2009: Financial Year-End Review
Originally published at Daveism. Please leave any comments there.
2009 was the year I finally got my finances straightened out. You might think it was because of the recession, but it wasn't. It mostly came about due to deep dissatisfaction with my job, and the idea that I don't want to work for the rest of my life. After 12 years in the workforce, I had little to show for it in terms of savings or investments. At the rate I was going there would be no retirement.
I did three things this year that were notably different than previous years:
- I got my spending under control.
- I learned as much as I could about saving and investing, and applied that knowledge.
- I made a plan.
Let's drill down into these three points individually.
Spending
This was huge, and largely a matter of will. I've always been a gadget lover, and bought the latest and greatest. This year there were many things I might have splurged on in years past; an iPhone 3GS, a Core i7 computer, or even trading in my 350Z for a new 370Z. But my phone, my computer, and my car are perfectly adequate for my needs right now, and I'll keep them as long as they are. You'd think that would be a simple conclusion to come to but it wasn't. The intellectual hurdle I had to get beyond was I have the money, why not? Instead, I made a conscious choice to put off immediate satisfaction for the future satisfaction of not having to work. The idea of controlling my own time is a powerful motivator.
Besides eschewing large purchases I tried to reduce my other spending as much as possible. I refinanced my home with a no-cost loan. I canceled cable in favor of Hulu and old-fashioned rabbit ears. I got a mobile phone from work so I could reduce the number of minutes on my personal plan. I started paying attention to sales and stocked up when I could; yes, I was the guy coming through the checkout line with 18 2-liters of soda at 84 cents each, and 20 bottles of body wash when they were a buck off.
I am still spending too much. I could do better. Notably, I pay far too much for my house, and am planning to put it on the market in the spring. I still managed to save 35% of my gross income this year. For me, this is huge.
Saving and Investing
This year investing became something of a hobby for me. I read books, articles, blogs, anything I could get my hands on. I built an emergency fund, got the right mix in my 401k, and invested heavily in individual stocks. I developed my own philosophy for investing, which was basically buy and hold high quality companies, and invest regularly. Everyone has heard this before, but in reality it is difficult to not micromanage your portfolio and buy or sell on panics or quick tips. It requires a lot of discipline. And though I have bought and sold stocks before, it was really the discipline that I got right this year. As I am writing this my portfolio has gained 61% this year versus the S&P 500's gain of 23%. I am hoping to beat the index again next year, though I doubt I will be able to do so by a similar margin.
The Plan
After sitting down and crunching the numbers, my goal is to have a liquid net worth of $2.5 million by the time I am 50. This is doable if I continue to save aggressively, and earn a relatively average 10% return a year. Obviously another market downturn might do me in, but I want to think I'll be invested intelligently enough to weather it. And if history is any indication, the next 15 years might see a boom in the economy.
I'm not factoring in my 401k into this equation. It will be my 'hedge' if my regular portfolio goes sour, and I need more money when I am in my sixties. The general idea is that I will continue working after I'm 50, but only in jobs I want, like freelance or contracting work. Two and a half million won't buy me a yacht and all the caviar I want, but it'll give me freedom. Hopefully I am well on my way.