Another month, another dollar!
May was a big financial improvement month with the markets doing all they can to recover from the COVID-19 shock. As I write this in early June of 2020, the Corona-virus is still a large threat to our nation and George Floyd riots continue to plague many of our nation's cities.
Despite these challenges, the stock market continues to come roaring back from it's March 2020 lows. It almost seems as if the stock market is actually thriving on negative news. The Federal Reserve continues to pump new money into the system and I think it's safe to say that these are odd times in 2020 and nobody knows where the markets will go next.
There are a few things I can control, however, and that is my savings rate, investment actions, my debt pay down schedule, and my persistence in tracking my financial position.
If you are new here, I share my personal financial reports for several reasons:
Transparency - I have issues with financial gurus who are unwilling to share anything about their own personal financial situations. It portrays they are perfect and never make mistakes, and that is very un-relatable. I believe that if you are going to talk about money and investing, then you should talk about both the good and the bad. Also, if I’m not completely open with my readers, how can I expect any of you to trust me? Additionally, my day job pay is already public information and spread across the front page of my local newspaper, as I am a local government employee, so what does it matter if I write about it instead of trying to sweep it under the rug?
Personal accountability - By putting my financial reports out there I'm holding myself accountable to constantly improve and challenge myself. I want to stay consistent in tracking my financials. I want to leave a "how to" story to my future children and I want to constantly challenge myself to improve my finances.
If I can do it, so can you - Many of today's financial gurus make hundreds of thousands of dollars or even millions of dollars a year. That's not me and I want to show my readers and future readers that building wealth over time is achievable for anyone. I live in a small rural town where big time jobs simply aren't available, however I'm doing everything I can to grow my businesses, my income, and my wealth and I believe you can to.
I'm passionate about personal finance and entrepreneurship and I want to help others anyway I can. I remember the first time I discovered the importance of personal finance in early high school and how enamored I was with learning everything I could about money. I hope that my writings can help kids discover a similar passion one day.
I'm disgusted with the lack of financial education in our school systems. I believe we are setting kids up for failure and anything I can to help curb the problem and education individuals about money.
Now keep in mind I'm not doing any of this to brag or claim I'm some amazing financial guru. I'm not. I'm a pretty normal dude, with a pretty average income, and a pretty normal lifestyle. I'm simply trying to become better, document that process, and help others along the way.
I realize that many of you reading this will probably have higher incomes than me, or be in a better overall financial position than me, but that's okay. We can still learn from each other and I'm going to continue doing the best I can with what I have.
So, now that's out of the way and without further a due, here is my May 2020 net worth report.
In May, I saw my net worth increase $13,384.47 to a total net worth of $369,785.09. Just shy of $3,000 of this increase was from monthly debt principal pay down and the rest was attributable to market gains and contributions to my investment accounts.
This represents a 3.76% increase over last month's net worth position. In May, The S&P 500 Index was up 4.53%, the DJIA was up 2.05%, and the NASDAQ was up 6.75%.
Since I invest in a lot of other assets besides the stock market, it's not entirely relevant to compare my monthly net worth changes to percentage changes in the general stock market indices, however it is still nice to know and keep in the back of your mind as a reference.
I was able to contribute $1,297.01 to my investment accounts in the month of May. When you consider the income I had in May, this represents a savings rate of 36.71%. Over a long-term period of time, my goal is to maintain a savings rate in excess of 50%.
As you can see this month I dipped below 50% for the first time in a while. There is a $400 contribution missing from this month's contribution that I normally make. I held back on that $400 this month because I'm ahead of my annual goal of saving $20,000 and I wanted to strengthen my cash position moving into June.
I calculate my savings rate based on the income from my job and the contributions I make to my investment accounts from that same pool of money. In other words, I don't factor in any of my investment or business income when calculating my savings rate because it is already assumed I'm currently investing 100% of those earnings.
Many financial gurus recommend a 10% to 20% savings rate, so it's pretty difficult not to become wealthy over time with a savings rate in excess of 50%.
Actual debt pay down in May totaled $2,920.22. Most of the debt I carry is from business loans as I really try to minimize the amount of personal consumer debt I carry. It's a classic Rich Dad Poor Dad play. I believe in using debt efficiently for purchasing assets that make me more money and pay for their own debt. Most of my business debt comes from the purchase of rental properties and equipment for my portable self storage business, Boxit-N-Lockit.
On the consumer debt side of things I take more of an approach closer to Dave Ramsey's, however my approach is much more relaxed than Dave's. I believe having some personal debt for a house, a cheap car, and utilizing the benefits of credit card rewards are okay and much more efficient financially than being completely debt free.
My debt from my wife and I's personal residence and a car loan I have for a 2015 Chevy Cruze are the primary sources of consumer debt. Currently, the principal balance on my home is $152,052.50 and the principal balance on my car is $6,881.71. Fortunately, I do not have any student loan debt. The only other consumer debt I carry month to month is credit card debt, however I always pay each card off every month in full. I do this to take advantage of all the cash back and card rewards that are out there. When you compound these advantages over time they can be quite significant.
We financed the home over 30 years and are in the early stages of the mortgage as we only bought our house at the beginning of 2019. Given that we live in a pretty rural area, we were able to purchase a pretty large house (over a 2,000 square foot ranch home in a nice neighborhood) for only $160,000.
I could easily pay down the house and the car faster, however my home interest rate is only 4.5% and my car interest rate is only 3.19%. I believe the excess cash is better off being invested each month into growing my asset position rather than paying down these low interest loans.
The long-term history of stock market and real estate returns tell me I'm more likely to earn a higher rate of return from investing than paying down these debts.
Additionally, most of the excess cash from my income each month is plowed into index funds and individual stock positions. This puts me in a stronger and stronger equity position every time I get paid and I could always dip into these assets if I ever got in trouble, but I do everything in my power to avoid this.
So far, so good.
Months like May 2020 are a great reminder of why I do this and the power of investing.
I could have worked every last waking minute in the month of May and I probably still would not have made over $13,000. But, since I have been persistent in my investing habits over a long period of time and in building my asset position I was able to see over a $13,000 increase to my net worth in my sleep.
Some months I will get crushed, some months will be awesome like this month. Over time it will average out to consistently solid gains in my financial position.
How did you do in the month of May? I would love to hear about it in the comments below. Are you consistently tracking your net worth?
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Disclaimer***My opinions are my own and should not be construed as investment or financial advice. I am not a financial advisor or a professional accountant. Please consult a professional for investment advice or tax advice.