Previous You(s): What Do You Have To Show For Your Time and Money?
“At the time, I didn’t understand it.”
This is one of my favorite things to say. Because it is true.
There is still so much I don’t understand.
However, when I take a backward look, I am often surprised by how much I did know but was unsure about.
Journal keeping is a great way to allow yourself to do this.
As I was getting ready to draft today’s article, I went to my old journals.
I went back to see if I could find my financial notes from the time I was getting into the early stages of applying the concepts of Your Money or Your Life to my own situation.
It was funny and revealing.
In July of that year, I found an entry that listed my top 10 expenses.
They appear to be annual expenses, rounded off for visual ease of reading and recording into the journal.
Here were the top 10 Expenses for that previous year (July to June):
1 & 2. First & Second Mortgages & Property Taxes — $49,100
3. Transportation & Servicing/Repairs — $30,060
4. Food — $22,590
5. Home Maintenance Projects — $20,280
6. Federal Taxes — $20,220
7. Debt (Non-Mortgage) — $14,680
8. Yard & Landscaping Projects — $9,930
9. Car Payments — $9,870
10. Electricity — $5,310
Take 15% off the top for 401K investments, add a few miscellaneous expenses, and that was pretty much everything I made in that year.
Basically, I spent it all except for the 401K savings.
I am shocked by some of these numbers.
This was for a family of five at the time, but still. Ouch.
My guess is that I was paying off the two cars aggressively.
It was also the year I bought a certified, barely used car for my new job’s long-commute requirement.
There is no way I would have had that large of a car payment at the time.
We were putting a lot of money into improving the house, too,
and then we sold it.
then all Heck broke Loose …but that’s a tale for another day
Even though I had not come across Dave Ramsey’s Total Money Makeover, I am pretty sure I was following some piece of advice in Your Money or Your Life to pay down debts, thus the large amount going toward that.
But I also added $5,000 or more to a credit card that year to pay for a trip to Hawaii for a big family celebration event.
Given that peek behind my “early self” spending behaviors, let’s jump back into two more pre-FIRE and pre-Highway to Yeah exercises I highly recommend you do.
They both involve looking back over your life and accounting for what has happened so far.
Today, I will cover one based on your finances. Tomorrow, we’ll cover the second exercise, which is about how you’ve spent your time.
Money: It’s A Blast (From the Past)
The first exercise is Basically from Your Money or Your Life. They call it something like “making peace with your past.”
Here’s what you do:
Go to ssa.gov. This is the website for the Social Security Administration.
Once you jump through their identification hoops (and I am glad they are there to prevent fraud), you will find yourself on the “my Social Security” page.
A little down the page, you will see the heading “Eligibility and Earnings.”
Below that, you will see a link you can click on that says, “Review your full earnings record now.”
This will bring up a spreadsheet that has the first year you reported income that was taxed and credited toward Social Security. Then each year after that is listed up until 2025 (last year).
In the far-right column is the amount of taxable earnings you had for each of those years.
Add those numbers together.
Plus, add in any “under the table” pay or such you may have received (e.g., cash tips, cash for a day’s work or job, etc.).
That is how much you have earned in your working lifetime.
Dominguez then asked, “How much do you have to show for it?”
Ah, nice!
This is a call to create a Net Worth statement.
Your Net Worth number is one of the Seven FIRE Metrics That Matter.
In fact, it’s a powerful one of those.
In some ways, it’s either the King or Queen metric of the seven, depending on where you are in your journey.
Well, these steps were eye-opening.
I had earned about $900,000 by that point.
Most of that had been earned in the previous five years.
You see, I got out of a great graduate school program and landed a job with a “fancy company” (as Dr. Belzer, one of my favorite professors, used to call them).
Started with a great salary.
Then had a bonus percentage added a couple years later.
That alone ended up kicking me into six figures per year.
And then I got a huge promotion by interviewing and switching companies.
That added restricted stock units and stock options.
Yes, I was starting this journey to the crossover point in pretty good shape from this perspective. Cash flow was just starting to come in at a really great clip. Up until then I was barely keeping our heads above water.
What was my Net Worth at the time?
I can only estimate, but it is pretty close. I don’t know exactly how I was tracking it back then.
Probably on an Excel spreadsheet that has been swallowed Up in the black hole of digital waste.
But I did find an entry Also in July of that year, listing assets a couple of entries past the top 10 expenses entry.
That would have been about one year after discovering Your Money or Your Life, so I was about six months into applying it.
Here are the assets listed:
Checking Account — $782.94
Savings Account — $781.14
Cash On Hand — $111.90
401K Balances — $105,560
Home Equity — $75,000
Cars — $35,000
Debts and mortgage amounts are not listed, and I am sure that is because it would have shown that I had an almost negative net worth at the time.
I was probably trying to paint a more sunny picture.Boost my confidence.
If I recall correctly, the first and second mortgages were around $375,000 combined, which basically canceled out the home equity I have above.
Credit cards, student loans, and car payment debts were likely around $41,000 based on what I recall. That wipes out the car and cash-type assets.
Thus, I think I could reasonably say that I had kept about $105,000 of that total income earned so far by that point.
That would be around 11–12%.give or take.
Ah, very interesting.
That is somewhat close to the 15% I had begun to invest in my 401K starting in 1996.
This illustrates why Savings Rate is also so important.
When I left my corporate job, I had about 33% left of what I had earned over my working life so far.
In the last 10 years of that working life, I had increased my savings rate first to 25%, then 35% for a couple years, with the last five years at the 50% or more level.
Thus, keeping 33% makes sense.
It is all about the savings rate (i.e., the gap between what you make and what you save … and invest).
Today, my net worth shows that I have kept about 52% of what my ending lifetime earnings were.
It has grown from 33% of that amount to 52% of that amount.
Huh? The amount I have to show for it has gone up?
What kind of money voodoo am I practicing?
It’s investing and the return on those investments, and withdrawal rate management.
Plus, because of inflation in the last five years, it is not worth the same as it was five years ago.
Nevertheless, I now have 52% of what my ending lifetime earnings were.
Nice.
It’s all because my money started working for me, and I manage my withdrawal and spending rates with great consistency and precision.
You can do this, too.
Alright, that took much longer to write than I thought.
So, I will be back tomorrow with the second exercise.
This next one will look at your time on this planet so far and what you have to show for it.