Monthly Archives: January 2018

The Percentage Of People With No Wealth Outside Their Home Is Sad

I recently stumbled across a fascinating chart by Deutsche Bank highlighting that more families than ever before have ZERO or NEGATIVE non-home wealth. In other words, roughly 30% of households have no 401k, no IRA, no after-tax investment account, no private equity investments, no venture debt investments, no nothing beyond the value of their primary residence!

Check out the chart below.

Percentage of wealth outside your primary residence

If you have no investments outside of your primary residence, I’m not sure how you are ever going to be able to retire or reach Budget Financial Independence because Social Security alone is not enough to cover expenses after the age of 62.

I’m not even sure the average Social Security check of ~$1,200 a month is able to cover all your healthcare costs. In many cases, I suspect it isn’t. Let’s say you were”fortunate” enough to have worked 40 years and paid maximum FICA tax each year. You’d still only be getting a maximum Social Security check of ~$2,700 a month in today’s dollars.

The reason why the 2008-2009 financial crisis was so severe was because the vast majority of Americans (80%+) had the majority of their net worth locked up in their primary residence, and the chart above excludes the primary residence as part of one’s net worth. When the housing market crashed, so did the fortunes of the ~64% of Americans who owned their homes. Americans didn’t have enough cash or defensive bonds or even commodities to protect them from selling at fire sale prices.

What’s Going On With The Lack Of Outside Wealth?

Since breaching previous stock market highs at the end of 2012, the S&P 500 and the Dow Jones Industrial Average have marched to new highs each year. Further, real estate around the country has also improved dramatically. With so many asset classes doing well, why do a record number of Americans have no wealth outside their primary residence?

Here are some reasons I can think of.

* Runaway trains. After the economy started settling down in 2010, the typical American began thanking their lucky stars they were still solvent after the worst financial crisis in modern times. I cannot stress enough how shell shocked people were after experiencing so much wealth destruction in such a short time.

When you’re catching your breath, you’re not looking to aggressively invest in new assets. But starting in 2012, the stock market and real estate market really began to really take off. Meanwhile, the pace of appreciation for new assets like cryptocurrency rose faster than any asset class in history.

By the time Americans finally felt comfortable taking on more risk, all the investments we wanted to buy started giving us post traumatic stress because they’re at the same sky high valuations before the crisis. As a result, we couldn’t part with our cash. The trauma was just too recent.

The percentage of Americans that own stock has steadily declined over time

2) Spend before you lose all your money again. After the financial crisis, a lot of people questioned the wisdom of saving and investing all those years given it was so easy to lose so much money. Distrust in the stock market grew to new heights as people decided to spend their money on things and experiences rather than invest for tomorrow.

Here’s a millennial survey done by Goldman Sachs in 2015 about their thoughts on the stock market. GS should have asked millennials whether they trusted GS! I’ve come across many 35 and under people in my time who are cashed up and all about YOLO.

Distrust in stocks

3) Don’t know what to invest in. Despite TV, podcasts, books, and personal finance blogs, there is still a huge knowledge hole for how and where to invest one’s hard-earned savings. As a personal finance blogger, this makes me kind of sad because anybody who got on the “saving until it hurts” and investing train since I started this site in July 2009 would be much wealthier today. But as an online business owner who has two mouths to feed, this knowledge hole makes me extremely bullish about Financial Samurai’s future!

Of course, I can see a scenario where people finally gain the confidence and knowledge to invest only to see the stock market and real estate market start declining once again.The key is to at least have index exposure to various risk asset classes based on your risk tolerance.

Related: The Proper Asset Allocation of Stocks And Bonds By Age

4) Real wages haven’t kept up. We can’t assign blame for lack of saving and investing solely to fear and ignorance. Despite nominal income increasing over time, real median household income has gone nowhere since the financial crisis. As such, real wages haven’t kept up, while everything has gotten more expensive in real terms. Thus, it’s much harder to accumulate disposable income for investment.

Median household income over time

There’s An Even Worse Scenario To Consider

Yes, it stinks if your entire net worth is made up of your primary residence. But can you imagine not only not owning any investments outside your primary residence, but also renting all these years? What a disaster! Renting is equivalent to shorting the housing market. For some reason people find shorting the housing market more palatable than shorting the stock market. But the end result is quite similar – negative returns.

American and Canadian City Housing Prices

By now, there should be no debate between owning versus renting. If you know where you plan to live for the long term, it’s best to stay neutral inflation by owning your primary residence. People who invest in stocks and rent realize this. However,  they just don’t want to acknowledge the truth that like with stocks, the long term trend for real estate is up and to the right.

For some reason, stock only investors trick themselves into believing they can’t simultaneously invest in both asset classes for the long term. It’s the weirdest thing! But this thinking just goes to prove point #3 above – there’s a lot more financial education that needs spreading.

Note: There is a poll embedded within this post, please visit the site to participate in this post’s poll.

Readers, do you own any investments outside your primary residence? Why do you think the percentage of people who own no wealth outside their primary residence has reached all-time highs? Why do you think people still believe renting their entire lives is the better way to build wealth?


The post The Percentage Of People With No Wealth Outside Their Home Is Sad appeared first on Financial Samurai.

The Three Levels Of Financial Independence: Because Money Is Only Part Of The Equation

The Three Levels Of Financial Independence by Financial SamuraiReaching financial independence is the holy grail of personal finance. But what does financial independence really mean? In this post I’d like to determine the various levels of financial independence. That’s right. Even in financial independence there is no one size fits all since everybody has a different desired standard of living.

Contrary to what you may think, financial independence is not all about having enough money to cover all your expenses and then some. Financial independence also means being able to overcome your psychological fears to truly live free.

For example, I have peers who have millions in net worth, yet still make their respective spouses work because they do not feel 100% financially secure. Common reasons include the need for health care coverage or their spouse’s “love” for their job even though they’d rather be doing something else.

Here are the three levels of financial independence I’ve come up with. All three levels of financial independence should meet the following basic criteria:

1) No need to work for a living because investment income or non-work income covers all living expenses

or

2) Net worth is equal to or greater than the number of years left in your life X living expenses e.g. $3 million with 30 years left to live is FI if your living expenses are no more than $100,000 a year

Budget Financial Independence

If your household income is less than ~$40,000 a year, you are considered lower middle class. Don’t be offended. It’s just a definition based on millions of datapoints. The current official poverty threshold is an income of $25,000 per year for a family of four and $19,000 for a family of three.

If you are happy with living a lower middle class lifestyle, then you would need between $800,000 – $1,600,000 in investable assets returning 2.5% – 5% a year. Of course if you’ve been investing in the bull market for the past 10 years, you’ve likely seen a higher return than 5%. But over the long run, it’s best to stay conservative since downturns do happen.

Given the 10-year bond yield is at ~2.5%, everybody should make at least 2.5% a year on their investable assets risk free. If you’re losing money during your financial independence years, you haven’t been investing properly.

This category of financial independence is interesting because there’s a lot of tradeoffs the individual or couple still make, such as:

  • Making one spouse work in order for one spouse to live the FI life.
  • Moving to a lower cost area of the world instead of living where most of your family and friends are
  • Downsizing to a small rental, small house, or even an RV or van.
  • Delaying or not having children, which can really hurt the FI budget.
  • Taking on a part-time job.
  • Aggressively working on your side hustle / passion project.

The question many people have in this stage is therefore: Are you really FI if you’ve got to do one or many of these things? Many who work a day job argue no, but it doesn’t matter because nobody can tell you how to live your FI life. If you don’t have to work a full time job and can cover your expenses, you are Budget FI as far as I’m concerned.

Budget Financial Independence (BFI) is where I found myself between 2012 – 2014. I was earning about $80,000 in passive income, which was more like $40,000 since I lived in San Francisco, and had negotiated a large enough severance to last for 5-6 years of living expenses. Even with these numbers, I was still afraid that I had made the wrong choice leaving a job at 34. As a result, I tried to sell my house and downsize by 70%, but nobody wanted to buy my house in 2012 thank goodness. Further, my wife and I agreed that she work for three years until she turned 34 (hooray for equality) to give us enough time to figure out whether we could both leave the workforce. At the end of 2014, she negotiated her severance as well before her 34th birthday.

Basic Financial Independence

The median household income in the United States is roughly $60,000. $60,000 is therefore considered a comfortable middle class income for most Americans. If you didn’t have to work for your $60,000 a year income, then life should be better, maybe even fantastic.

Based on a conservative 2.5% – 5% annual return, a household would need investments of between $1,200,000 – $2,400,000 to be considered financially independent. Once you’ve got at least $1,200,000 in investable assets and no longer want to work again, I don’t recommend shooting for an overall return much greater than 5%. You can carve out 10% of your investable assets to go swing for the fences if you wish, but not more. There is no need since you have already won the game.

Remember, once you’ve reached financial independence, you no longer have to save. Everybody striving for financial independence tends to save anywhere from 20% – 80% of their after tax income each year on top of maxing out their pre-tax retirement accounts. Therefore, if you’re able to 100% replicate your gross annual household income through your investments, you’re actually getting a raise based on the amount you were saving each year.

If you have 20 years left to live and only require $60,000 a year, having $1,200,000 can also be considered enough even if you make zero return. The only problem is that your purchasing power will decline by ~2% a year due to inflation. The other problem is that you don’t know exactly how many years you have left to live. Therefore, it’s always better to have more rather than less.

My blogging buddy Joe from Retire by 40 is a good example of having enough money, but finding it difficult to overcome the fear of not working. Every year, he questions whether his wife can join him in retirement, even though he’s been retired for over five years, has close to a $3 million net worth, and has online income and passive income to cover more than their annual living expenses. Every year I tell him she could have retired years ago, but he’s adeptly convinced her to keep on working.

Related: Achieving A Two Spouse Financial Independence Lifestyle

Blockbuster Financial Independence

This is a level of FI that I’ve been trying to achieve since I was 30 years old. I decided back then that an individual income of ~$200,000 – $250,000 and a household income of ~$300,000 was the ideal income for maximum happiness. With such income, you can live a comfortable life raising a family of up to four anywhere in the world. Given I’ve spent my post college life living in Manhattan and San Francisco, it was only natural to arrive at much higher income levels than the US household median.

These figures are partially due to a highly progressive tax code that was implemented in the mid 2000’s that really went after income levels above these thresholds. Further, I carefully observed my happiness level from making much less to making much more. Any dollar earned above $250,000 – $300,000 didn’t make a lick of difference. In fact, I often noticed a decline in happiness due to the increased stress from work.

Using the same 2.5% – 5% return figures, one would therefore need $5,000,000 – $10,000,000 per individual and $6,000,000 – $12,000,000 per couple in investable assets to reach Blockbuster Financial Independence. In addition, it is preferable if your home is also paid off.

If you are generating $250,000 – $300,000 in passive income without having to work, life is good, really good. At my peak in 1H2017, I got to about ~$220,000 in annualized passive income, but then ended up slashing ~$60,000 from the top after selling my rental house to simplify life. Therefore, I’ve still got a long ways to go, especially now that I have a son to raise.

The way many people reach Blockbuster Financial Independence with income of $250,000 – $300,000 is through a combination of investment income and passion project cash flow. Since FI allows you to do whatever you want, here’s your chance to follow the cliché, “follow your passions and the money will follow” without worry that there will be no money. My passion so happens to be this site.

But due to fear of not being able to comfortably provide for my wife and newborn, I worked too much in 2017 on Financial Samurai to my health’s detriment. Therefore, until I can reach $300,000 a year in passive income or never let Financial Samurai stress or tire me out again, I won’t be reaching Blockbuster FI any time soon.

All Levels Of Financial Independence Are Good

The Three Levels Of Financial Independence by Financial Samurai

The Pyramid Of Financial Independence

Even if you find yourself in the Budget FI category, it’s still better than having to work at a soulless day job with a long commute and a terrible boss. Most people who find themselves in Budget FI are either on the younger side (<40), don’t have kids, or are forced to live frugally. I’ve found that in many cases, folks in Budget FI long to lead a more comfortable life so they either get back to work, do some consulting, or try to build a business within three years to move up the pyramid.

The only way I’ve found to successfully overcome the fear of not working is by either negotiating a severance, building enough passive income to cover all your living expenses for at least 12 consecutive months, or trying out FI living first while your partner still works.

There is this natural urge to still make financial progress by continuing the good financial habits that got you there in the first place. And wonderfully, the progress you make is like finding loose diamonds after you’ve already found a pot of goal.

Related:

Ranking The Best Passive Income Streams

The Average Net Worth For The Above Average Person

Readers, what is your definition of financial independence? Will you be satisfied if you only get to Budget FI? What stage of your financial independence journey are you currently in?


The post The Three Levels Of Financial Independence: Because Money Is Only Part Of The Equation appeared first on Financial Samurai.

2018 Investment Outlook For Stocks, Bonds, And Real Estate: The Last Easy Year

Financial Samurai Investment Outlook For 2018Before you read my investment outlook for 2018, you must first understand my financial situation and my biases. Our biases often warp our reality by anchoring us to past situations.

  • Permanently left work in 2012 at the age of 34
  • Net worth got crushed by ~35% in 2008-2009
  • Small business owner who will benefit from the new tax plan
  • New father with a spouse who is a full-time mom
  • Favorite asset class is real estate with three physical properties in CA, one in HI
  • Worked in equities for 13 years at a couple large investment banks
  • Have significant investment positions in stocks, bonds, and real estate

With this background information, I believe 2018 will be the last year of “easy money,” where assets remain relatively stable as they track historical returns. Let’s discuss each asset class in a little more detail.

Stock Market Outlook: One Last Hurrah

According to the U.S. Small Business Administration, small businesses account for 48% of national employment. In number, they represent 99.7% of all businesses in the country. In other words, it is the guy with the plumbing store or the gal with the digital online marketing agency who make up a massive part of the American economy.

Based on my interactions with other small business owners, everyone I’ve talked to is extremely excited about lower taxes and potentially less red tape. It’s really “less red tape” that most owners are looking forward to, and not so much the 20% deduction of qualified small business income.

As business owners, we hardly EVER feel the government is on our side because we’ve got to: 1) pay license fees, 2) pay special small business taxes, 3) pay both sides of the FICA tax, 4) pay an accountant to figure out our more complicated taxes, 5) wonder why we can’t collect unemployment after our business goes under, and much more.

With the passage of the new tax plan, there is finally hope the government is now on our side. Having a tailwind feels so much nicer than facing a headwind while climbing a hill – which is often what running a business feels like. As a result, I believe there will be a natural inclination to reinvest in our respective businesses and ultimately grow revenue. Higher revenue growth equals higher profits and higher company valuations.

Publicly traded companies are just a larger reflection of privately owned small businesses. And I think the mood in the boardroom is as bullish as ever with a 21% permanent corporate tax rate.

Stock market's history of bad things

When there is business euphoria, as there is now, valuations matter less. The chart below is the S&P 500 Case Shiller P/E ratio as of January 2018. Instead of investors now thinking 33.27X is too high, investors are now thinking there’s another 10X multiple higher to go until we reach 2000 peak bubble levels.

Investors aren’t really thinking we’re going to get to 44X, but it’s nice to know we still have this historical valuation buffer before everything blows up. After all, corporate cash balance sheets are massive compared to 2000, rates are accommodative, taxes are lower, and earnings are still growing.

Given we’re now in the final stages of a blow off where it’s liquidity, excitement, and FOMO driving the markets, I expect to see the S&P 500 breach 3,000 in 2018. If we get back to 2000 peak level valuations, we’re talking ~3,600 on the S&P 500, which ain’t going to happen. I expect downside risk of 10% for an even risk / reward ratio. I’m buying the dips.

Related: The Proper Asset Allocation of Stocks And Bonds By Age

Bond Outlook: Lower Interest Rates Forever

I’ve said this before, and I’ll say it again: we are in a permanently low interest rate environment. The 10-year bond yield has been going down since the late 1980s due to information efficiency, globalization, and policy efficacy. I expect interest rates to remain accommodative for the rest of our investing lives.

For 2018, I’m looking for another sub-3% level for the 10-year bond yield, and more likely an average of 2.6%, despite a couple more Fed Funds rate hikes expected this year. In other words, I expect bonds of all types to at least provide a total return equal to their coupon return as principal values hold rock steady. 

With the Fed raising the short end, and longer term rates staying steady, the yield curve is flattening. Historically, a flat or inverted yield curve portents an imminent recession as higher rates on the short-end choke off credit growth, make existing credit more expensive and curb excess reserves, thereby slowing the economy.

Flattening Yield Curve

But if the Fed is really going to cement itself as an inflation fighter, then this belief gives confidence for bond traders to invest in longer duration Treasuries at lower yields because no accelerated inflation is expected. Hence, I’m confident investing in 20-year municipal bonds that pay a 3.5% – 4% tax free yield for the low risk portion of my net worth.

We will know the end is near if the Fed raises the Fed funds by 1% and the long end remains flat. That’s when inversion occurs and should have enough time to reduce our risk exposure by then. I expect downside risk of half the coupon bond yield. I’m buying muni bonds whenever the 10-year bond yield goes above 2.6%.

Related: The Case For Bonds

Real Estate: A Tale Of Two Cities

Remember how I said in June 2017 that the rental market was soft in San Francisco due to a large supply of new condominiums and nose-bleed level rents that far outpaced wage growth? From 2H2015 to May 2017, I rented out my house for $8,800 – $9,000/month.  When I tried to get prospective new tenants to pay the same rent in May 2017, I got zero takers, despite aggressively marketing the house for 45 days. The best two offers I got were for $7,500 from a divorcee with an unstable startup and from a family of six with a dog. So, instead of going through the pain of continuing to be a landlord, I sold the house for a little over 30X annual gross rent.

The numbers are finally showing up in the data. Check out the rent prices for one bedroom and two bedrooms in December 2017 according to Zumper. If there was a three bedroom segment, I’m sure the numbers would look even weaker. Like stocks, real estate prices should trade on earnings fundamentals. With a decline in rent in so many of the most expensive cities and new negative tax laws in effect, real estate prices should remain weak in the most expensive markets.

Major City rental market price changes from peak

Take a look at NYC housing market data from Douglas Elliman. Sales volume and prices headed down in 4Q2017 as buyers took a wait-and-see approach regarding the tax plan. Now that the tax plan has passed, it is worse than most people expected due to the $10,000 SALT cap and the $750,000 mortgage cap for interest deduction.

NYC real estate market

Real estate investors should view NYC and SF as “leading indicators” of what should be expected for other expensive real estate markets. Now that prices are softening, you should be in no rush to buy. Be picky about what’s likely going to be the largest purchase of your life. Focus on location and expandability, the #1 way to increase your chances of making money in real estate. If you can build for $200/sqft and sell for $400/sqft, you win. And most of all, run the numbers to see if valuations make sense.

With the slowing of coastal city real estate, it’s only a matter of time before non-coastal real estate slows as well. But figuring out the timing of when the slowdown will occur and by how much is the biggest conundrum. Three to five years tends to be a good lag, so we can make an educated guess that between 2019 – 2021 is when the data will appear. Let’s just say 2H2020 to be more precise.

I don’t think there will be more than a 5% – 10% correction in coastal city or non-coastal city markets over the next couple of years because the economic engine is still quite strong. Further lending standards have tightened since the last financial crisis. Therefore, if you’re buying a home to live in for the long term, you should be fine.

Some folks have questioned the wisdom of my $810,000 investment in real estate crowdfunding outside of San Francisco. Understandable, given the absolute dollar amount sounds large. But I had a $2,740,000 position in a single SF property with a $815,000 mortgage where rents are declining. Therefore, I’ve reduced risk exposure while diversifying into 12 different non-SF properties where rents are stronger. Further, I keep my alternative investments to no more than 10% of my overall net worth and still have three California-based properties to manage.

Enjoying One Last Year Of Great Times

As a business owner, I haven’t been this bullish since 2007, when I got promoted to Vice President at my banking job. Of course a year later, shit hit the fan and I saw a 35% destruction to my net worth in a matter of months. If a downturn happens again, I’m better prepared because I’ve got far more passive income streams, a variety of defensive investments, and a much lower debt to equity ratio.

If one can get a 10% return in stocks, a 4% return in bonds, and an un-levered 5% return in real estate without much volatility, I say that’s pretty easy money. If I can get these types of returns, perhaps I’ll finally be satisfied with a blended 2% – 3% guaranteed rate of return in retirement.

If you haven’t done so already, run your investment portfolio through an investment analyzer to see what your latest exposure is to the market. Then carefully analyze your net worth composition and make sure you are comfortable with its construction. I wasn’t entirely comfortable about my net worth composition in 2017, but now I am for 2018.

Personal Capital Investment analyzer

Sample Investment Analyzer by Personal Capital

Readers, what are your thoughts about the stock market, bond market, and real estate market? How are you positioned for 2018? Please also share your background and biases. As always, do your own research and invest based on your own risk tolerance.


The post 2018 Investment Outlook For Stocks, Bonds, And Real Estate: The Last Easy Year appeared first on Financial Samurai.

Financial Samurai Goals 2018: Back To Early Retirement Life!

Financial Samurai 2018 Goals

My biggest disappointment in 2017 was pushing my mind and my body past their limits. At the age of 40, I no longer have the energy to do what I’ve been used to doing all my life, yet I worked more than I ever had before. I was a stubborn mule who couldn’t accept the fact that I had aged. As a result, I injured my ankle, back, elbow and quads.

I also had a breakdown one evening when I couldn’t put my son to bed after the third try at around midnight. Hearing my baby cry is a heart-stinging experience. After an hour and a half of singing and cradling, I gave up on giving my wife the rest she needed and texted her to relieve me.

I felt like such a failure. I had spent years building a lifestyle business in order to be able to be a good father. Yet I lost it because I was working way too much on the business instead of storing up energy reserves for the late night shift.

It was at this moment I realized that going down the path of full-time caretaker with my wife while also keeping Financial Samurai going at a fervent pace wasn’t going to work out. I was no longer my happy go lucky pleasant self. Here are some goals that will make life better in 2018!

Goals For 2018

1) Return to early retirement life. As this site has grown more people are reaching out for help or contacting me with business opportunities. It’s become overwhelming. No longer is Financial Samurai a casual, unknown site where I can say and do what I please.

I want to respond to everybody but I can’t. Therefore, I created a massive out of office e-mail with answers to my most frequent requests. But it was ineffective. One business partner e-mailed me on Dec 22, then again on Dec 26, then again on Jan 2. It’s good he’s hustling, but what happened to boundaries, especially during the holidays?

In 2018 two of my goals are to publish only 100 articles (from 175) and to start having more fun with the topics without stressing about the quality of the content. While the business component of this site is exciting, it has become too much. Just like with day job income, after you make a certain amount of business income, there is no more additional happiness. Instead, misery often ensues due to increased demands for your time.

Early retirement life is all about being carefree and only doing what I enjoy.

2) For six days a week, provide an average six hours of JOYFUL assistance to my wife. For the seventh day, provide four hours of joyful assistance for a total of 40 hours a week.

As a stay at home dad, I provided around eight hours of support a day to my wife in 2017. For example, I would always relieve her for 2-3 hours in the morning, depending on how difficult the night was so she could shower, go to the bathroom, catch up on reading, and do her own thing. Then I’d provide care for 2-3 hours in the afternoon, and another 3-4 hours in the evening.

After a while, I realized that a lot of my assistance was not 100% done with a smile because I was always tired and sometimes frustrated after having already worked so many hours that same day on the business. As a result, tension sometimes ensued. Thankfully, she started doing the entire night after the third month and things got better. And now that my publishing goal is 35% less, things should get even better.

Providing six hours a day of happy care is better than eight hours a day of grumpy care. I know I’m not alone with regards to relationship tension during the first year of a baby’s life. More than 80% of couples experience a huge drop (40% – 90%) in marital quality during the transition to parenthood. Research also says folks who are sleep deprived typically suffer a 91% loss in their ability to regulate strong emotions, while the decline in general cognitive skill is equally dramatic. Just think about how dangerous it is to drive drowsy.

3) Increase business productivity. In other words, find a way to do less and maximize my existing content to boost traffic and revenue. I will never spend more than four hours a day on the business in 2018. Further, I will cease responding to comment and e-mail questions whose answers are obviously discernible in the post and encourage readers to use the search box on my website for answers.

Financial Samurai on Quora

Not bad for 10 days of work over the holidays

With time freed up from not responding to obvious questions, I plan on building new readership by answering questions on Quora, a Q&A social platform. I’ve always known about the benefits of Quora, but never bothered to try until the Christmas holiday when a reader asked whether I was sleep deprived in my 2017 review post even though that’s what I wrote I was in my intro. Instead of answering his question, I responded to a question on Quora that ended up bringing in a lot of new traffic.

I plan on building up my authority on everything San Francisco, Real Estate, and Investing related. Even though I’ve lived in San Francisco for 17 years, own SF real estate, worked in finance, consulted for startups, and have this site, very few people in the SF media have reached out. If I can become a go-to resource, then productivity should increase.

After 10 days of trying, Quora has ranked me as a “Most Viewed Writer” in Real Estate and San Francisco. The ranking only lasts for 30 days, but I’m sure with consistency, the results will grow.

4) Spend more time doing work in the hot tubThrough voice dictation, I’m actually writing this post in my hot tub right now. Yeah baby! Not only am I utilizing my hot tub investment more, but I’m getting some stress relief while also producing work. Of course I’ll still have to do all the editing on the laptop, but this is a good way to really focus on living the early retirement lifestyle. Whenever I can knock out two or three things in one activity, I get very happy.

5) Aggressively spend more money on help. Until recently, we’ve always done all the lawn work, housecleaning, and childcare. There’s something therapeutic about gardening and cleaning. But now that we are tired parents, we need to prioritize! I really need help at this stage because my lower back is still tender. It’s kind of torturous to crawl around and chase a baby for a couple hours with a bad back.

Finally, I’m looking to hire someone who has a disability do some freelance work online. Roughly 15% of the world’s population, or one billion people experience some form of disability. Not only will this person get paid a fair hourly wage, this person will also gain some valuable insights about the online business world. Leave a comment with a brief intro about yourself with your e-mail address if interested.

6) Continue to help people of all types in different ways. This means publish two times a week, produce at least 30 podcasts, see my foster child mentee at least 24 times, coach high school tennis, and participate in more fundraising events. Actively helping others by getting involved in their lives is one of the best benefits of early retirement.

7) Stop feeling so damn guilty for not doing more. I have a tortured soul. Since I was 13, I’ve always had the belief that if I can, I must because a friend of mine died in a car accident and was never given the chance. But with this attitude, I feel a tremendous weight on my shoulders to be the financial provider and a caregiver for my son, even though my wife is a stay-at-home parent and we should have enough money.

I sought some advice about getting rid of guilt from a father who told me, “Raising a child is pretty easy if you can go away for 12 hours a day. Out of sight, out of mind.” In other words, he was suggesting that I find a day job like many fathers. But I don’t want to go that route.

Whenever I feel bad for not doing enough, I will remind myself that being able to provide my wife and me the freedom to take care of our son during his crucial first five years of life should count for a lot. There are many parents who reluctantly have to go back to work after 1-3 months.

8) Get regular physical checkups. One in three people will get cancer. And one in four people will die from cancer. The closest thing to curing cancer is early detection. However, most cancer is detected only after a patient feels symptoms. By stage three, only 8% of cancer patients live past five years. I bring up cancer because an old colleague of mine died of breast cancer at age 44. She leaves behind two children and a husband. I cannot imagine the pain of leaving Earth before I see my son grow up to be a strong and independent man who finds someone who loves him as much as we do.

As much as I hate full physicals, I will get one. And I will ask my doctor to do more blood work tests to see if they can find any anomalies. If I feel pain, I won’t be afraid to see the doctor. After all, I’m paying close to $700 a month for healthcare! Good thing I did some blood work in mid-2017 for my life insurance policy. After checking for 22 variables, the only anomaly was a slightly elevated cholesterol reading.

9) Find a way to grow net worth by $2 million. What’s a personal finance site without a concrete financial goal. With the estate tax threshold doubling to $22 million for couples, why not shoot for more wealth while taking things down a notch. The more you have, the more time and money you have to help other people. I assign only a 30% chance my investment returns plus savings will achieve this goal. Therefore, the only way to get a $2 million boost is if I invent something that takes off, get some kind of huge JV offer for my company, build a new revenue channel, or get really lucky with an investment. As always, I’ll be tracking my net worth closely to make sure my risk exposure is appropriate.

Excited About Early Retirement

One benefit about returning to the kick back early retirement lifestyle is that I’ll be writing more about early retirement. It’s really a wonderful stage that I think everybody should shoot for. It just didn’t last longer than a year for me due to my strong desire to maximize Financial Samurai’s potential.

2018 is the year I’ve been waiting for. To finally relax and be a present dad after spending so much time growing passive income and building a lifestyle business. Our little one is growing up so fast. We’ve got to cherish every moment. It’s highly likely he’ll be our only child given our advanced ages.

Here’s to letting go in 2018! May your money work hard for you so you don’t have to.

Readers, share with me some of your goals for 2018. How do you know when enough is enough regarding money and building a business? How are you able to let go and not maximize your potential? If you are a stay at home parent, how many hours of help do you get from your partner a day on average? 


The post Financial Samurai Goals 2018: Back To Early Retirement Life! appeared first on Financial Samurai.

Financial Samurai 2017 Year In Review: The Most Difficult Best Year Ever

Financial Samurai 2017 Year In ReviewHappy 2018 Everyone!

Since the year doesn’t really start until the second week of January, I’ve decided to spend more time reflecting. Hopefully you will too on a tropical island somewhere.

Before 2017, the best year of my life was when I got married on a cozy beach in Oahu. It was a simple wedding with only 16 family members in attendance. There was a gentle breeze that rustled the palm leaves while a ukulele player played Somewhere Over The Rainbow. The ceremony was simple, yet so beautiful.

No moment ever topped that day until our son was born last Spring. The birth went smoothly and I could finally breathe a sigh of relief both mama and baby were safe and healthy. We feel so blessed to have him in our lives.

Despite all my preparation, I still underestimated how difficult it would be to work 15 hours every day for months on end. I worked in banking where 15 hour days were the norm. But even in banking, we got at least one day off a week. Further, nobody works every single minute they’re at work. With parenthood, one look away could spell disaster.

Constant sleep deprivation killed my mood. No longer did I have the desire or creativity to spend several hours writing a post. No longer did I have the patience to deal with annoying people. Yet we had to forge on like all newborn parents do to make sure our baby was properly cared for.

If it wasn’t for my wife, we wouldn’t have a precious son. And if it wasn’t for my wife, there would be no Financial Samurai because she started taking over the entire night after he was three months old. Therefore, I thank my wife for everything she has done and apologize for all the times I was unpleasant. She is the sweetest, loveliest, kindest person I know who deserves a partner who always treats her well. I will do better. I promise!

Financial Samurai 2017 Year In Review

When I re-read my goals for 2017 post with the theme, “Always Be Grinding,” I was surprised to read how enthusiastic I was, yet I didn’t take any outsized investment risk. In fact, I took risk exposure down by 17.5% after selling a rental house. It was the classic believing in one thing, but taking no corresponding action.

Here’s what I wrote in the beginning of 2017:

I haven’t been this excited since I first got a job out of college when the sky was the limit. For the past 10 years or so, I’ve been questioning what’s the point of working so hard if the government is just going to take more from us than what we’re able to keep. To finally get some potential tax relief is thrilling!

Despite my excitement, I didn’t pile into stocks because I’m always skeptical of what politicians can accomplish. Instead, I invested $250,000 in a real estate crowdsourcing because I believed the Red States would benefit from a Trump presidency and invested just $41,000 in stocks for 1Q2017 out of $611,000 total.

But what I did do right was focus on my largest asset, which is now my online business. I upped production in the first quarter and saw a 48% rise in revenue and an even larger increase in operating profits due to the beauty of fixed costs. Operational leverage truly is one of the best reasons for running an online business.

Despite only seeing a 15.87% return on my public investments for 2017, my online business more than made up for the slack. If you can consistently grow your most valuable asset at a faster pace than every other asset class over the long term, I dare say you will one day do your family proud.

Here’s a review of the specific goals I made in 2017.

Business Goals

1) Focus on growth by broadening the audience. I’ve received plenty of feedback that I need to write more for the mass market. Even though my advice holds true whether you have $1,000,000 to invest or $10,000 to invest, readers have told me they can’t get their heads around larger numbers.

Failed. I tried my best to write more about budgeting and savings, but I only ended up writing five new posts on this topic out of 175. Two of the posts probably don’t even count: Stop Frugality From Leading To Lifestyle Deflation and Millennial Avocado Toast Analysis. The only post I feel can help the mass market is: Housing Expense Guideline For Financial Independence. I doubt my audience broadened very much, but at least traffic grew by 20%.

2) Publish a new ebook by July 18, 2017. Despite the rise in interest rates, it still takes a gargantuan amount of money to generate $1,000 a month in passive income – we’re talking $300,000 in capital at a 4% gross yield.

Failed. I worked with several folks to put together a Financial Samurai real estate book in the first half of the year, but lost steam once my baby was born. It’s still a no-brainer to produce online products once you’ve developed a brand and a following, but time is at a premium. 

Related: Ranking The Best Passive Income Investments

3) Focus on three business partnerships. I’ve got about 10 business partnerships with Financial Samurai right now. As the main writer and business development guy, it’s very easy to get spread too thin. So I need to focus.

Failed. I worked on developing a better relationship with two business partners, but not three. I’m not sure what the right business partnership is for my new category: family finances. If there are any business out there who want to make me a pitch, I’m all ears. My goal is for each product to provide maximum value at minimal to no cost, just like this site. 

4) Send two to four e-mails a month. I’ve been paying $150 a month to send out only one newsletter a month for the past couple of years. What an underutilization of resources. I plan to write shorter, punchier e-mails to connect with all my newsletter subscribers.

Passed. I averaged sending 2.5 newsletters a month for the year. I’ve done a poor job growing my e-mail subscriber list compared to the amount of traffic I get for this site. It’s probably because I just don’t care for selling anything to anybody.

Personal Financial Goals

5) Create a million bucks of wealth. My goal in 2016 was to grow my net worth by $500,000 because I had a neutral outlook. Given I’m now bullish on my business, it’s only logical to shoot higher.

Passed. With the way most asset classes have performed this year, it wasn’t hard to generate a lot of wealth, especially if you’ve spent 20 years accumulating a financial nut large enough to retire on back in 2012. I received some interesting offers for this site for multiple millions of dollar, but I turned them all down. You should only buy, never sell a high margin, cash flow positive business that can be done anywhere in the world with minimal maintenance. 

Related: The First Million Might Be The Easiest

6) Invest at least $20,000 a month without fail. The $20,000 a month doesn’t have to be in the stock market. It can be in bonds, real estate crowdsourcing, private equity, private debt, or paying down a mortgage.

Passed. I ended up investing $39,609 of new money on average a month for a total of $475,319. At the same time, I was able to strengthen my balance sheet by adding around $450,000 in cash and paying off $916,000 in mortgage debt due to the sale of my rental home. 

Related: Investment Lessons From A Surreal 2017

7) Start earning $20,000 a month in passive/semi-passive income by year end. My passive income is currently averaging about $17,600 a month over the past six months. To increase my passive income by $2,400 a month, I’ve got to publish my real estate book by year end, market it well and update my severance negotiation book for 2017.

Financial Samurai Passive Income Streams

Failed. Since I didn’t publish a new book, I didn’t receive new passive income. In fact, my passive income dropped because I sold my rental home that was generating over $60,000 a year net (rental property #3) and one of my CDs came due. With $800,000 invested in equity real estate crowdfunded projects, there is the potential to earn a 8% – 15% IRR in 4-5 years. With $600,000 invested in municipal bonds, I should earn $15,000 – $20,000 in after tax income a year. I’ll be updating my passive income numbers for 2018.

8) Spend like I’ll be dead within 10 years. I’ve been frugal my whole life. It’s one of the main reasons why I was able to hit the eject button at 34. But, I’ll be 40 in 2017 so it’s time to live it up for the second half of my life. You don’t have to be as stealth in middle age because people are more accepting of those who’ve spent 20+ years working.

Pass. I bought two big ticket items in 2017: 1) a $16,000 hot tub, and 2) a $58,000 vehicle in cash to keep the family safe with zero regrets. I don’t miss my Honda Fit, especially since it began having starter problems towards the end. Further, there is no way I would feel safe driving Baby Samurai in a hatchback. The hot tub is the best lifestyle investment ever. I average five hours a week soaking after tennis and softball. I can’t wait for the entire family to have fun talking story in the hot tub one day. 

Related: When Is It OK To Forsake Stealth Wealth And Spend Up?

9) Don’t chase the stock market. Although I’m bullish on my business, I’m lukewarm on the stock market and the economy due to valuations, political uncertainty, and the prospect of higher interest rates squeezing consumption.

Failed. I chased the stock market because I didn’t invest enough during the first half of the year. This was the first time in history the S&P 500 didn’t have a down month. At the end of the day, my public investments returned 15.78%, so the chasing wasn’t that bad. If I didn’t have a huge influx of cash during the summer after the home sale, my investments would look more balanced. 

Related: The Proper Asset Allocation Of Stocks And Bonds By Age

Personal Goals

10) Scare myself out of my comfort zone. I haven’t been personally challenged in a long time. With a portfolio of over 1,300 posts on Financial Samurai, I know with decent confidence that if I write 152 new posts a year, I should be able to grow traffic and revenue by ~10% a year if I do nothing else. But writing 2-4X a week is an easy goal to achieve.

Passed. I finally started the Financial Samurai iTunes channel, whoo hoo! Too bad it only works on mobile and tablets, and not on the desk top for some reason. In the future, I hope to have my wife join me on the podcast and interview other people as well. It’s hard for me to speak eloquently, but I know after one year of practice I will get better. 

11) Really make a difference in 12 people’s lives. At the end of the day, the best feeling in the world is when a reader sends a private e-mail or writes a comment that says how much a particular article or the site in general has helped them achieve their dreams.

Pass. I’ve received over 70 e-mails and comments from readers this year who said something nice about how a particular FS article helped them get their finances in order or improve their lives for the better. These are truly the most gratifying and motivating reasons why I continue to write so much. 

I also spent three months coaching high school kids tennis, which was awesome. We got to the district finals and achieved the best record in the school’s long history! The best moment was when a senior, who had never won a big match before, won a huge rubber match in front of his mom and he ran to give me a hug afterward. 

Finally, I finally became a foster kid mentor. It took about eight hours of training and testing, which is probably one of the reasons why more people don’t do it. But the training is important given how precarious and important the situation is to take care of innocent kids who find themselves in a suboptimal situation. I’ve seen my foster kid five times now, and taught him how to ride his bike with no hands. So priceless! I can’t share details, but he’s a wonderful boy who wants to be a YouTube Gamer. It’s awesome that he already knows that creating content is much better than consuming content! 

Financial Samurai Foster Care

Giving shakas after learning how to ride a bike with no hands – December 28, 2017 at 12:35pm

12) Start a family. My wife and I feel we’ve done everything we’ve wanted to do as adults. We’ve both engineered our layoffs. We don’t have the itch to travel much anymore. We have no desire to climb anybody else’s corporate ladder. After two years, our house is finally remodeled to the way we want. We have a digital business that allows us to be present for our child. Finally, we’ve developed a steady stream of passive income that should support a family of up to four.

Passed. I already knew my wife was pregnant when I wrote my 2017 goals, but you just never know until the baby is delivered. Based on research, speaking to hundreds of other couples, and personal experience, there are often complications that occur during pregnancy. If you’ve decided you want to start a family and have your finances in order, do not wait another day. 

Related: What’s The Best Age To Have A Baby? A Biological And Economical Analysis

Thanks Again For A Great 2017!

Despite all the craziness that went on in 2017, the one thing I will always clearly remember is the birth of our son just like how all I remember during the financial crisis was our quaint wedding.

It was hard to not only keep up the posting frequency on Financial Samurai, but to actually double production in order to buy more time in the future. This is where I really messed up because I didn’t maximize the purpose of our lifestyle business: to provide for a better life.

Instead of being so focused about protecting my family’s future by working so much, I should have spent more time enjoying the present. Life speed accelerates. Some changes will be made! Stay tuned for my 2018 goals and outlook post.

Readers, how was your 2017? What were your hits and misses?


The post Financial Samurai 2017 Year In Review: The Most Difficult Best Year Ever appeared first on Financial Samurai.