Milestone reached: net worth of over $250,000

The last net worth milestone we published was back at $150,000 which was over a year ago. Since then things have been pretty much on auto pilot where we haven’t been diligently tracking our progress as we had in the past. So it feels very refreshing to get to talk about passing another milestone, this time being a quarter of a million dollars. Interestingly, it was about this day two years ago when we finally surpassed the $100,000 mark.

Husband’s 401k

When I was first hired by my current employer they were not offering a 401k program. Though the position met all of our other requirements this was a big piece that was missing. However, I was told coming in that I could explore possible options for the company which they would take into consideration. And true to their word, after a rather lengthy evaluation of several providers the company went with my recommendation (Vanguard) with a plan that began this year.

The plan is what is known as a Safe Harbor 401k which allows all participants to make the maximum-allowable contributions each year regardless of income. All of the plan expenses are paid by the company and the employees are only responsible for the costs of the individual funds. There is a 4% match – dollar for dollar on the first 3% and $0.50 on the dollar for up to 5%.

Since I have been with my current employer for a year I now qualify to contribute to the plan. I have elected to defer the maximum amount for 2008 and will continue to do so in the coming years. The money will initially be invested into Vanguard Target Retirement 2050 Fund (VFIFX) for now, but this will change shortly as we begin to realign our portfolio after adding the taxable investment account last month.

Husband gets a raise

It’s hard to believe that it’s been over a year since I quit my previous job and found another. My workload has increased, as you can see from the lack of blog output, since taking the new position. Today I learned that I received a 10% raise which bumps up our total salary income to $152,440. This will surely help in making our net worth goal of $350,000 by the end of the year. If we can manage to accomplish that feat we’ll still be on the aggressive path of our long-term plan even though we are currently fighting against negative investment returns.

On a side note, since I have been with my current employer for a year I now qualify to contribute to the company 401k program. I’ve already made the necessary adjustments so that I make the maximum-allowable contribution ($15,500) for this year. You may remember that earlier I made mention to the fact that my new employer did not offer any benefit programs. I’ll explain what has transpired since then in my next post.

Taxable investment account established

Today I opened up a joint taxable investment account through Vanguard with an initial deposit of $10,000 to be invested in Total Stock Market Index Fund Investor Shares (VTSMX). Since we are already taking full advantage of our tax-advantaged savings (Roth IRAs, 401ks and HSA) and all of our “bad debt" is now fully paid down, this was the next logical step in our journey toward achieving financial independence.

In the next few weeks we’ll be restructuring our investment portfolio to a more "slice-n-dice" setup using an asset allocation that is more aligned with our goals and risk tolerances. Right now we’re essentially 100% invested in Target Retirement 2045 Fund (VTIVX) which has served us well up to this point. The plan is to adjust our allocation to the following:

• 40% TSM - Taxable, Husband's 401k ($44,000)
• 30% Foreign - Roths ($33,000)
• 20% Bonds - Husband's 401k ($22,000)
• 10% REIT - Roths ($11,000)

You’ll notice that the wife’s 401k isn’t included above. That’s because the options she has outside of the Target Retirement funds are quite expensive, so we’ll stick with the Target Retirement 2045 for this account for the time being.

Car purchased

One of our goals for this year was to use the funds that were set aside in 2007 to purchase a reasonably used car to replace one of our existing ones. In late February we bought a used 05 Hyundai Elantra to replace the 95 Mazda Protégé LX.

Though the Mazda was still in reliable driving condition the wife felt she needed a newer car due to the fact that, with her new promotion, she would be required to drive with clients and coworkers more often and the Mazda was starting to show its age.

Going in we had just a handful of requirements (in order of priority):

• Sedan or large compact


• Overall cost of around $6,000


• Fuel efficient


• Reasonable reliability


• 75,000 miles or less


• 2001 model or later


• Cloth interior


• Sunroof


• Power locks/windows

I was primarily concerned with getting the most car for the dollar regardless of brand. Initially, the sunroof was more of a preference and we had a lot more options to choose from. However, after doing a bit of looking around, the wife decided that the sunroof would be a requirement. This certainly helped to narrow down our search as you just don’t see many cars with cloth interior and a sunroof.

Of course, when you talk about reliability the Honda and Toyota brands are usually at the top of everyone’s list. Because of this they tend to hold on to their value much better than others. Since I wanted to get the most for our money I gravitated more toward Mazdas, Hyundais and proven domestic brands. For a while I thought we’d end up with a Chevy Malibu or another Mazda Protégé, but in the end we found ourselves deciding on a Hyundai Elantra after finding a good price with a small used-car dealer in a nearby town.

I knew little about the Hyundai Elantra beforehand, but during the course of my research I found out that since 2001, when the vehicle was redesigned, it has proven to be a very reliable car, but because of its prior poor reputation the resale values continue to be very low making it a good buy. Edmunds even ranks it as one of their Used Car Best Bets for 2007.

So, in the end we bought a 2005 Hyundai Elantra that satisfied all of our requirements for the asking price of $7,950, which was slightly lower than the Kelley Blue Book value. We were able to trade in the Mazda for $1,300 which brought the overall cost down to what we had wanted to spend. The car had just over 43,000 miles on it and the CARFAX Vehicle History indicates it sat in a State agency parking lot for much of its life.

Second mortgage paid off

Today I wired the necessary funds to completely pay off our second mortgage debt, thus completing the goal we set for ourselves this year.

As you might recall, in later part of 2006 we began to make extra payments toward the principal balance which we got down to under $10,000. For 2007 we had planned to transfer this balance to a credit card offering a no fee, 0% interest rate where we'd slowly pay this debt down over the course of the offer period. For reasons explained earlier this did not happen and so this goal was reintroduced as part of our 2008 goal set.

The remaining $8,492.68 of our second mortgage is what I consider the last of our "bad debt" since the interest rate on this loan was so high (8.25%). Now that it is paid off and we have long since established an emergency reserve we can now fully concentrate on nurturing our investment growth.

Contribution made to HSA

Last week I made the maximum allowable contribution of $2,900 to my health savings account. Now that we have maxed out contributions for both Roth IRAs and the HSA we only have our 401Ks remaining which we plan to max out by the end of the year as part of our 2008 goals.

We always want to contribute more aggressively at the beginning of the calendar year as to maximize our long-term returns and this has been the first year we’ve been able to max out both our Roths and HSA at the very beginning of the year.

Wife gets a promotion at work

A couple of weeks ago we were excited to learn that the wife would be getting a rather big promotion at her work and a sizeable raise in pay to match.

She was initially approached to fill a recently vacated position and was offered a 10% raise which would have increased her annual salary from $53,000 to $58,300. She smartly asked for some time to consider the offer.

That night we discussed the proposal together and decided we should try to counter the offer since it appeared we had the leverage to do so and, as mentioned earlier, the wife had been toying with the idea of leaving her current employer anyway, so we had little to lose if they rejected her proposal. It was decided she’d try to negotiate a larger raise along with some additional incentives.

The next day she explained to her company that she was very appreciative of the offer, but a 10% increase in salary would not be enough for her to take the position. Again, she was very smart as to not give her hand on what the exact figure was ($60,000). Her company was very understanding and asked for some time to make a decision. Later that day the hiring manager proposed a salary of $64,000 and the fulfillment of all of her requested incentives. She gladly accepted.

With the increase our salary income now totals $144,400 which should put us back on the aggressive path of our long-term plan for 2008.

2008 financial goals

In 2007 we continued our journey toward achieving financial independence by finding a more lucrative job position for the husband, maxing out our retirement accounts at an accelerated pace and setting aside enough cash to purchase a replacement for one of our existing vehicles.

For 2008 it is expected that we stay more in line with our outlined agressive savings plan while we take care of a few loose ends and begin to position ourselves so that we can start to fully concentrate on nurturing our investment gowth next year. With that said, this year we are hoping to:

• Continue to make the maximum allowable contributions to our retirement accounts and the husband's health savings account as we've done in the past - both 401ks ($31,000), Roth IRAs ($10,000) and HSA ($2,900). Much like the previous years, we want to be more agressive with our contributions at the beginning of the year to maximize our long-term returns.
  status: in progress
  


• Use the funds that were set aside in the previous year to purchase a reasonably used car to replace one of our existing vehicles. It is expected that this will cost around $6,000.
  status: completed
  


• Though we failed to do so last year, we plan to completely pay off the second mortgage debt.
  status: completed
  


• After the above three goals are met, we will want to establish a taxable investment account in which we will utilize the most tax-efficient choices available to us to maximize our investment return. We will need to restructure our investment portfolio to a more "slice-n-dice" setup using an asset allocation that is more aligned with our goals and risk tolerances.
  status: in progress
  


• Reach $350,000 in net worth by year end.
  status: in progress

Review of 2007 financial goals

I would say we were less than satisfied with our progress made in 2007. Though we met the majority of our goals, we weren't as disciplined (especially with our spending) in the second half of the year and I know we can do a much better job. Because of this we are now slightly behind schedule according to our long-term plan - we were only able to reach around $234,000 in net worth toward the end of December which falls just short of our outlined ideal savings plan.

Below are our 2007 financial goals with comments following each:

Goal: Continue to make the maximum-allowable contributions to our retirement accounts as we've done in the past - wife’s 401k ($15,500), husband’s Simple IRA ($10,500), and both Roth IRAs ($8,000). Much like last year, we want to be more aggressive with our contributions at the beginning of the year to maximize our long-term returns.
status: completed

Comments: Each year our first order of business is to fully utilize whatever tax-advantaged savings we have access to. Just like in previous years, we were able to make the maximum-allowable contributions and were able to do so at an accelerated pace. In addition, we were able to make the maximum allowable contribution to the husband's HSA which was unplanned for going into the year.

Goal: Though we failed last year, we want to make it a top priority to find a new job for the husband who has achieved all that is possible with his current employer and is looking to make a move that will further his professional growth and better help in accomplishing our goals towards achieving financial independence. The primary requirements for the new position will be greater challenges and responsibilities, higher income and a full 401k package with an employer match which would allow us to contribute more in tax-deferred savings.
status: completed

Comments: This was a major goal I had set for myself going into the year and I'm glad we were able to make this happen. For far too long I had talked the talk about making a job change and in 2007 I finally made it a reality by making the difficult decision to quit my job so that I could focus all my energy on completing this goal.

Goal: Make the necessary contributions (around $300 per month) to our cash reserve to bring us back up to $13,000 after paying our property taxes at the end of 2006. In addition, we want to also begin saving for a car to replace one of our existing vehicles. We'll assume for now we will need roughly $6,000 by the end of the year (around $500 per month). So, total monthly contributions to our cash reserve should be around $800 per month this year.
status: completed

Comments: As I had mentioned in the Catching up post, we were not very proactive last year and pretty much did the bare minimum for much of 2007. As such, we accumulated quite a bit of cash in our savings account with EmigrantDirect (at one point we neared $40,000), so this goal was rather easily accomplished.

Goal: Transfer the second mortgage balance to a credit card offering a no-fee, 0% balance transfer and completely pay off the balance by the end of November. In order to do so we are looking at monthly payments of roughly $900.
status: failed

Comments: As I had mentioned in the Catching up post, we got so far as to request the balance transfer, but we never made the next step of actually paying off the account. Instead, the funds sat in our savings account with EmigrantDirect accruing interest while we made the necessary minimum payments on the credit card debt. Chalk this up to laziness on my part because I was never willing to dedicate the time to take the next step and send off the payoff amount to the lender. In December we paid the outstanding amount on the credit card since the 0% offer was to expire in January. We will reintroduce this as part of our goal set for 2008.

Goal: Reach $238,000 in net worth by year end.
status: failed

Comments: Below average investment returns, a full month without the husband producing income and undisciplined spending in the second half of the year were all factors that contributed to us not being able to reach our net worth goal for 2007. The first two factors were pretty much beyond our control, but the third is what disappoints me the most when looking back at the year.