Tag Archives: wealth pyramid

Year End Financial Results 2019

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Yes, yes, I’m really late (ha, for the past few years even)!

When I looked at my results for 2019, it looks great… at least until I looked at the S&P 500 results for 2019… the S&P 500 index scored a whopping 30%, vs my mid 20s percent… ugh!

That said, I’m still pretty good overall because I did do some risk adjusting by bring my asset allocation mix back into the balance that it should be… So ouch, but it’s okay…

These past few years, I’ve accomplished a lot of my financial goals (house paid off, kids college cost fully funded, etc) and have even started played around with the idea of semi-retirement… One of the biggest things holding me back is the expense of Medical Insurance for emergencies. My daughter is a gymnist and my son a part time fire fighter (in addition to attending college), so it’s a valid concern for me. I don’t hear a lot about that in a lot of FIRE equations, but it should be considered (at least until your are a vhnwi – Very High Networth Individual).

I mentioned in my last update that I believe I have enough critical mass now and that I wanted to experiment. Instead I decided to take a break and try to live a bit of that Upper Middle Class lifestyle that I’m striving for in my wealth pyramid below. Turns out, that lifestyle is still a bit out of reach for me and also more expensive that I originally believed, so I’m still in that “think green line” area in the picture below. Another fact that is keeping me in the “Think Green Line” area, is that fact that bulk of my net worth is either tied up in my house or 401k. It’s great, but I’m definitely on the cash poor side.

Ignoring my whining, I have enough money from my dividend funds (I’ll post about them in the future) to at least dip my toe into the entrepreneurial pool… So perhaps I’ll try and find a rental to buy or maybe start a low startup cost business… idk… Lately, I have the urge to find someone with the right characteristics to work on ideas and strategies. It’s surprising how hard it is to find anyone that is interested in thinking outside of the box on wealth accumulation! Then again, I’m not the best conversationalist… so perhaps the fault lies with me.

After taking a hit at the end of 2018, my secret wealth goal has improved to the highest level that it has been yet (79.63%) in 2019. Sadly, my percentage has fallen a bit these past few weeks… I’m not sure how this year will play out, but I’m hoping I break the 80% barrier at the end of year 2021. We’ll see…

Financial Pyramid

Okay, onto health! For the past few years I’ve been working out pretty hard to accomplish two goals.

  • Benchpress all the weight in my basement and do three 45 plates on each site for at least 1 rep (this I accomplished). I was going to three gyms and working out like a fiend. I have to say I was quite pleased with the results!!! See picture below of my arm.
  • The Second goal is to focus on my body aesthetics and optimize my health. I wanted to hit my strength goal first, now I’m doubling back and taking on this challenge.

So to summarize, it’s smooth and steady for me so far.

Thanks

Don

2014 Year End Financial Results

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So how did I do this past year, especially with respect to net worth and my “Secret Wealth Goal“?

First the good news!  Near the end of 2014, my net worth finally crossed over into the PAW (Prodigious Accumulator of Wealth) status that is mentioned in the book the “The Millionaire Next Door“.  This is the first time this has happened to me, and I have to admit I was pretty ecstatic!

Second, the even better news!  For 2014, my “Net Worth to Accumulated Salary” Ratio (again from my Secret Wealth Goal mentioned above) is now 51.43% (vs 37.40% for the end of year 2012)…. Not too shabby.  For this net worth number calculation, I exclude the equity in my house!  If I include my house, the calculation would be much higher.  Ideally, I would like to have my “net worth to accumulated salary” ratio grow to over 100%!

Having my number climb over 100% would mean that my saving and investment gains would have outpaced the total value of my accumulated salaries… and that would be extremely awesome!

Hopefully in the next 5 years I get very, very close to that 100% ratio threshold (maybe 7 years, if I put in some slack for at least 1 recession within the next 7 years…)

it was nice being a PAW, even though it only lasted for about 60 to 90 days before my portfolio pulled back a little at the end of 2014 year.  Still it was very sweet while it lasted!  I’m not far from being a PAW again, hopefully this slump in the stock market will turn positive soon and I’ll be a PAW for a longer period in 2015.  Hard to say though, this bull market has already ran for quite a long time and is sadly is getting pretty old.

Even thought I had some great financial progress for the 2014 year, in my Wealth Pyramid, I still consider myself at the lowest threshold of the “Upper Middle Class” section.  In fact, I still consider myself in the “lower upper middle class” category!

If I could increase my net worth percentile compared to the percentile of everybody in the United States by just 5%, I would then consider myself solidly in the “Upper Middle Class” area.  But I’m not there and that extra 5% move is a long jump.

Financial Pyramid

Thanks “year 2014”, while not as great as year 2013, you were still a pretty decent year overall!

Good luck in 2015,

Don

My Personal Finance Pyramid Update

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My Personal Finance Pyramid

A few years ago I decided to create a road map while I slowly climb my way up a financial pyramid, trying to acquire more wealth!  I see such a climb as a struggle towards building wealth!  A pyramid (based on Maslow’s Pyramid of Needs) seemed to be a great representation of such a wealth pursuing journey.  In many ways, it helps me visualize the various levels and created milestones for me to watch for since I love feedback!  So without further ado, here is my update on my progress climbing my “Personal Finance Pyramid“!

Financial Pyramid

Asset Accumulation Phase

Yes!  After spending too much time stuck at the “Action Plans For Wealth Development” phase, I can finally state that I’ve crossed the threshold and that I’m firmly in the “Asset Accumulation” level on my Financial Pyramid!

Why was I stuck at the “Action Plans For Wealth Development” for so long?

Originally, I expected to only spend a short time in the “Action Plans For Wealth Development” phase, but the “The Great Recession” took its toll on my planning and caused me to spin for a while, trying to decide what to do.  Fortunately, my money was still swelling from the fact that we paid off the mortgage on our house early, and so I had a small pool of cash available for investing and purchasing other assets.

Upper Middle Class still at a Distance!

I had hoped to be closer to this level by now, but the economy and work haven’t worked out according to my plans.  I could also make the excuse that my wife is a SAHM and even point out this article “Income Loss From My Wife Being a Stay at Home Mom” that makes a great case that we should have been millionaires by now, but really if I wanted it bad enough, I could have worked harder all along.

How Things Are Different on my climb up my “Personal Finance Pyramid”

Having a personal finance pyramid for the goals in combination with personal finance spreadsheets (homegrown), really helps me keep my eye on the ball.  Another big thing that has changed is that I want to start having bigger and better experiences by traveling more often, especially overseas!  And finally, a huge change is that I totally believe that it’s possible for me to get to some of those higher levels on my personal finance pyramid. You see, most people don’t even try, so just believing and continuing to work harder and smarter puts me at a huge advantage!

I’m hoping for the best!  What are your thoughts?

MR

My Financial Pyramid

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My Personal Financial Pyramid

Just for fun, I thought I’d create my interpretation of a hierarchical “Financial Pyramid” (modeled after Maslow’s Hierarchy of needs).

Financial Pyramid

 

Financial Pyramid Level Details (Top Down analysis):

Uber-RICH
Warren Buffet, Bill Gates, and similar people dwell here! I don’t know what it would be like to have a Net Worth greater than the GDP (Gross Domestic Product) of entire countries, but these people do…  This is (for the most part) a practically impossible level for the vast majority of us to obtain.

Wealthy
I would define this level in my financial pyramid model as those (in current 2010 dollars) having at least $20,000,000 million and above (if you live in a city like New York, perhaps $100,000,000 would be a better entry-level marker for you…).  Another hard level to conquer…  You would need the perfect combination to obtain and stay at this level (such as considerable luck, personal drive, income, investment mix would have to be perfect).

Rich
Depends where you live, but you would need at least enough money to travel overseas whenever you wanted (up to 4 time a year), without decreasing your net worth.  I would define this group as people having at least $5,000,000 in financial assets.  If you had the money invested in an investment that would yield 4%, that would provide you $200,000 in income per year…  The key idea here would be that the passive income (interest/dividends) generated off of your financial assets would earn you enough income to be above the top 2% of similarly worked for (earned) income by the non-rich.

Financial Independence
This is the break even point, this is where your investment and other passive income(s) earn you enough to cover your current life style expenses and inflation.  You’ll still want to contribute money to increasing your wealth though.  After all, recessions and inflation happens!!!

Upper Middle Class
Interesting level, many people can make it to this level by improving themselves and increasing the amount of money they have via investments, hard work, being frugal and continuous learning.  I personally don’t believe that getting a degree like an MBA is the magic ticket for inclusion in the Upper middle class (although it certainly can help!).  I think to be a part of this level, you’d have to either have a net worth of $1,000,000 or at least manage that much at a personal level.  Upper middle class is more than money though.  This is the level where IMHO, you should have developed some traditional sense of class, and people should ask you for your opinion on matters.  So respect or prestige (at least a little) comes into play.

Asset Accumulation
This is the strategic years, where you have already implemented or are following your plans developed in the lower level.  Time (hopefully) is your greatest ally.  Keep doing what you are doing and hopefully Lady Luck will also join your team and become an ally as well.

Action Plans for Wealth Development
At this stage, you have to think and really hustle to get ahead.  At this stage you have most of your core needs managed, and you are now trying to build your wealth for the future.  I almost called this the Battle Plans level, because you must develop strategies to conquer future expenses (kid’s college, kids cars, kids braces, retirement, car replacements, home repairs, increased life style, better vacation, etc).  At this level you must start the plans for these future financial concerns.  Even if they seem impossible to beat, at least start the process…  If you don’t, then the saying (by my #1 financial hero Benjamin Franklin)  “By failing to prepare, you are preparing to fail” will happen!!!  These are the hustle years, think and move quickly and wisely!!!

Money Control Basics
 You have money to cover your shelter needs: Housing, real estate taxes, Utility costs and so forth…  This can be a monkey on your back that is slowing you down.  Personally, I started the Action Plans level above while still working on this level too.  By doing so, it took me a little bit over 10 years to conquer this level, but I think the way that I did it worked out well in my case.  Most people just make their mortgage payment as planned out by the banks, and that is fine.  The key is to have money (from some source) to cover this basic need.  Ideally, you want to have this paid off or have invested assets that can cover the mortgage payments in case you get laid off or something else happens…

Financial Survival Strategy
This is the most simple level, you need to have some way of getting food and clothes!  The preferred way is saving up your money so that if something horrible happens you can use that money to buy cheap foods and clothes for survival.  Of course, if you are really at this level you could get food stamps, or try growing your own food.  Having an Emergency Fund of some sort would go a long way to covering this level.  Perhaps $20,000?  I cheated this level, I had money but it was in investments.  This was risky, but I was young and the economy was strong…  If I were a college graduate today, I’d most likely consider a high yield saving account or government bonds for my emergency needs.

If you haven’t noticed in my previous posts, I like to measure things and create milestones and other markers to help me judge where I’m currently at on my financial goals.  Such tools help me define my financial progress and enables me see things that I might miss if I didn’t use them.  So that said (or written), I’m currently at the phase called “Action Plans for Wealth Development“.  I’ve been in it for a while and I expect to be in it for quite a while actually.

If you have other tools to help you in your progress, please share them too, such tools can really help others…

– Don