It’s the end of the year, and time for an annual check-up. This is my first one since starting this blog, but fortunately, I have always kept track of my finances, so I have records to compare this year to last year and evaluate where I can make some improvement going forward. Without further ado, this is my 2015 financial year in review.
Financial Year In Review: 2015
I keep my finances in Quicken, which I know seems a bit old school compared to a lot of the other personal finance bloggers I read. Most of them discuss using Mint or Personal Capital, but I’ve used Quicken for as long as I can remember, and I like the functionality it has. I can keep track of all of my bank accounts, credit cards, investment accounts, and even my mortgage and other notes via Quicken, and it automatically syncs with my financial institutions so I have up-to-date balances on all of my accounts and I can reconcile them to the bank records once a week, or once a month, or whenever I feel like it without having to wait for bank statements. I also use it to split transaction categories and reclassify expenses or to track amounts due to/from my boyfriend, since we keep separate finances. Personal Capital mimics a lot of those functions, but from what I’ve seen, it doesn’t do enough of those functions to substitute for Quicken the way I use it.
In case you’re interested in buying this year’s version on Amazon:
Anyway, so in Quicken, I ran the usual annual reports that I run to prepare my tax returns. The reports don’t tell the whole story of course, since they don’t include 1099 information or other tax-reporting-only items. But because I tend to withhold pretty accurately from my paycheck, Quicken tends to be a pretty good examination of my after-tax picture. It’s not 100% precise, but it might typically only be off by $1,000-2,000, which gives it an error rate of about 1-2%, so that’s as good as it’s going to get.
It looks like my after-tax income for 2015 is approximately $123,000. I’m using the after-tax number because that’s the one that really matters when it comes to saving and spending. There are a few things I can do to try to minimize my tax bill (such as contribute to a solo 401k), and I encourage you to do the same, but at the end of the day, the tax man demands to be paid first, and the amount you have to save or spend comes after that. Anyway, my income for 2015 came from several different sources. This is the approximate breakdown of how much came from each source.
My W-2 income is from my regular job as an attorney. The rental real estate income comes from my partial ownership interest in three different mobile home parks. I have not included any income from our apartment building in La Habra in that number, because the cash flow is small enough that we’re not paying it to ourselves. For tax purposes, it’s basically neutral or a small loss, because of depreciation. My accounting income comes from my side hustle of tax preparation and bookkeeping for the extended family businesses, which takes up nearly every Saturday from January through the end of March. The trustee fee income is a relatively small amount of income that I am paid quarterly to manage a trust that my grandparents set up for their great-grandchildren (the generation below me). I have a pretty good mix of income right now.
Income: Future Outlook
Over time, in terms of straight numbers (not percentages), I expect my W-2 income will increase, because my billable rate will increase over time, and hopefully I will get more disciplined at work and increase the number of hours I bill (a constant struggle). I also expect that my rental income will increase. Our apartment building in La Habra is currently being sold, and after escrow closes (fingers crossed—late January), I will be striking out on my own with my own building. For a variety of reasons, I expect that I will make more money on my own than with the group. Also, the mobile home parks generally tick up their income every year, as a result of rental increases and some costs (mortgages and property taxes) staying virtually flat.
Over the years, my accounting income will likely remain fairly flat. Since my pool of clients is really limited to family members, and since that pool doesn’t seem to be growing, I have to expect that that income stream will either stay the same or dry up over time. That’s okay. Also, over the next 10-20 years, the trustee income will dry up, as the beneficiaries age out of the trust and reduce the trust funds under management to zero. The accounting and trustee income is less than 10% of my total income now, so it won’t make a huge difference to lose it, but I do need to step up my game on the W-2 and rental real estate income to make up for it.
Hopefully, this blogging thing will turn into another side hustle, and it would be great if it could take the place of my accounting and trustee income, at the very least. I would love to be one of the success stories who end up making six figures a year from their blog, but since I would imagine very few bloggers make it to that level, I’ll set my goal at a more manageable level, at least for now.
While I do think it’s a good idea to diversify income sources over the long term, right now I am not terribly concerned about such a large percentage of my income coming from my regular job. I’m 36 years old and only 8 years into my career as an attorney, so I’ve got a long way to go in terms of asset accumulation before I can expect to generate enough passive income to make my job a less significant source of income. I am working on side hustles in the meantime, and I’m okay with that being a work in progress. I am also lucky enough to feel fairly secure in my job. I’ve been working there for the past 10 years (as a law clerk during law school and then as an attorney), and I’m on track to become a partner next year. If the you-know-what really hit the fan, I could always try to find a job at a different firm, or strike out on my own and start a solo practice. It wouldn’t be as easy as I’m making it sound, but it would be survivable.
Income: Comparison to Last Year
My income is more or less the same as it was last year. There were some minor dips in my real estate income this year, but I think that had more to do with increasing the amount of cash retained in the entities to cover possible major expenses that might arise. There was also a small drop in accounting income year-over-year, because last year I was paid an extra amount to do the accounting work for my grandmother’s estate. Finally, I sold my condo last year, so I no longer have any rental income from that property, which resulted in a very slight after-tax decrease in income. I’ve wanted to get rid of that property since 2008, though, and last year the prices finally rose enough to make it possible for me to sell it without feeling too much pain, so I don’t regret that decision at all. (Except that it led to a frivolous lawsuit from the buyer, but I’m not going to comment on that now because it’s still pending litigation. I might post about it after it’s resolved.)
I did a great job controlling my spending this year. I kept my paid-off 2009 Toyota Venza for another year, which saved me a lot of money on auto expenses. Gas prices went down, which meant that I only spent about $150/mo on gas instead of $200. (Your gas may be even cheaper, but I’m in Orange County, California, where gas prices are some of the most expensive in the nation and where we all commute to work.) Registration costs went down because the car’s a year older, and maintenance was very low. Insurance was about the same, but next year I will switch to liability-only insurance, so that should drop the premium by a good margin.
My business expenses went up a little this year. I had to buy a new laptop, after repeated hinge failure on my two-and-a-half-year-old HP laptop was causing it to be unusable. (I bought a Dell this time.) I also had some expenses for starting up this blog, including hosting and logo design. Finally, I got my real estate license last year, because I think it will earn me some money in at least the short run, as we sell our current apartment building and as I go out to buy a replacement property for myself. I will probably end up hanging onto the real estate license for side income in the future, but we’ll see.
My dining out expenses dropped by $400 this year, which is good. My grocery expenses also dropped a little, but that’s probably because last year I paid for virtually all of the groceries for the household, and this year my boyfriend started picking up more of the tab for groceries, and especially for his specialty items (grass-fed organic pricey whatever). My “grocery” and “household” categories get a bit muddy, anyway, since I shop at Costco and call it grocery and I shop at Amazon and call it household. In truth, some of the Costco purchases are for household items (toilet paper, furniture, etc.) and some of the Amazon purchases are for other things (gifts, clothing), but there’s only so much itemization I can do without wasting hours dividing up receipts. In any event, both the grocery and household spending categories went down this year, so that’s a good thing.
My entertainment expenses were virtually flat, at $825 last year and $793 for this year. This wouldn’t be very remarkable, except that Netflix prices increased a bit this year, and other entertainment expenses (concert tickets, movie tickets, etc.) were also a bit higher, but fortunately those were offset by the fact that I re-engaged with the local public library after a 20-year hiatus and saved a TON on books. In 2014, I paid for and read about 18 books (mostly Kindle). In 2015, I read about 29 Kindle books, and only paid for 5 of them. The rest were e-downloads that I borrowed from the library for free! And that doesn’t even include the 5 books that I checked out in hard-copy form. Bottom line, I was able to read a lot more this year at a fraction of the cost that I paid before.
The last category that had a semi-major change was pets. In 2014, my total pet expenses (minus food, which I buy at Costco, so it’s categorized as grocery) totaled $5,044. The primary reason it was so high was because both of my dogs had a couple of minor medical issues that year, and one of them (my 11-year-old Husky) had major medical issues, which led to several expensive tests and then, sadly, having to put him down. We adopted a shelter dog a few months later, which cost about a couple hundred bucks, too. In 2015, those expenses went way down. My 15-year-old Husky had to be put down last year, but he didn’t have major complications, so it was relatively inexpensive. We adopted another rescue dog, so now we have two younger dogs again (1.5 years and 3 years, roughly), which probably means we won’t have major vet bills for several years again.
Travel is one category I’m particularly proud of. The boyfriend and I went to Cancun in January of last year. We bought the plane tickets in 2014 ($600 RT for me; he used miles). I paid for about 90% of the food and hotel expenses for the both of us (allocated based on income). We were there for 7 nights. Apart from the flight, we spent about $2,000 combined, which is less than $300/day for both of us, including hotel, food, entertainment, and transportation! I’ll go into more detail in another post in the future, but here’s how we saved big bucks: (1) We got some freebies for sitting through a timeshare, which was not fun and took longer than they said (because we held out and didn’t buy the timeshare), but we still made out with enough benefits to equate to about $50 per hour for each of us; (2) We stayed in a cheap hotel in Playa del Carmen for the first four nights, which was in a great location but had a rock-hard mattress, and saved enough on those nights to be able to afford the infinitely more plush Marriott in Cancun for the last three nights, and (3) We ate only two meals a day out, one cheap and one a little pricier, and skipped lunch each day by either eating the cheap snacks we picked up at a nearby Wal-Mart (in Playa) or by stuffing ourselves at the breakfast buffet (in Cancun) so we didn’t even get hungry during the day.
Spending: Comparison to Last Year
The category-by-category approach detailed above is really the only accurate way for me to compare this year to last year. Comparing the overall spending numbers doesn’t quite work for two big reasons. The first is that, as I mentioned before, I sold my condo last year. That not only whacked out my income number, but it whacked out my expense number, since there are a lot of abnormal costs involved in that. The second reason is that I did a major remodel at my house last year. I bought my house as a short sale in 2008, and it needed some work. I’m sure I will write a post about it in the future. To make a long story short, though, the entire upstairs was overhauled to make it into a kick-ass master suite, including putting a real deck surface outside so now we’re the only house in the neighborhood with an upstairs deck off the master with nice sunset views. All that remodeling cost about $60,000, so that throws the numbers off, too.
Net Worth Increase
This is the part I’m most excited about. Comparing my account balances from year to year, I can see that I’ve made substantial progress this year.
Cash went up about $7,000. For the rental real estate numbers, I’m sure they increased over the last year, but since those are fractional interests in ongoing businesses, the actual values are pretty speculative, so I left the values the same. I dipped my toes into Prosper lending for the first time, and after contributing $5,100 to the account, it’s now worth $5,457 on paper, although I’ll have to take another look next year after the loans have seasoned a bit more. I estimate that my primary residence is worth about $20,000 more than last year based on comparable sales. My Fidelity accounts have increased solely due to contributions, since the stock market has basically been a net zero over the past year.
As for liabilities, the credit cards are negligible since I always pay those off in full each month. They’re just listed here to offset the cash amounts in the asset list. My mortgage debt decreased pretty dramatically, because I refinanced for a 10-year mortgage last year at 3% interest and I have been paying extra each month. It may seem silly to pay off that mortgage faster, but since I’m fully funding my retirement accounts (to the maximum I can under the tax laws) and making healthy contributions to my brokerage accounts, and since I have no other debt to pay off, I’d rather chop away at the mortgage instead of contributing even more to after-tax brokerage accounts. Turns out that for this past year, where the stock market was basically flat, I did better by paying extra and saving the 3% mortgage interest.
In all, I’m more than $87,000 ahead over last year. Even if you exclude the $20,000 home appreciation, in terms of actual cash, I’ve socked away more than $67,000 during the past year. That’s about 54.5% of my after-tax income! I am very happy with that result. I was hoping that the number would come to about 50% of my after-tax income, and had a gut feeling I was doing the right things, but to see the actual numbers feels great and is really motivating.
Goals for Next Year
One thing I did notice in my spending is that my charitable contributions should have been higher this past year. In 2014, I contributed just shy of $2,791 to charities (including non-deductible political action groups, like Greenpeace). In 2015, that number drops to a pitiful $2024. Next year, I will step up my game. My goal will be to contribute at least $3,558, which will make up for this year’s shortfall and put me back on track with 2014. My excuse for falling short this year is that I’m nervous about having enough cash for a replacement rental property, so I’ve been hoarding a bit more cash than normal. Once I’ve secured a rental property and I have a better idea of my financial situation, I will be able to loosen up the purse strings a little again.
Another goal for next year is to grow my blog. I have a ton to learn about SEO, and I’m just not fantastic at networking and keeping on top of social media, but I’m going to keep writing and learning as much as I can—while keeping on top of my regular job, landlord, accounting, trustee, family, and household responsibilities—and see where it leads. I hate picking a revenue number as a target because I really have no idea what to expect and I don’t want to set myself up for failure, but having vague goals never got anybody anywhere, so here goes: I would like to earn a total of $600 for the year next year, which is just $50 per month. Tell your friends about this blog! Or if there is anything I can do to make you a more regular reader of this blog, tell me here.
How did your finances come out for 2015? What are your goals going into 2016?