Net Worth – June, 2017

Each month I’ll be keeping track of our net worth on this blog. The reason for making our net worth public is to not only hold myself accountable, but to provide a record so I can review my progress over time. I’ll be giving a brief analysis on our results for the month and what changes I’m thinking of making.

 

Before I get into the analysis of how our net worth changed for the month, let me preface it by saying that this month was 5 years in the making. As those of you who follow my blog might remember, I’ve been working on a huge deal at work that, if closed, would result in a significant commission. Here’s what I wrote at the end of last month’s net worth report:

“I hoped to receive my large commission check by the end of May, but I don’t get paid until the company is paid, and it looks like payment from the customer won’t happen until early June.

Stay tuned until next month – this number is going to look very, very different…”

Sure enough, I received the first part commission check on June 15 and I expect to receive the second check sometime in July. The results of this commission check had an impact throughout our net worth report.

 MayJune$ Change% Change
Checking$30,459.46$250,598.28$220,138.83722.7%
Retirement accounts$630,625.07$649,071.11$18,446.042.9%
529 accounts$20,562.87$21,743.55$1,180.685.7%
Brokerage accounts$1,450,824.46$1,666,429.61$215,605.1514.9%
Private equity$200,000.00$200,000.00$0.000.0%
Rental properties$917,171.00$933,500.00$16,329.001.8%
Primary residence$1,607,000.00$1,620,000.00$13,000.000.8%
$4,856,642.86$5,341,342.55$484,699.7010.0%
Credit cards$16,678.29$2,334.43-$14,343.86-86.0%
Rental mortgages$512,763.65$511,550.33-$1,213.32-0.2%
Primary mortgage$748,492.39$648,168.47-$100,323.92-13.4%
$1,277,934.33$1,162,053.23-$115,881.10-9.1%
Net worth$3,578,708.53$4,179,289.32$600,580.8016.78%

S&P 500 performance for June, 2017 = 0.48%

Assets

Checking – I deposited a commission check of approximately $540,000 into our checking account on June 15th. We’ve used some of this money to reduce some debts (more on that below), but most of the money will be sitting in this account to pay for some work on the house that we plan to do over the next few months.

Retirement Accounts – This includes a 401(k), a few IRAs, and a few Roth IRAs. The only account we are currently contributing to is the 401(k), as we are ineligible to invest in the rest. These were up a solid 2.9%, for a total gain of $18,446.04. Of that, approximately $1,200 are contributions to the 401k, so the bulk of our gains are due to the performance of the market.

529 accounts – We are contributing $500/month for each kid, and given the low balance of these accounts I expect that our contributions will dwarf any investment returns for quite some time. We added $1,000 and got another $180.68 in gains from the market, so it looks like my expectations are about right.

Brokerage accounts – This is our early retirement fund and where most of our net worth is. I moved $200,000 of the commission check to our brokerage account with the idea that it will be used for investments. Unfortunately, due to the ridiculously high level of the market, I don’t see a lot of options in the market today. As a result, I think this money is likely to sit in cash (or a short-term California muni bond fund) until I can find better values in the market.

Private equity – 2 separate equity investments in startups. Since there’s no way to value these investments I will continue to keep them valued at my initial investment amount. Hopefully I’ll one day be pleasantly surprised to see that the companies are worth something.

Rental properties – On the last day of each quarter I adjust the value of the properties based on Zillow’s estimate. According to Zillow these properties are up a total of just over $16k this quarter. That’s 1.8%, which results in an annualized 7.2% gain. That seems high – it’s hard to believe that property values are actually increasing that quickly.

Primary residence – Just like the rental properties, I adjust the value of our house at the end of each quarter. The value of our house doesn’t really matter because we hope to live in this house forever, but I track it for the sake of completeness.

Total assets – Total assets were up $484,699.70 for the month (a 10% gain). This puts our total assets at just over $5M, which is a nice milestone.

 

Liabilities

Credit cards – We don’t carry a balance from month to month on our credit cards, so this just reflects our balance as of the end of the month. I try to use credit cards for the bulk of our spending as it makes tracking our expenses a bit easier.

Rental mortgages – We paid off $1,213.32 on the rental mortgages. The best part about seeing this number drop is that the mortgages are being paid by the renters, so this feels like “free” money each month.

Primary mortgage – We have 2 mortgages on our house – a first and a second. The interest rate on the first mortgage is just over 4%. The interest on the second mortgage is 5.25%.

My expectation is the the stock market is going to return around 4-5% annually for the next 5 years. This means it makes sense to pay off the second mortgage but not the first.

The balance on the second mortgage was right around $180k. I paid $99,999.99 (the most I could pay electronically) of the balance last month and I’ll pay the rest off in July. That will leave us with a single mortgage on our house of about $560k.

Although I don’t really consider our house to be an asset, I definitely consider our home loans to be liabilities. I think it would be difficult to retire early with substantial mortgage payments hanging over our heads – this is why I’ve decided to pay off the second mortgage.

Total liabilities – Total liabilities were down $115,881.10 for the month (a 9.1% decrease).

 

Total net worth

Net worth was up $600,580.80 for the month to $4,179,289.32. This was a 16.78% increase from last month.

Frankly, this kind of feels like cheating – the big windfall really overshadowed everything else.

This was a good month for our real estate investments – the property values continue to climb and rent is being paid on time. Every single one of the 8 rental properties was profitable this month.

The market continues to climb, taking our investment accounts with it. Our savings rate is solid (although it looks amazing with these commissions checks). We’re trying to keep our spending in check.

I’ll be writing a lot more over the next few months about what it feels like to get a huge windfall and how I plan to use the money. If you’re interested in following along please subscribe to my blog.

 

How did everybody else do this month? If you received a big chunk of money would you pay down debts, invest in the market, or do something else with it?

10 thoughts on “Net Worth – June, 2017

    1. Dom – great question. I should have made it clear that the amount of the commission check was after taxes. It was roughly $1.2M before taxes. The second half of the commission check (which I should receive in July) will be about 50% larger.

      1. Commission of $1.2m before taxes! with the 2nd part 50% more than that?! Is this something that you’ll expect to repeat in the near future? How much did the company earn out of that deal? Also do you make a high base as well? I didn’t realize that companies that one didn’t own paid such high commissions to employees. You must be one of the key employees there. Congrats on such success.

        1. It’s unlikely that I’d ever be able to reproduce this deal, and if I did, it wouldn’t be for 5+ years. My base is actually pretty low (comparatively) at $100k/year. The total size of the deal was in the mid to low 8 figures.

          The reality is that most companies don’t pay such high commissions. Most companies have a fundamental problem with paying a salesperson 7 figures. The reality, of course, is that whenever a company pays a large commission it means the salesperson makes a lot of money and the company makes much, much more money. And not paying a large commissions that a salesperson earns is really bad business – other salespeople will see somebody get screwed, realize that they could be next, and leave the company. Good salespeople are always in demand and can easily find jobs somewhere else.

  1. First timer here to your site, I guess I picked the right post. Congratulations on all your hard work and a wonderfully detailed net worth.

    529 accounts, why not increase the contributions? Also, what are your overall thoughts on those accounts? You said it yourself, the contributions are going to exceed the returns for quite some time, do you believe this to be the case in the long run? Are there other investments that might be more beneficial for college savings?

    1. Thanks for the kind words.

      I’m a big fan of 529 accounts. As a general rule they are the best college savings vehicles available. They are one of the only tax advantaged accounts the don’t have an AGI limit. No matter how much money you make you can contribute to a 529 account.

      Right now we are on track to contribute about $6k per kid. We aren’t contributing more for the same reason that I plan on holding most my commission checks in cash – the market is ridiculously overvalued right now and I don’t see the wisdom in investing when there’s a high chance of large loss and a small chance of a small gain. If/when the market corrects we’ll likely go ahead and increase funding to the 529 accounts.

      It’s a pretty easy calculation to determine when the returns will exceed the contributions. If we assume investment returns of 8%/year and we are contributing $6,000/kid/year, then the returns will exceed contributions when the value of each account is 6,000/.08 = $75,000. The current values are around $11k, so that number is a ways off.

      1. I guess in the long run, the 529 makes most sense. My wife and I are not planning on starting a family for another two years, but I can’t help think that I go to dip into a 529 right before a kid’s freshman year and WHACK! A 2077/2008 crash happens, wiping out 50%.

        Maybe you can play defense a year or two before freshman year and re-balance the portfolio to bonds and treasuries, but still makes me cautious.

        In any event, thanks for your position. It helps me solidify my decision the more I speak with folks in the community.

        1. The main advantages of the 529 are:
          – Tax-free growth, plus any withdrawals for qualified educational expenses are tax-free as well. It’s basically like a Roth for education
          – Any money not used for the designated beneficiary can be given to relative for educational expenses (niece/nephew, brother, mother, etc.) Or, you could use it yourself. There is even a golf academy that counts for purposes of 529 withdrawals.
          – You can put 5 year’s worth of gifts into the account at one time without paying any gift taxes. You can give each of your kids $14,000/year. Your wife can do the same. That’s $28,000 * 5 years = $140,000 you could put into a 529 account in 1 year if you wanted to “prefund” your kids’ education. Note: if you did this then you would not be able to make any contributions for the next 5 years, since you’ve already made them all up front.
          – You have a pretty wide range of investments available. In CA you have the ability to invest in an age-based portfolio that automatically gets more conservative as you get older (https://www.scholarshare.com/research/age-based.shtml)
          – You can change the asset allocation yourself every year, so you could slowly transition out of stocks and into bonds or even money market or other stable funds to ensure money is available when needed for your kid’s freshman year.

  2. Super interesting and inspiring to read your net worth report. Congrats on the gain and on reaping the fruits of your labor with that insane commission check. I just subscribed and look forward to reading more.

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