For 2017, I am focusing on 3 initiatives to bank $80,000 in savings. This year’s approach is much different than the 2016 approach of 17 Strategies we used to save $50,000 – so I trust you’ll see plenty of of value in this post as I link together how we’re going from $50K savings to $80K in savings.
Net Worth Update for Q2 2017
Q2 2017 saw our net worth peak to an all time high of over $50,000! This is nuts considering we hit $0 aka a positive net worth in the last week of last year.
We were able to achieve this remarkable milestone because we had another great quarter where we saved 48.7% of our post-tax income.
Our savings through half the year is well ahead of schedule, but we are buying our first home so we expect some headwinds in Q3 once the final closing expenses are through. In fact, we are already dealing with some of the expenses associated with buying a home – and yes, the true cost is eye opening.
To help offset the costs of buying a new home and to make sure we reach our 2017 goal, we are launching into a new 90 Day Frugality Challenge for Q3. If we do as well as we did last time, then our goal of saving 80K in 2017 might actually be surpassed!
There will be more info in the next few posts, but if you’re curious to learn more on our Frugality Challenge, then follow our new Instagram page, where will be posting frequently on our progress through the 90 challenge.
The first initiative to help us boost our savings from $50K to $80K this year is optimizing income in three distinct ways: salary, side hustles, and investment income.
I’ll tackle investment income first, as this is the easiest area to benefit from. (The second and third initiatives will be covered in future posts.)
Optimize Income – Investing vs Eliminating Debt
As I recently discussed, investing always wins when playing the game of, “Should I invest or pay down debt?”
Similar to Q1, our Net Worth went up $2,153.69 thanks to my unconventional approach to paying student loans.
Here’s how it works:
In theory, Instead of paying down tax efficient debt in a tax inefficient manner, I instead invest my money while maintaining the normal payments on our ~5% interest rate loans. Thanks to historical S&P 500 dividends averaging ~2% each year, the only return I need on my money to come out ahead is 3% (assuming no taxes for simplicity, but you can say we need 4-5% if we factor in taxes.)
In practice, we gain the habit of investing regardless of the monetary benefits. Never underestimate building habits early, especially right out of school when many are dealing with their first big paychecks and crafting new budgets.
This one investing habit developed 5 years ago is adding $31 PER DAY to my net worth this quarter. The crazier part is the dollar impact will only continue to grow as compound interest works its magic.
For anyone keen to see the math: interest expense on student loans was $1,474.32 in Q2. The appreciation from our portfolio assets (minus our contributions) equaled $2,790.59 during the same period.
As always, the rise in the portfolio value is tied to the stock market and outside our control. As such, it helps to focus more on savings rate as opposed to net worth fluctuations.
Optimize Income from our Salary
I have talked in the past on how I increased my pay by over 100% in less than 4 years. If you haven’t yet, consider preparing yourself to ask for a raise.
If you are scared to ask for money or asking makes you uncomfortable, then try and start with non-monetary benefits, such as working from home arrangements or an employer covering work-related expenses.
Optimizing income also includes efforts to reduce spend AKA frugality. I’ll be launching into a new 90 Day Frugality Challenge soon and I’m looking forward to increasing our savings and investments. Last time around we achieved a 60% savings rate, so I am curious to see how we will do this 2nd time around. We have a lot of crazy tactics we’re going to be attempting this 90 days so I’ll be sure to include plenty in the future on what is working and not working.
If all of the items above fail, then the only solution to optimize income may be to automatically elect for future raises to go towards investment accounts.
Studies show people save and invest more when making the election with money they will receive in the future. When the money is here in the now, studies show we are less likely to take the action to invest.
Optimize Income from Side Hustles
Since launching Distilled Dollar, you can go back over the various blog income reports to see I’ve generated less than $10,000. All of that money has been reinvested back into the blog and I look forward to being able to invest even more into this site.
While the income from side hustles might not go directly towards my net worth, the income will indirectly help by alleviating my current cash flows from going into side hustle projects.
My passion and drive for personal finance is obviously boiling into an obsession at this stage. That being said, there are actual costs associated with running a blog, posting a podcast each day, and recently having shot and filmed over 40 videos with a new camera.
So the short term goal is to make sure side hustle income covers expenses, from there on, I hope the income can only further expand the capacity of this personal finance obsession! 🙂
Conclusion + 3 Perspectives on Optimizing Income
To wrap, it was a busy quarter for us as my fiancee and I moved forward with the purchase of our first condo together. More details to come on this later, but overall we’re beyond excited to have the net worth momentum still pushing us forward. The investment income will continue to grow as I continue to work on optimizing my two other forms of income.
As my podcast co-host put it in a recent article, “At the end of the day your future earning potential is based on what you are being paid today and the value you can create tomorrow.”
Another fantastic quote I leave you with is from Napoleon Hill, “The person who does more work than he is paid for will soon be paid for more than they work.
Lastly, this golden gem from another frugal blogger, Mr. Money Mustache, “Focus on producing instead of consuming.”
How was your Q1 2017? What are you doing to optimize income this year?
P.S. As mentioned in the post, Distilled Dollar is now on Instagram – my fiancee will be posting about our upcoming 90 Day Frugality Challenge – Round II, so you can follow along as we dive into frugality and see how much we can save!