I may be a bit late with to the year-end review party, but here is the update on our progress. 2015 was an important year for us in many respects. We made progress on improving our finances, but also made quite a few changes to our lifestyle which will enable more-significant gains in the future (ex. cheaper cell phones). While, we did slow down our hustling in 2015 to enjoy welcoming a new little guy into the family, our finances continue to improve.
Early retirement is a very personal goal; everyone has their own idea of how they want to live after escaping from the demands of full-time work. Our plan is to achieve financial semi-independence in the year 2022. We hope to pay off all our debts, so we will only need to do enough part-time work to cover our living expenses, with rental property income. I would like to write (including blogging), do some consulting, craft, and teach a college course. Mr. Smith will do some home repairs here and there. We will be able to choose when and what we do as far as work is concerned. We will not have mortgages for either of our properties. Our living expenses will be very low thanks to adopting a frugal lifestyle and doing things like growing our own vegetables. In addition, I have a 401K that we will not touch until we are in our sixties. It already has some money in it and I will increase my contributions as the debt decreases.
The Credit Cards
At the start of 2015, we had a whopping $42,000 in credit card debt. Now, we have decreased that number to just under $30,000 (YAY!). The balances on the cards with the highest interest rates have been consolidated. The loan has an interest rate of 14% and a balance of $19,000. The goal is to pay off the remaining cards this year, one at a time, and then work on the loan. Now that we have three children, our tax return should be a bit more this year. We should be able to bring at least one of the cards down to a $0 balance with the return that we will receive in a few months.
House #1: Mortgage = $98,000, Market Value = $120,000
Rental House: Mortgage = $50,000, Market Value = $89,000
We have a total of $148,000 in debt and $61,000 in equity when it comes to our two properties.
My student loans have not been a priority because they carry fairly low interest rates (as compared to the credit cards). However, we continue to make the monthly payments, which continue to increase. The balance is approximately $60,000. If we continue to abide by the repayment plan, all of these loans will be paid off in 2019. This works out well (if we can’t accomplish it sooner) because it would give us three years of no student loan payments before our semi-retirement date of 2022.
It has been pretty awesome to not worry about a car payment for more than a year. I’ve read the opposing viewpoints on whether to include vehicles in a net worth calculation. I consider them assets because they are not carrying any debt. They have resale or trade-in value. And we would receive a check for them if there were totaled in an accident. The Kelly Blue Book values our two vehicles at approximately $10,000-$12,000, combined.
We will need to get a different vehicle as the three children continue to get bigger, and definitely by the time we have a fourth child. The current plan is to trade my SUV in for a minivan – a used one that will not cost us anything extra.
One of the perks that comes with working for my company is that they automatically make profit sharing contributions towards our 401K – with no requirement that we contribute anything. I have not allocated any of my income towards the 401K, yet the balance currently stands at $18,000. Mr. Smith and I have discussed starting to make small deductions this year, for tax purposes. According to the retirement calculator on the 401K administrator’s website: if we didn’t contribute any more money, and start deductions at the age of 60, until we die at 92 year old . . . we would get $97 per month. Well, I guess it’s a start. With continued employer contributions and our own contributions we should be able to increase this amount for use when we reach old age. Any additional income we earn during semi-retirement will be invested as well.
I’m not going to include these in the net worth calculation, because I’m not sure if they count. We have $3,000 saved up in a Health Savings Account (partly because I over-saved for childbirth expenses). We have been contributing towards whole life insurance policies for over ten years. Finally, we have life insurance policies for the children that they can cash out when they turn 18 years old.
Our Net Worth
By my rough calculations, we have a net worth of – $148,000 based on:
Debt: $29,000 (Credit Cards) + $148,000 (Mortgages) + $60,000 (Student Loans) = $237,000
Assets: $61,000 (Equity) + $10,000 (Vehicles) + $18,000 (401K) = $89,000
I focus a lot on our credit card debt, because I now understand just how much money we’re losing due to interest charges. It’s frustrating because we could be using that money to increase our net worth and hasten our progress towards semi-retirement. However, I should feel fairly good about our position right now. We are not starting from nothing, with only debt. We do have assets. We need to focus on paying off approximately $237,000 in debt over the next six years. That is approximately $40,000 per year. Then, we can expect our net worth to be over a quarter of a million dollars. I can’t even imagine how wonderful it will feel to reach that point and achieve our dream of freedom. We can definitely do this!
Note: After I first came up with the $40,000 figure and divided it into monthly amounts of $3,333, I got really excited. I found myself thinking, we’re already making payments of at least that much every month (not thinking clearly due to a recent lack of sleep with Trey up at night with a cold). Then, I realized we need to pay that much each month towards principal. In order to semi-retire, we need to not only pay off our debt, but add money towards my 401K. While a bit deflated, I still feel optimistic. As we continue to pay off debts, we will be able to apply more of our income towards principal. The school loans and consolidation loan should be gone by 2019. Also, over the next six years, there should be raises, including a big one if I can get a promotion. And that’s just from my primary employment. I anticipate that side hustles will make a big difference when it comes to achieving our goals. We need to keep increasing our income in order to pay down the debt.
Stay tuned for a post on how we paid off so much debt in 2015 – despite the breadwinner (me) taking a four month maternity leave. Spoiler alert – it all boils down to changing your attitude about money.