2022.

III. Passive Income: 65.7% of Goal (+0.9% during Q1 22)

Improving our passive income has been our biggest challenge since outlining our financial plans here several years ago. Although we’re not going to achieve our aspirational passive income goal by either “early” or “normal” retirement, Q1 22 did mark the first time in two and a half years where our passive income moved in the right direction for two consecutive quarters. Given everything that’s going on in the world today, we’ll accept that result as a nice little win, and keep trying to move in the right direction.

We’ve had a short-term passive income goal of getting to 70% of our long-term target for a while now, and haven’t made material progress. I expect our passive income aspirations to remain a challenge, even as we try to move some cash into dividend stocks, but we’ll keep the same short-term target for now – 70% – and work hard to get there by mid-year.

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

We’re less than three months away from our target FIRE date, but it’s unlikely we’ll leave our job by then, as I don’t want to leave my teammates in a bad position. That said, it’s getting close to the time to have another conversation with my boss around the potential timing of my departure. My fears around inflation remain the primary driver of my reluctance to act immediately, but at some point it’s probably going to be time… and I’ll keep you apprised of any new developments here!

Are my concerns around inflation eating into our net worth warranted, or is it time for me to pull the ripcord and jump out of the rat race and into a new stage of life?

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