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Kid Abacus

2015 Accounting – Cash Flow

Closing the books took a while for me.  While we didn’t actually force the kids to help using an abacus, it’s not a terrible idea for next year.  Might speed things up.  So here’s the report; just a shade before summer.

For the year, we saved 70% of our income ($153,000)!  That nudges out 2014’s 68% rate by a couple of percentage points.  Similar income & expense totals as last year, although the spending categories have shifted around some.

Several things are excluded: real estate distributions (fluctuate too much each year), charitable giving (Not normal spending), and closing/renovation costs on our home move (one-time).  If you include these categories, our savings almost double to $295,000.  Quite a year for us.

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Downhill Momentum

Creating Momentum

To you bloggers that consistently put out multiple articles per week for years – my sincere respect.

To someone who stays in shape while raising children in today’s hectic world – a tip of the hat.

To any hobbyist that sticks with it through life’s ups & down – cheers.

Between work and young kids, I’ve struggled to stick to anything…Haha, cue my one year old – up early from his nap – I’ll be back later to finish this!…Back now, two days later.

So how does someone get re-started on long-term goals coming out of chaos?  Create some momentum.  Find something, anything that moves you towards your goal.  Get some small wins.  Create a habit.

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Fruit-falling-from-tree2

Cashing in a Windfall

I’ve never won the Powerball.  Never sold a tech business for a bazillion $$.  Never gotten a massive inheritance check.   But I’ve received plenty of windfalls*.  Big, small, and in-between.  Raises, bonuses, asset sales, refinances.  Doesn’t matter – I’ll take the extra cash.

And now, I’ve just received another windfall – the largest to ever come my way.  At work, we sold an asset that I had a large hand in creating, but no ownership.  Real estate deals are a bit unfair that way – you’re either an owner up front, or not.  In this one, I was not.  And this deal crushed it.  Equity returns of 4x in under 4 years.  For us as the developer/sponsor with our waterfall structure, that means returns of 8-9x initial investment.

My bosses made up for me being left out when we sold.  They gave me a surprise bonus that matched my whole annual salary – over $200k.  Geez.  Makes me feel a little guilty for bitching over the years about not being included in that deal.

Having the extra cash from this windfall is awesome, of course.  I could save it, spend it, or give it away.  Unexpected, free money.  What could be better?  All the flexibility in the world.  Let the spending begin…?

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commercial-real-estate

Real Estate Market Fundamentals

In this post I’ll tell you what fundamentals to look for in real estate, and give you my two cents in an analysis of today’s market.

I’ll write a post in the future on the specifics of underwriting & beneficially structuring real estate deals.  But the first step is knowing the market.  Basic economics – what do supply and demand look like?  And what factors are changing that in the near and distant future?

Real estate is not nearly as efficient as stocks or bonds.  I believe that someone with a critical eye who puts the effort to collect the information can produce outsized returns compared with the averages.  REIT dividend yields are plus or minus 3% – I’d certainly hope we can aim a little higher.

In an inefficient market, you can find deals if you know how and pay attention.  It’s worth examining the fundamentals.  Understand the overall market dynamics, apply them to your local market, be patient, and after a while you’ll uncover a gem.

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Gol!!!

2016 GOOOOOAAAAAALLLLLL!!!!!s

What’s better than a GOOOOAAAAAAAALLLLLLL!!!!!!

I really enjoy & am quite good at putting in the effort to achieve something once.  And man…to bask in that final achievement.  I love a goal with accompanying check-mark.

I do struggle at long-term, repetitious goals.   2015 showed that I can easily get off track on long-term goals if I get too busy.  So I’m focusing on the repeaters, but trying a perspective shift.

This year, I’ll try to create new habits, not just achieve goals.  To create a habit, I first need to repeat something.  To make it stick, I’ll be looking to find immediate enjoyment in the activities – in that first month or so.  I don’t want to trudge along all year with singular focus on the end zone.  Appreciate the journey, me.

When I grade myself at the end of the year, the goal itself will be important, but primarily the question will be: did I create a lasting shift in my behavior?  Did I find something that I enjoyed about the path that kept me on it?  What was it?

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Net worth header

Net Worth – Q4 2015

In the fourth quarter, we saw a strong increase in net worth and hit another milestone: over $2.5M…$2.53M to be more exact.  Crazy – we had a net worth of under $700k when we started tracking it in June 2013.  A good two and a half years.  Really shows the value of containing lifestyle inflation and letting salary inflation run away from spending.

Each quarter this year has been affected by remarkably different factors, but the increases have been consistently up/right on the graph.  I’ll take it.

Largest category gainer was commercial real estate – we officially capitalized 5 new projects at work!  Really, we started construction on 2 (large ones); but we acquired funding for predevelopment stuff on 3 others.  We sold another one, but I won’t see any proceeds from that until 2016.

Investment Assets (net worth – primary residence) are currently at $1.93M.  Up almost $200,000 from last quarter. Our loose goal for financial independence is $2.5M of investment assets.

We did continue to divert $$ to our used-to-be-fixer-upper, in the form of renovations & furnishings.  While we spent a bunch of bucks, we got pretty good mileage for each of them.  I ran a decently tight ship on the contractor front (overspent a bit on the master bath), and my wife ran something almost resembling a tight ship on the furnishings side.

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rear-view-mirror

2015 Goals in Review

It was a busy year for us.  Lots of good things happened, along with a couple of bad.  But in a word – busy.  Hectic at work with hirings, new projects, and new people.  Crazy at home all year with adjusting to 2 kids (1 year old now, and 3 year old).  Pile on top of that a house move – not smart timing.  And mentally busy for me: not a lot of time margin for prayer/meditation, quick shifts from one activity to another, and large decisions & stressors abounding.

So here is an overview of results on last year’s goals, starting with a couple of lesson’s learned (a cornerstone of any good review, says the corporate organizational behavior nerd)

Lessons Learned

First, I could use a check-in or two before a year is up.  When I sat down to review, I had no idea what my goals had been.  At least they were written down – points for me there.  But having not checked in on them a couple of times throughout the year had left me a bit rudderless.  I always have leeway to change a goal, but I would rather have that an active decision than a result of no attention.

Second, overcommitments consumed me last year.  I enjoy a sprint at times, but not all year.  As I told my boss in my work review: everything was good, but there was just too much of it.  At times I hit utter exhaustion.  This holiday season has been a good recharge and reset.   I look forward to a littler slower life in 2016.

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Charity

Charitable Giving: Explained by my 3 year-old

Happy New Year!  The Holidays – a great (if not a little stressful) time of the year.  Filled with family, eating, and giving presents.  Also a time to pass some of our financial blessings along to less fortunate people, maybe.

There is something that feels right about giving to the needy.  There are tax benefits; there are value-based / church reasons.  But honestly, it hurts to give those hard-earned dollars away.  What if you need the cash later, or what if the recipient is undeserving?  And many of the groups advocating charitable giving are charities themselves.

I’ve spent a good amount of time trying to figure out how much of I should give to charity each year. I have struggled with it.  Ultimately, I think we should all give – the amount is certainly a personal decision.

Here is my winding path to getting to this conclusion, and an overview of several questions that helped me think through the topic:

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Net worth header

$2.3M Net Worth – Q3 2015

Against a headwind of higher spending and some investment decreases, we actually charted some solid overall net worth gains in the third quarter.

The largest financial news was the purchase of a new (correction: used) house.  Bad news is: we haven’t sold our current house yet.  So our balance sheet has swelled up like the federal government’s.

Investment Assets (net worth – primary residence) are currently at $1.72M.  Up $70,000 from last quarter. Our loose goal for financial independence is $2.5M of investment assets. Our Net Worth went up by $170,000 to $2.3M.

I focus much more on Investment Assets than Net Worth, as Investment Assets get me closer to financial independence.  So diverting $100,000 of assets to housing was painful, but it was a family decision. The goal was to get more yard for the boys, better schools, and closer to work & friends.  It was also a luxury.  We bought a moderate fixer-upper, but in a very nice neighborhood.  Hopefully our sale price will be close to our purchase price – but there are a ton of transaction costs (for a future post).

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bull-vs-bear-stock-market 2

Investment Allocation Guide

Bull or Bear? Doesn’t affect to our investment allocations or strategy.

Before we left our advisor, we became comfortable that our investing strategy didn’t have to be hard.   We decided against picking stocks, timing the market, or chasing hot sectors.  We would move our money to Vanguard and go with completely passive funds.  So the question of allocation remained: which funds, and how much of each?

William Bernstein handled the allocation questions well in The Intelligent Asset Allocator.  Great analytics and sound reasoning, with a straightforward methodology to apply to each individual situation.

I especially liked how he considered the irrational/human side of all of us.  If we sell because we are scared, we’ll likely lose in the long term.  If we switch strategies relatively often, we’re opening up ourselves to recency bias (chasing fads) – again a long term loser.  Setting up a process to control our unhelpful natural tendencies is a  key to investment management.

The general process is to determine your goal asset allocation based on the factors below. Then set your portfolio to match – in simple low cost mutual funds or ETFs.  Only adjust your funds at a set interval (at least a little more than annually for tax reasons) to rebalance to your original goal percentages.

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