We are blessed to make a combined income that is in the middle of $100k – $200k. I know this is a lot of money, and it has taken us 15-years, including having Andrea stay at home with our girls while they were young, to get to this spot.
Even though we are making incredible progress at this point, it feels like we still haven't arrived at the spot where we can focus on increasing our net worth.
Motivation is great in super-charging your future. But when you are making excellent progress, and still feel like you are behind, this could end up derailing all that you've done at that point. I wanted to dive deep into why I felt this way and think about our plans for the rest of this year.
Making up For Lost Time
Compared to where we've been over the last 15-years, we are at a solid spot financially. Probably stronger than most of our parents at any point while we were growing up:
- We've paid off all our consumer debt, and only have our mortgage debt remaining.
- By June 1st, 2019 (which has already past by the time this article publishes), we will have 4-5 months of base expenses covered in our emergency fund.
- Last month I started contributing 7% to our 401k, which is in addition to the 4% match I receive from my employer.
- We have a clear picture of our financial goals for this year. I'll go into more details on our exact plan below.
Our net-worth is increasing, but not as much as I was hoping to see at the start of this year.
Going through the list above, I'm full of gratitude with how much progress we've made. I know some people are trying to pay off massive amounts of debt, and we should be grateful for where we are.
Most of the increases in our net worth are mainly from building our emergency fund, and preventing ourselves from having to go into debt (large tax bill and replacing our roof)
Rolling with the Punches
We got hit with a massive tax bill during tax time this year. This $11k payment took us by surprise and required us to use most of the emergency fund we had built up.
It could have been much worse if this happened anytime before this year. We would have most likely had to make tax payments to get caught up, and also trying to pay off debt would have been extremely hard and stressful.
We've been playing financial catch-up for a long time, but this is the first year that most of the time is not directly related to paying off consumer debt.
I think part of the negative feelings I am experiencing right now is from feeling like we had to fill our emergency fund twice this year. But I know this stage will pass and hopefully won't be a problem in the future.
Setting Ourselves Up For Success
This year is a pivotal year in that we are setting ourselves up for a very strong 2020. Below are our goals for the remainder of 2019:
- Save $14k of cash to help cover the cost in replacing our roof towards the middle/end of this summer.
- Max out my 401k contribution.
- Max out our Roth IRA's.
- Get caught up on our 2019 estimated taxes for our salon business.
- Saving $20k to expand the salon.
We already received $5k from our homeowner's insurance to help cover the roof, and if it costs more than that, they may end up paying out more. We used the $5k to help us pay down our debt early this year so we will need to cover that amount. And we want to save more just in case the cost goes above and beyond $5k. The goal is to have this amount saved by August 2019. With any luck, it will cost less than $10k to replace our roof, and we can use the excess money towards other priorities.
In September of 2019, we plan to max out my 401k monthly contribution and create two Roth IRA's that we will max out as well. Technically, I don't think we will max out the yearly amounts for this year, but we will start contributing the maximum amount per month to hit the maximum over 12 months. If we have excess funds from replacing our roof, we might throw in more money into our Roth IRA's to hit that maximum for this year.
The salon expansion money is a reasonably new goal that we decided to pursue this year heavily. The idea is that we will save $20k in cash for the full expansion. This expansion includes doing the following:
- Adding two premium rooms to our space that should increase our profits by $1,000 – $1,200/mo.
- Adding three hair-washing stations.
- Optimizing the large room, which includes knocking out a few partial walls, closing a corner in our dispensary, and putting down new flooring.
We aren't 100% sure how much everything is going to cost, but $20k cash should cover the big items and give us some flexibility in what we can do in the space. The great thing about this profit is that even if we decide to scale back on the services Andrea provides, this $1,000/mo is relatively passive income. Assuming we continue to grow the salon over the next 2-3 years, this should help generate more consistent income over the next 10-15 years.
Pausing Our Stock Market Investments to Invest in Our Business
I was incredibly excited to start building our after-tax investment account, but that will need to go on hold so we can expand the salon.
The more we thought about it, the expansion is going to increase our income from the salon perpetually. Premium rooms at salons not only are more expensive to rent out than standard booths, but they are in high demand — especially if they have a dedicated sink. If we play our cards right and make sure to make these room awesome, we should be able to charge a premium price.
The great thing about this type of income is even if Andrea decides to reduce the number of hours she wants to see clients, this is income that will still come in. It means that we could retire earlier, with the idea that we can use this income to cover our base expenses. Over multiple years, the amount of money this extra income accumulates is impressive:
- 2-years: $24,000
- 5-years: $60,000
- 10-years: $120,000
- 20-years: $240,000
I posted a poll on twitter to see what people thought, and it appears most people think this is worth pursuing. Once we complete the renovation, we will prioritize filling the rooms to increase our cash-flow.
We never want to face an $11k tax bill again. That is a huge amount of cash that isn't easily absorbed. And we want to avoid dipping into our emergency fund at all costs.
To prevent this from happening again this year, we have to get caught up on our quarterly estimated tax payments. To do this, we will have to save extra every month, at least through September this year. Currently, it looks like we should be able to make the June estimated tax payment, and then get fully caught up with April + September's amount by September 2019 this year. At that stage, we will save around $1,500/month towards taxes, and continue to make quarterly estimated tax payments.
It kind of feels like this money is similar to debt payments when in reality, we are getting caught up on taxes for the profit we've already earned this year. It's a bit painful, but once we get caught up, and keep an eye on how much profit we are making from the business, we should easily be able to avoid last year's tax situation.
We are also working on increasing our business emergency fund, which will help cover future tax bills that aren't covered with our estimated tax payments, and any other unexpected business expenses from the salon.
If we can hit these goals, this will set us up to be in a much stronger financial spot from the business end next year and beyond. If we encounter a slower month, we can tap into our business emergency fund to keep our take-home pay consistent. And if we do end up owing money on our taxes, it should be a much more manageable amount.
Learning When to Loosen Up
In addition to all of this, we are also trying to figure out where to tighten up or loosen our budget. We don't want to always feel tight for cash in our budget, but we also want to save as much money as possible.
We decided not to pay for lawn care services this year (mowing and weed whacking) and to do all of this ourselves. It will require more work, but it is a decent workout, and we enjoy being outside together. At least this year, we see this as an easy way to save money while we play financial catch-up.
This summer, we have three small family vacations planned. All of them involve driving to another town in our state, including going to a concert. Instead of trying to plan more involved and expensive trips this year, we are focused on saving money by staying closer to home and utilizing free/cheaper family activities this summer.
The one exception to this “cheap vacations” plan this year, is that we are planning on having Andrea come with me to the DC area in December. From there, we will take a train and spend a few days in NYC. Our monthly vacation fund, which we will start saving for this summer, should easily cover the expense of this trip with cash, and we will pay for the hotel using points from our AMEX card (hopefully).
We will continue to tweak and adjust our monthly budget YNAB categories and make sure we are prioritizing what is most important to us.
Saving on our Cell Phone Plan
One area where I am excited about easily saving a ton of money is for our cell phone service. Right now, we pay about $195/mo for our Verizon cell phone service, which includes around $83/mo for our device repayment plan (two iPhone X's).
Outside of the device repayment, we spend about $110/mo for our Verizon plan. We should be able to switch to a different carrier and save at least 50%-60% percent on a plan that gives us most of the benefits we already have. The tricky part is if we want to keep and use our current iPhone X phones.
Our Verizon contract ends up completing either in November or December of 2019. As we get closer, we will iron out exactly what we will do, and are motivated to tap into how easy it should be to save a lot of money in this budget category.
The tricky part with cell phones is figuring out how much data we “need”. Both of us are usually connected to wifi, and it is only when we are out and about when we use cell phone data (or when our internet at home goes out, which is rare). If we can avoid using any data at all, we could save even more money. But, this is going to be a pain when we travel; so we will have to think about the pros/cons.
Aggressive Catch-Up Plan
Looking at all of these numbers, it seems like we are going to be doing a lot with the remainder of 2019. But if we can get close with these goals, 2020 should be a huge year where we see our net-worth snowballing every month.
With any luck, we will increase our profit from the salon, and I might end up getting a raise. Doing all of this will allow us to start heavily investing in our after-tax investment accounts.
I don't think it is an understatement to say that we are at a pivotal spot in our personal finances. For the first time, we can dedicate a massive amount growing our investments and having our money earn more money (once we get through these last hurdles).
Even if it feels like you aren't making progress, I would challenge you to look at the details and compare where you were at a few years ago. If anything, you've gained knowledge over that time and are better prepared to handle the future. With more time, you will eventually get to a spot where progress becomes more visible, and your net-worth grows more rapidly. 🙂