It’s a New Year, and that means it’s time for my annual net worth report. In early 2018, my six-figure career suddenly ended, and instead of jumping back into my field of expertise, I set out on a mission to to help women realize their financial and personal dreams. Being an entrepreneur has been costly – in 2020, I invested another $19,300 of personal funds to support my business. My income was negligible. And the biggest move of the year? Trading in my house for the RV life. So how did my net worth fair after freeing up equity but experiencing another year of negative cash flow on the business front?
Money Makes Money
The year 2020 will be remembered for the COVID-19 pandemic, and it will likely go down as a year in which the divide between the wealthy and the poor grew exponentially. While low-income wage earners lost their jobs, health insurance, homes, and hope, the wealthy made out like bandits in the stock market. The S&P was up 16.3% for the year, while the unemployment rate reached almost 15% in April and the pandemic claimed the lives of almost 350,000 Americans. Stocks are forward-focused, and in 2020, there was huge disconnect between the economy and stock market performance.
Why Net Worth?
Net worth is simple to calculate. Just subtract your liabilities (the things that you owe) from your assets (the things that you own). Net worth provides a true measure of wealth, as it is sensitive to both your income and your expenses. For example, your income might suggest you are wealthy. But if you spend more than you earn, your net worth will tell the truth – you aren’t wealthy at all!
Net Worth = Assets – Liabilities
Net Worth, 2007 to 2021
So let’s cut to the chase: what happened to my net worth after another lousy business year? In 2007, I began calculating my net worth on the first of the year (I wish I had done it sooner). That means I have 15 years of data! Here’s the big picture.
When I woke up in 2007 and started this journey to financial independence, my net worth was $365,156. Today, my net worth is $1,193,744. My net worth has more than tripled.
But my current starting line is January 2018, when I had a healthy income and contributed to retirement and savings accounts. That was the year in which my net worth snuck over the $1,000,000 line ($1,076,023). Since that threshold, I’ve been spending time and money building a business that has yet to be profitable. Yet today, my net worth is the highest it has ever been (an increase of $117,721 since 2018, or 11%). I know . . . it’s pretty astonishing, and you might be wondering if I’ve made an error in the math. I haven’t!
Buoyed by Retirement Funds
The vast majority of my net worth has always been tied up in my retirement accounts. Even though I haven’t contributed for two-plus years, and I withdrew funds from my Roth to purchase the RV, the stock market performance I mentioned earlier shot up the value of my retirement accounts. Here’s a graph that goes all the way back to 2004, when I hit the $100k mark.
My retirement accounts are held in a traditional IRA and a Roth IRA (both at Vanguard). I treat them differently.
The traditional IRA, because it is subject to required minimum distributions and I will be paying tax on withdrawals, is earmarked for the earlier years of my retirement. It’s invested more conservatively because I’ll need it sooner. Even so, the rate of the return on the traditional IRA was 12.1% for 2020.
In the best case scenario, the Roth IRA can easily grow for another 15 years. That’s my aggressive pot of money, where I purchased individual stocks (Amazon and Apple are my biggest holdings). The rate of return on the Roth component, which is smaller in value, was a whopping 32.3% for the year.
Today, my retirement accounts stand at $918,698. That’s 9 times the value of the account when I started tracking it 17 years ago. It’s the reason why my net worth has continued to grow despite the lack of income.
Proceeds from Sale of House
The housing market slowed in the first part of the year as a result of the pandemic, and I lowered the sales price several times before I finally landed a buyer in late May. I had paid off my mortgage years earlier, so after closing costs and realtor fees, I was delighted with a bank deposit of about $270,000. But I had borrowed some funds from my IRA to pay for home improvement and living expenses, so after putting those funds back into the IRA, I was left with about $250,000. That’s the money that has to keep me afloat until it’s time to tap into the retirement funds. Here are my goals for these taxable funds.
Goal 1: Put enough funds in savings to support my RV lifestyle and business expenses for at least three years. This assumes the business will continue to have a slow-turn around and that health insurance premiums remain a large part of my expenses. Savings = $90,000 ($30,000 per year)
Goal 2: Invest remaining funds to support at least five additional years of full-time RVing and/or the purchase of a home. Investments = $160,000. Most funds ($135,000) were placed in a Vanguard brokerage account, where they are managed by an advisor. The rest of the funds are in an account at Betterment (refer-a-friend link).
One of the great things about net worth statements is that I can easily see how each asset category did, and that includes my cash and investments. Today, my cash and investments amount to $216,205 – and that’s a bigger “burn rate” than I had planned.
What’s the Strategy for 2021?
I’ve been lucky. The uptick in the stock market is the only reason my net worth looks so healthy. Underneath, I have a stagnant business that has to come alive this year. I’ve invested a lot of time, energy, love, and money into building an enterprise:
I believe in what I am doing, enjoy the “work,” and have products and systems that will help women transform their lives. What’s the missing piece? Reaching the right audience. I am great at creating, and weak on promoting and selling. So this year, I am entering into an agreement with my business coach, who will take on those components for a portion of sales. I am extremely hopeful that together, we will turn things around.
The costs of RVing have been higher than anticipated. Throw in costs for maintenance, repairs, and gas, and I’m spending more than I’d like. But I don’t see that changing over the course of the year. I have a fantastic route through the west planned, including stays at national and state parks. Campground fees are not cheap, and since I need WiFi for the business and A/C to keep the cats and me comfortable, I’ll continue paying for campsites with power hookups. My cash cushion is still considerable so I should be fine for the year.
Moving from Net Worth to Net Life
I think I’ve just coined a new term – “net life.” Net worth tracks my financial picture, not my self-worth and happiness. Two years ago I had almost the same amount of money, and I was miserable! In 2020, I traded in some of my assets to put a down payment on JOY. This RV life has transformed me. I’m realizing that there’s so much more to me than my title, my degree, and my money. My net life has grown exponentially!
Net Life= Joy – Despair
How will you Build your Net Worth?
If you’ve just stumbled across this blog, you might think I like to brag about my net worth. Actually, it’s quite the opposite. So why do I share my annual updates? It’s because I want you to know that it is possible to go from poverty to millionaire. I lost everything in my 30th year – my net worth (and self-worth) were well below zero. It took me three-plus years to land a job with benefits and begin to build a highly successful career. I didn’t inherit money. And I achieved millionaire status as a single mom. I want to inspire you and give you hope.
Dr. Brenda is a financial coach, educator, researcher, and sociologist. In addition to blogging at The Five Journeys, she is the founder of the Gutsy Women Club. Her passion is guiding people on their journey to financial freedom through coaching at DrBrendaMoneyCoach and online courses at DreamBigMoneyAcademy.com.
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