Happy New Year! Let’s bid a fond adieu to 2017 and welcome 2018 with open arms. 2017 was an incredible year for investors and we were fortunate enough to ride along. Now, I’m ready for 2018. The economy seems to be holding up well and most investors are optimistic so we might be in for another great year! Is this irrational exuberance? I don’t think we’re there yet because the economy is doing well, but a couple more years like 2017 and the stock market will reach the Dot Com bubble territory. Anyway, we’ll stay invested, but I plan increase our bond allocation a bit this year. Nobody knows what’s going to happen with the stock market.
On the personal front, we had a mostly uneventful year. RB40Jr settled into his school routine and he is behaving better in 1st grade. The big issue this year was that we found out he has hearing impairment in his left ear. We got him a hearing aid, but it doesn’t seem to help that much. Anyway, we’re dealing with it and life goes on. As long as his right ear is working well, I think he will do okay at school. They brought in an FM system so hopefully that will help.
Mrs. RB40 transitioned into a new role at work and she did very well. I’m also holding steady as a stay-at-home-dad/blogger. Nothing really new to report there. I’m pretty happy with where I am so I’ll probably hold steady for 4-5 years.
Oh, I almost forgot. My mom stayed with us for most of 2017 and she is starting to need more help. She is relatively healthy for an older female (70), but she still has quite a few doctor appointments. Her mental faculty is also starting to decline. She functions well when she sticks to her routine, but she can’t really handle anything new. Last year, her doctor prescribe some new pills and it caused a big problem for all of us. I don’t want to get into it too much, but now I know what it feels like to be part of the sandwich generation. Anyway, we’ll just have to adjust to the new reality and accept that she isn’t young anymore.
As for personal finance, 2017 was very good for us. Our income was higher than normal and our expense was low. That’s a great combination and we were able to invest more than usual. Our net worth grew 15% which was the best we’ve done in a long time. We also didn’t have any huge unexpected expenses last year so that was a huge win for us. Okay, let’s go over my 2017 goals first and then I’ll share the details of our net worth and cash flow.
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Whew, I had too many goals last year. I accomplished most of them, but had a few failures. The good thing is that I learn a lesson from those mistakes. I need to schedule my goals in the first half of the year. Life got busier in the summer because RB40Jr was out of school. In Q4, we had vacation and holidays so it was tough to get anything done.
Alright, let’s wrap up the 2017 goals. Check out my goal tracking spreadsheet and then read in detail below.
- Save $50,000 in our tax advantaged account – I’ve had this goal for years and we accomplished the mission again. In 2017, we saved $61,050 in our tax advantaged accounts. That’s really awesome. It always feels great to finish this one. I might not keep this goal in 2018 because it is automatic now.
- Dividend Income $11,500 – I just added a new Passive Income page. It is right on the top menu. You can see our passive income anytime and I’ll update it monthly. In 2017, we received $12,601 in dividends. That’s perfect and we just need to maintain it.
- FI ratio > 78% – The FI ratio is passive income divided by expense. For 2017, our FI ratio is 109%! That’s awesome. We’re doing much better than expected here. Our rental duplex did well last year and it gave a big boost to our passive income total.
- Net worth gain > VFORX– Our net worth gained 15% in 2017. That’s huge. I was hoping for 10% gain so 15% is way better. However, it is 2% behind our benchmark. The VFORX (Vanguard’s 2040 fund.) I’m not going to worry about it too much because 15% already exceeded all expectation. You can read more detail in the net worth section below.
- Move RB40Jr’s 529 plan to Vanguard – Finished! You can read about our 529 plan transfer here.
- Move Mrs.RB40’s IRAs to Vanguard – Finished!
- Online income > $36,000/year– My online income has been incredible this year and I made $64,942. That more than doubled the whole 2016 blog income. You can see the detail in the Blog Income page under passive income. Thank you everyone. I’m very grateful for your support.
- Redesign Retire by 40 – I gave up on this one. It’s too much work. I’ll try to do a minor update in 2018 instead of a redesign. Alternatively, I could just hire it out.
- Pinterest > 25,000 visits– I gave up on this one too. I haven’t been able to grow our Pinterest traffic. It’s just not my thing. Pinterest is not fun for me at all.
- Fitness – December was a very slow month for fitness. RB40Jr is out of school for the winter break and I skipped the gym during that time. It was also cold and rainy so I didn’t go out much. That’s okay; I’ll get back to it in January. All in all, 2017 was not a great year for fitness. I walked about 7,096 steps per day which is barely more than my goal of 7,000 steps per day. The winter months really brought the average down.
- Start a new site – I started a new site with a focus on fitness: Fit by 40. There isn’t much traffic, but that’s okay. I’m using it mostly for self motivation. It’s working really well and I’m much more active this year than in 2016. I don’t know why blogging helps so much, but it works for me.
- Join Toastmasters – I planned to join Toastmasters in November after we came back from our Cancun vacation, but it didn’t work out. There were too many things to do. I’m moving this one to 2018 and I’ll get it done early. Putting this one off was a mistake.
- RB40Jr’s after school programs – In the fall, RB40Jr was on a soccer team. We really needed to get him out of the house because he’d get too much screen time if he stays at home. Soccer is a great activity, but he doesn’t follow directions very well. Hopefully, he’ll get better at some point.
- See the total solar eclipse – We saw the eclipse from Newport Beach, OR. It was totally awesome.
- National Park – We visited Fort Vancouver National Monument over spring break. That’ll be it this year…
- International Trip – We visited Cancun and had a great time.
Net Worth (+15% in 2017)
I’ve been tracking our net worth since 2006 and it is very motivating to see the progress we made every year. 2017 was an outstanding year for us. Our net worth gained 15% which is huge. In dollars, we gained almost $350,000 and now our net worth is $2,644,628. That increase is mind boggling considering I don’t even work full time. Our net worth never gained this much in one year even when I made over $200,000 in 2012. Investing really is the key to building wealth.
For 2018, we’ll keep investing, but I want to move some money into bonds. The valuation will be sky high if the stock market keeps going like this. Here is our current asset allocation, not counting physical properties.
- US stocks: 33%
- International stocks: 35%
- Bonds: 22%
- Alternatives: 8%
- Cash: 2%
I’d like to increase our bond allocation to 30% before the next stock market crash.
Check out the graph of our net worth from the beginning of 2017, from Personal Capital. It is somewhat distorted because of Zillow. They pumped up the estimates of our properties earlier this year and then dropped since September. I haven’t changed my personal spreadsheet yet. Valuing real estate is always tough. If we don’t include real estate, then the graph would rise steadily throughout 2017.
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2017 Cash Flow
Our cash flow was great in 2017. All our income streams came together and created our best year since I retired in 2012. We also kept our expense low which enabled us to invest more. Everything worked out almost perfectly. Let’s go over the details.
Annual Take Home Income (target > $60,000)
My target for our take home income target is $5,000 per month which is $60,000 per year. We nearly doubled that target and brought in $113,419 last year. It was a great year on all fronts. Mrs. RB40 made good income from her job. Our rental duplex was occupied the whole year and there were no big repairs. My online income was the best since I started blogging. Dividend income was also good. Like I said, it was an awesome year.
Mrs. RB40’s paycheck: $71,748. This is after tax, insurance, and other deductions. Mrs. RB40 is doing very well at her day job. She got a raise in 2017 and she is bringing home great income and benefits. That’s one reason why she isn’t ready to quit working full time yet. She also doesn’t want to deal with health insurance uncertainties at this point. Her employer sponsored health plan is working very well for us.
Rental income: $10,973. It was a great year at our rental duplex. There were no big repairs and it was fully occupied for the whole year. Next year, we may need to paint the exterior so the income will probably be down.
Online Income: $64,942. My online income was great in 2017. I spend 20-30 hours per week on this blog so this isn’t exactly passive. I think it is still pretty darn good, though. Here is how I generated online income last year.
- Banner ads: $23,549. These are the banner ads you see on Retire by 40. This category exceeded expectation because I hoped to make about $1,500/month.
- Affiliates: $43,836. These are referral fees from affiliate links. If a reader signs up for a service through our affiliate link, then we sometimes earn a referral fee. One example is the Personal Capital link at the net worth section above.
- Private ads: $2,671. Occasionally, we worked with a company to advertise their products. I rarely do this anymore and this will be close to zero next year.
- Expenses: -$4,778. Business equipment, internet, hosting, email service, CDN, cell phone, etc…
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- P2P lending: $443. I’m slowing getting out of P2P lending. I just don’t think they will do well when the economy turns south.
- Realty Shares: $437. I started investing with Realty Shares in 2017. So far, I’ve invested in 2 commercial properties and 3 apartments. I like RealtyShares and I plan to invest much more in 2018. See how I’m doing with real estate crowdfunding here.
Pre-tax savings: -$50,050. We both maxed out our 401k accounts. I also contributed $4,660 to our kid’s 529 College Savings fund. RB40 LLC also contributed $9,500 extra to my 401k.
Annual Expense (target < $54,000)
Our monthly expense target is $4,500 per month so that’s $54,000 per year. This year we came under budget at $49,131. That’s great! I checked against 2016 and we spent less money in these categories – kid (no more preschool), health care, entertainment, and travel. I suspect 2017 was a lull year so our expense will probably creep back up next year. Anyway, I’ll bask in the glow of moderate expense for now.
Housing: $27,587. This includes the mortgage, HOA, and property tax. Housing was more than half of our annual expense. We may have to move to a cheaper location to reduce this expense.
Cash Allowance: $300. Wow, we didn’t use cash much this year. We put almost everything on credit and debit card. I may have missed some withdrawals.
Groceries: $5,603. Our grocery spending was pretty good. We spent less than $500/month on average. It was about the same as 2016.
Transportation: $613. This is for parking, maintenance, and gasoline. I drove about 5,000 miles last year. It was a low miles year for us.
Kid: $2,888. This includes summer camps, lessons, soccer, school supplies, cloth, gifts, etc…
Bills: $2,906. Electricity and insurance (auto, home, term life, and umbrella).
Healthcare/Medical: $940. This doesn’t include health insurance premiums because that’s deducted right out of Mrs. RB40’s paycheck. This is the cost of prescriptions, deductibles, glasses, and dental care.
Entertainment: $1,218. Gym membership, eating out, going to see shows, etc…
Travel: $4,282. We visited Hawaii, Cancun, California, and a few local destinations.
New cash flow graph
Here is the Sankey graph for our 2017 cash flow. Let me know if you like this graph. I’m trying to decide if I should use this instead of the usual cash flow spreadsheet above. If you’re interested, you can try making your own Sankey graph here.
2017 Extra Savings: $64,288
2017 was a good year and we had some extra money to invest. What did I do with the extra money?
- I stashed $30,000 in VNQI. This fund will be cashed out when Mrs. RB40 retires.
- I invested $28,000 with Realty Shares. This is working well so far and I’m planning to ramp it up much more next year.
- The rest is in our savings account for now. Higher online income also means we’ll pay more taxes next April, at least $5,000 extra. I didn’t send in estimated tax because I didn’t have to pay in previous years. There should be no penalty in this case.
Can Mrs. RB40 retire?
This is a new section I added for 2017. I want to see what happens if Mrs. RB40 stops working full-time. Basically, I will remove Mrs. RB40’s income from our spreadsheet and stop contributing to our tax-advantaged accounts.
Drum roll please … for 2017, Mrs. RB40 could retire early with no problem!
If we remove Mrs. RB40’s income from the spreadsheet, we’d still be ahead $42,590 in 2017. My online income was higher than usual so this challenge was easy. Let’s see if we can repeat it again in 2018. However, my wife isn’t quite ready to retire yet so she is still sticking around at her job.
2017 wrap up
Whew, what a year. I really didn’t think it would turn out this well. I thought the market was overpriced in 2016 so I was somewhat hesitant to invest more. Luckily, I stuck to the plan and kept investing. Our income was great and our expense was lower than normal. Everything just came together in 2017. It was our best year in a long time and I’m going to miss it.
Hopefully, 2018 will be just as good, but I seriously doubt it. I’d be ecstatic if our net worth gains 10% this year.
Did you have a good year in 2017? Do you think 2018 will be better or worse financially? Happy New Year and good luck with 2018!