I Scream, You Scream, We all Scream for….. Dividends

One of the things about being an amateur blogger and personal finance geek is that we don’t have to pretend to know everything.  I really don’t know that much about investing but I don’t have to and I can still meet my goals by copying what others are doing.  I’ve been reading financial blogs since the beginning, and in fact started another personal finance blog over 10 years ago before selling it a few years back.  During the first few years of owning that blog I spent hundreds of hours reading and linking to other great PF bloggers and gained an incredible amount of “basic” knowledge about how to manage our money, increase our net worth and choose investments that didn’t require tons of research and risk (low cost index funds).  We’ve been paying ourselves first for more than 20 years and the results have worked out pretty well.  For most of those 20+ years I never really paid attention to the dividends we were earning and in fact some of our funds don’t actually distribute dividends but rather the value of a share in those funds just continues to increase so it’s really hard to notice that we were indeed earning a return on those funds.

In the last 5 years I’ve been paying more and more attention to dividends because I know they’ll be a variable in how our investments provide annual income for us once we stop working.  At the end of 2016 I tallied up each and every dividend we earned and was pleased to see that we earned about $16,000.  We earned (and reinvested) more money from dividends than most people contribute to their investment accounts each year.  When you add that to all of the actual contributions we were making it’s not hard to see how we were able to increase our net worth by such a large amount.  Our new goal is to try to get the dividends up over $20,000 per year.  We’ll do that by buying a few individual stocks to go along with our index funds.  We already have a few and have seen some nice gains and dividends from them.  From a risk perspective we are not buying very many and are keeping individual stocks to less than 10% of our overall net worth.

Another data point I’ve been tracking is how much we’d have in investments if we were to sell our primary residence, invest those funds and move to our second home that’s paid for in a more rural area of our state.  Right now we would have roughly $1,250,000 in investments if we did that.  If I use the 4% rule that would give us about $48,000 a year before taxes with very minimal expenses.  We could literally pull the trigger on retirement now but would have a few risks such as health care and a bear market weighing on our minds.  We’ve decided that we need to try to squeeze about 5 more years out of our careers, which would put us at just over 50 years old.  At the current rate, that means we’d be saving an additional $100,000 a year which could generate an extra $4000 per year in income when we retire.  5 more years of work for an extra $20,000 a year in retirement income seems like a good plan.  Of course, lots of things could change between now and then but we’ll keep chugging along either way.

Living Life in the Technology Bubble

It’s a new month and our net worth has increased to $1,542,269.  That’s an increase of almost $25,000 in a month.  To say the real estate and our economy in general feels like a repeat of the 2007/2008 bubble would be a bit of an understatement.  Of course, I’m not crying myself to sleep at night with these gains, but I fully expect to see a correction, deflated bubble, etc etc at some point, so I’m just logging the numbers and am ready to start subtracting instead of adding to our net worth if that happens.  (I’m a bit of a “Permabear”)

Last weekend, I was out with a group of about 10 guys that mostly all work in the tech industry (including myself).  We were really enjoying a lot of geek type talk and as the night wore on, we found ourselves at a seedy dive bar in the Pacific Northwest.  As I looked around the place, for some reason, it occurred to me that the group of guys at our table had a combined income of something like $1.5 million a year.  I almost fell out of my chair when I realized this.  (This is a long ways from my youth of eating hot dog casserole)  While there are certainly plenty of other places in the country that this same phenomenon could have taken place (and likely did), I don’t think it’s probably a normal occurrence across the country.  Bottom line, I feel incredibly grateful that I find myself in this situation and I think that’s one of the things that drives me to save as much as I can.  Along with being a Permabear, I also try to realize that I could lose my job tomorrow and find myself in a completely different economic reality.  The more we increase our net worth, the less I worry about that.  Clearly my defensive approach to personal finance stems from a childhood where we were constantly at risk of not having enough to pay the bills.

So, month by month we continue our march towards financial independence.  It feels like a slow grind at this point but I’m grateful to have the monthly gains we’ve been seeing.  On a somewhat related note, last week I was perusing Reddit and came across a post in the “40Something” subreddit.  It was a guy in his mid 40’s talking about feeling like his 40’s seems to be just all about working.  He said there’s not much else happening in his life and he feels bored and stuck.  As I read through some of the other comments, it seemed very similar to how I’ve been feeling.  I’m sure this is where the whole idea of “midlife crisis” comes from.  Some of the posts said things like, “Yeah, that’s just the way it is.  Everything is set in motion and you just have another 20 years before you can retire!”.  While I was relating to most of what people were saying, as soon as I saw that I thought “Nope!”.  No way in hell I’m working another 20 years like this.  I’m so grateful I took a longer view of saving and investing and started in our 20’s.  I don’t think I can keep slogging along like this for 20 more years.