As I’ve done every year on this site, I want to review my past year’s financial results as well as make a forecast for the year to come.
FYI, I’m writing this at the beginning of January even though it won’t post for a month or so.
As such, the numbers I’ll be sharing aren’t final yet (I’ll sort through the official ones when I do my taxes). These have not been verified, audited, adjusted for tax purposes (i.e. no deduction expenses taken out for my real estate investments), etc.
But if I wait a couple months until everything is final, you’d be reading this at the end of May, which seems way too late.
Besides, the numbers are pretty close. After all, I track every penny in Quicken and have done so for almost 25 years now. 😉
I say all this because I don’t want someone coming back to me in six months saying, “You said the number was this!” if I quote a different number sometime. Haha!
For those of you interested in historical perspective, here are my reports for past years:
Overall, 2020 was a very good year on a number of fronts (especially considering what a waste of a year it was in almost every other way), so let’s get to the details…
Net Worth
We’ll begin with what I consider my key financial measure: net worth.
I include all assets and liabilities when I calculate net worth, but I do have some special adjustments I use in getting to the final number.
That said, here’s the picture for 2020:
- I actually have two net worth numbers to share this year. The first is using cost numbers for my real estate assets. Doing this, our net worth was up 14.93% for the year and came in just over $5 million. Most of the thanks goes to the stock market and the fact that we are letting our assets ride as we earn enough income to cover expenses. Also we kept our spending pretty low as you’ll see below.
- The second net worth number includes a few adjustments. Apex and a few other of the Millionaire Money Mentors convinced me to update the numbers for my real estate investments plus my home (all of which have appreciated tremendously). So I talked to my agent to help get an estimate of value and chatted with my CPA to see what I’d owe in taxes if I sold. I adjusted the value down and deducted both selling costs and taxes for my rental units, then updated the values in Quicken. I did the same for my personal residence. I also added in a liability of $50k as we have agreed to match the downpayment my daughter and son-in-law will make on their house. With all these changes I end up with a net worth of over $5.3 million, which is up 22.34% for the year.
- FYI, with these adjustments, I have now gained $2 million in net worth since I retired. How wild is that?
- This was the fifth best annual percentage performance since I started tracking my net worth in 1996. It’s also the second gain over 20% in two years. (Yes, I know all of the gain wasn’t earned this year, but I don’t want to go back and spread the gains out over 5-7 years, so this is the way I’m simplifying it.)
- It was the single-largest dollar gain for me on record — net worth was up almost $1 million this year.
- Four of the 12 months this year featured a record high net worth including November and December.
- We have now averaged 13.47% compound average annual net worth growth since I started tracking in 1996.
Overall, net worth was very strong — an excellent year all around.
Budget Results
I had to make some adjustments to the numbers (like last year) to get a somewhat clear sense of what happened.
Income
- Rental Income: $88,194
- Websites: $64,880
- Dividend Income: $55,799
- Interest Income: $16,286
- Wife’s Job: $8,313
- Other Income: $2,224
Total: $235,696
I know. That looks like a big number. But there are some HUGE caveats.
Let me explain…
- Rental income was very, very strong this year even with Covid. I had one renter who is not paying (and not even talking/trying to work with us, which is frustrating), but everyone else paid. On the plus side, Covid kept my management company from going out and doing questionable tasks for which they would charge me. As such, my expenses have been at all-time lows and thus income has been amazing — $88k on properties I paid $600k for (including remodels).
- ESI Money made roughly $30k this year. This is a combination of 1) Covid killing a couple months of revenue, 2) me going from four posts a week to three, and 3) increased costs (I pay my daughter to transcribe notes I take on books, bought a new computer, and re-did a bedroom into an upstairs office).
- Millionaire Money Mentors made up the rest of the website income. I had a lot of start-up costs as well as spent on the items mentioned above (I spilt costs between ESI and MMM). Many of those costs will be used to create new projects in 2021 — more on those in a moment.
- Most of the dividend income is what’s churned off by our index funds at Vanguard. We reinvest this and much of it is in IRAs, so it’s not like this is income available to spend (though some of it could be if we wanted it to be). My dividend stocks did fairly well, generating $9,264 in dividends in 2020.
- Interest is from the cash I have in “high interest” savings plus (mostly) the $125k I have invested in private real estate loans.
- I’ve mentioned that my wife volunteers part-time at our church — or at least she did until they insisted on paying her. Not bad for a hobby she really enjoys.
- Other income is mostly from cash back credit cards.
Expenses
- Taxes: $50,546
- Utilities: $7,276
- Food: $6,971
- Med. Insurance: $6,886
- Travel: $6,495
- Entertainment: $3,889
- Medical: $3,072
- Misc: $2,692
- Christmas: $2,472
- House Insurance: $2,325
- Car Insurance: $2,106
- Eating Out : $2,050
- Cat: $1,660
- Furnishings: $1,001
- Home Repair: $922
- Life Insurance: $848
- Donations: $800
- Clothes: $638
- Gas: $561
- Personal: $298
- Car Repairs: $173
- Lawn: $54
Total: $103,735
This needs some explaining as well…
- Taxes are almost half of my spending. Ugh. The majority of the taxes are from 1) a large tax bill paid in 2020 for 2019 (remember I sold Rockstar Finance in 2019 and had a large gain) and 2) safe harbor estimated tax payments for 2020.
- Utilities are higher than last year due to the fact that my daughter and son-in-law moved in with us at the end of September. We have kept the heat higher as they are in the basement. In addition, we use more water, electricity, etc. with more people in the house.
- Food is surprisingly low given our new house guests. I guess we’ve been better shoppers this year.
- Medical Insurance is what we pay Samaritan Ministries.
- Travel took a big hit this year to no one’s surprise. We did go to Hawaii (some time on Oahu and the rest on a cruise stopping on several islands), making it home just as Covid was breaking. The rest of the year was spent at home and much of 2021 will probably be the same. My guess is that spending on travel will be even lower this year. Thankfully we live in Colorado and it’s awesome here.
- Most of the entertainment expense is our gym membership. I’m going to move it to medical expense starting in 2021 since we workout more for health purposes than we do for enjoyment.
- Medical is all the costs we paid ourselves including dental care, eye care, my dermatology visits and physical, and miscellaneous medical.
- Miscellaneous includes all expenses too small to be in their own category. Small spending adds up!
- Christmas includes $2,000 in gifts we gave to our kids ($1,000 each).
- 75% of the eating out costs are gift cards I buy and give to my kids to eat out. We are slowing that down this year as we’re all trying to eat healthier.
- Donations are non-tax deductible gifts given out through the year. The majority are cash gifts we made to people in need.
The above costs were all paid out of income. In addition to these, we contributed to our donor-advised fund with assets. We donated $51,200 and distributed $70,565 (we had a balance from previous years). This giving was done from index funds being transferred in so there was no cash impact, but we did have a reduction in assets.
2021 Estimated Budget
Looking ahead, here are the high-level numbers for our 2021 budget, starting with income:
- Websites: $125,000
- Rental Income: $60,000
- Interest Income: $22,000
- Dividend Income: $12,000
- Wife’s Job: $7,500
- Other Income: $1,250
Income: $227,750
Explanation on these:
- I have been spending a lot of time working on a couple website-related projects. The first is marketing the Millionaire Money Mentors to non-ESI Money readers. I have written a series of free booklets I will give to people to learn about millionaire habits and will then offer them the chance to join the forums. I’ve also been working on a couple courses that I think will help a lot of people — courses I wish I had 30 years ago. So while I’m estimating $125k for website revenue, it’s literally a guess. It could be $50k or $500k for all I know. Time will tell.
- I’m expecting rental income to fall back to more historical ranges.
- Interest income will be strong and include income from my private loans as well as two (so far) real estate syndication deals I’ve invested in.
- Dividend income is just from my dividend stocks. I’ll own them for a full year in 2021, so they should produce more than in 2020.
- My wife’s income should hold steady.
- Since we won’t be traveling as much, our credit card rewards will likely take a big hit.
Expenses: $100,000
Not much to say here other than I expect expenses to be about the same. There’s not much reason to think they’d be dramatically higher or lower.
So those are our results for 2020 and plans for 2021.
Any thoughts, comments, or questions?
How was 2020 for you financially?
The Millennial Money Woman says
Thank you for candidly sharing your personal financial picture – I am really impressed to see that you gained $2 million in net worth since you retired! Most people start losing money and especially don’t run websites upon retirement. I think you’re an inspiration and I truly hope to be like you one day as well: Love what I do, earn money through passive income (such as with the website) and add to my net worth during retirement. Incredible.
Keep up the fantastic work!
Cheers,
Fiona
Charlie @ doginvestor.com says
Any reason you didn’t include the index fund dividends in your forecast versus including them in your historical numbers? Seems you’re undercounting your income there?
Also, those rental properties continue to amaze! I would love some more property exposure but my local market is just too weak/social issues to make any money there. I know people with all 4 rentals standing empty, plus it’s been going backwards for a while. I had gotten into REITs but they too haven’t paid dividends over the last year because of Covid. Perhaps I need to just acquire some RE in the US since you guys seem to have a far better market for property =)
Keep up the impressive work, your hard work continues to pay off even if the market is out of our control.
ESI says
I counted them initially to show my complete financials. But since I don’t really have access to them, I don’t plan on them in the future.
Nick says
I was wondering about your life insurance. Is there a reason you still carry it with your net worth? I recently cut back on mine due to a increase in net worth and was wondering your feelings on that.
ESI says
It has a couple years to go, is so cheap, and these are the years I have the best chance of needing it. 🙂
So I’ll keep it until the term expires.
Andrew Herrig says
Always interesting to see what projects you are working on in “retirement”, thanks for sharing!
I too struggle with how to incorporate my real estate as part of my net worth. My wife is an agent, so having access to MLS to comp our properties is nice. I’ve settled on using a fairly conservative valuation and then taking 90% of that (to account for costs if we sold) as the asset value.
ESI says
I underestimated the value and need for “work” when I retired.
I don’t have to do any of it, but I really do enjoy it.
The difference is it’s something I WANT to do versus something I HAVE to do.
Lauren Berryhill says
My husband and I have small accounts with Charles Scwabb. We are both semi retired in our late sixties with income of $70,000. annually.
We have enjoyed and learned from your ESI blog and would like to invest $200,00.00 or more
in Vanguard Index fund for dividend income however we need fiduciary advice. Can you recommend an advisor or does Vanguard offer this?
Thank you for a gr blog.
ESI says
If you have enough invested with them, Vanguard does have a free service to offer advice.
Phillip says
My experience is that Vanguard, Fidelity, TD Ameritrade all have “free” advisors that will consult with you for free if you have $500k+ in investable assets. I’ve tried all three and found that competence varies. You need to ask good questions and set clear objective on what you want from these advisors for them to be helpful. And if you have enough assets, don’t be shy about asking for a new one if you don’t think the one you’ve been assigned is competent. And if they recommend specific funds (most don’t today), research alternatives in their same class as I’ve found them to recommend higher fee, lower performing funds in the past.
If you’re simply looking for an actual dividend fund to invest in, it’s pretty easy to find funds if you know what type you want. So if you want a low cost dividend bearing ETF, you can google and find VYM as a starting point. With broad market index funds and ETFs, low fees is probably most important and most Vanguard funds/ETFs fit that criteria so it’s hard to go wrong with Vanguard if you know what class of index fund/ETF you want.
But if you’re looking for a review and advice on your portfolio strategy, you may want to talk to an advisor and in this case, there’s no harm in trying free ones first if you qualify. And once you get comfortable with how you want your portfolio allocated (perhaps talking to free advisors will get you want you need or maybe use a fee only advisor one time), you can then use a method like what I suggested above and construct your own, simple, low cast portfolio. I personally suggest you learn to DIY as nobody cares about your money more than you.
JG says
As a Vanguard investor who clears that threshold, I’m curious — what sort of financial advice did you solicit from them (or Fidelity and the others)? And did you find it useful?
I wasn’t aware of this perk. But since I appear to qualify for it, I’m wondering how I might take advantage of it. Thanks for your very helpful comment.
ESI says
I had a whole financial plan done a few years ago.
They had some basic suggestions but couldn’t find a lot to improve upon. LOL.
So I stuck with my plan…
Phillip says
I use mine as a sounding board for various things. I usually already have a plan and ask whether what I do is prudent and consistent with what other clients in similar situations do. The responses can be better than bloggers/forums because the advisor knows your entire portfolio and objectives. Examples of things I have talked about after the initial review of my portfolio allocation and how it maps towards my goals and risk tolerance:
– Specific tax loss harvesting tactics for the given year and what specific positions to look at more closely.
– 529 rebalancing (I was all index equity but now my kid is in 10th grade) and typical strategies employed going forward
– Common practices and pitfalls of setting up accounts to better manage estate taxes. I primarily took advice from my estate planning attorney but having another person to talk to (who brought in their in-house attorney to join in a con call) about how other clients have things set up can be insightful.
– Alternate investments other clients use. My guy mentioned first trust deeds and mid market lending. Fidelity partners with “trusted” registered investor advisors for this. It’s an idea that I will research which I may not go with but it’s an idea I didn’t think of before.
– Types of bonds/cash to own. He already knew my bond/stock allocation preference but I wanted his take on they type of positions I owned. Given the current environment, the opinion of my advisor was that my positions and amounts in ultra-short bond funds, muni bond funds and cash were prudent given intermediate and long term bonds didn’t provide any compelling gains/advantages that were worth the risk.
These are topics I bring up. I don’t expect my advisor (especially a free one) to proactively anticipate my things of interest (although occasionally he does).
JG says
Thanks, this is useful info — I may sign up for a free call and do what you did
MI236 says
Diversify, that is all they will say in a nutshell. The rest is all just noise. Just saved you a good chunk of $$ – you are welcome!
Jeff (MI-96) says
Congrats on a great year! Crazy how good it’s been for our NW as well since I retired at the end of 2019. To this minute having calculated my NW gain from 1/1/20 to today, NW is up just a hair short of 27%. Absolutely unreal. Stock market gains have been ridiculous and it actually makes me want to take profits in my tax-advantaged accounts and pull in my horns, but I love the positions I have and will just use cash to take advantage of any dips. House and cabin values continue to run away as well.
If you had told me that I could retire and be up $1.1M in just over a year, I would have said you were nuts. And the two year increase has been $2.4M. Again … just crazy.
Cheers
Paper Tiger (aka MI 27 & MIU 8) says
Hitting on all cylinders, great job. Appreciate all you do to help educate your readers and keep us motivated. This is a journey where winning along the way really matters.
MI192 says
ESI, this is a great summary. Thanks for sharing. I have a few quick questions:
1.) How many hours do you work a week? Seems like you are quite busy in “retirement”
2.) Your dividend income was ~$55k in 2020, but you are projecting it to be $12k in 2021. Why?
3.) How in the world are you only spending ~$7k on groceries each year for a family of four? That is about $580/month. We are lucky to get below $1k for my family of five.
4.) Does the ~$50k in taxes include your property taxes?
Thx
ESI says
1. Probably 2-3 hours a day, but it’s completely flexible and subject to how I’m feeling that day. 😉
I generally arrive home from the gym by 9 or 9;30 am, eat something, work for a few hours, then either take a walk or play pickleball, which then moves me into dinner time (we eat about 4 pm).
2. You may have missed it in the post (and comment above) but I don’t count dividends in retirement accounts when projecting future income since they are not yet easily accessible.
3. We have spent right around $600 a month for YEARS. My wife is a great shopper and our tastes are simple. Plus we don’t buy a lot of the pricey “wasted foods” like sugar-water soda, processed foods, etc.
Shopping at Costco helps too — great meat and good prices there.
4. Yes, all taxes. Though real estate taxes on a $500k house in Colorado Springs is only about $2,500 a year. Eat your heart out. 🙂
Gary says
Enjoyed the expense for the cat. 🙂 can you post a picture of the cat?
Gary
ESI says
You can see several here:
https://www.instagram.com/esimoneyblog/
MI-202 says
Nice uptick in NW for the year. We were up 418k for the year with our contributions included. Removing those had us up by 300k. I call that a win. I am jealous of the property tax you pay. 400k house here outside of Dallas, and we’re paying a little over 10k.
ESI says
The income taxes are higher here. 😉
Sarah says
You are a rockstar! So enjoy reading your blog. Thank you so much.
CB says
Thank you for sharing so many details. We are in the process of updating our year end net worth since all the December documents have arrived. I have a hard time understanding how the stock market has increased while the pandemic is still occurring. So many companies have closed their doors, limited hours of shopping/eating and laying off people. We have had many excellent years of strong results. We are fortunate to have a balanced portfolio of investments and cash with only 1 personal property (no more rental properties for us).
Still missing our retirement travels but vaccine has arrived and now supply needs to increase.
M139 says
Thanks for the update and congrats on the year.
What is your guess on total hours spent per year on ESI and MMM in 2020 and how many hours a year do you think it will be moving forward.
They are my favorite two websites and I absolutely love the intelligent and insightful conversation and guidance on MMM.
ESI says
I’m not sure. It would be a complete guess as I really don’t track it.
This is because I don’t see them as cost/hour or revenue/hour ventures.
I see them as doing something I enjoy (for a variety of reasons) which just so happens to bring in some income.
If I didn’t have the income would I do as much with them? Who knows?
I do know that I could make way more if I wanted to work more, but that’s one reason I sold Rockstar Finance — it became more like a job than a passion.
And if I didn’t spend the time working on the sites, what would I do with it? Play more pickleball? Maybe, but I think I have enough of that in my life. I really can’t think of anything else I’d rather do with that time.
SK says
Thank you for sharing! You mentioned “high interest savings”, what do you recommend?
ESI says
It’s in quotes because it’s a joke these days. They call it “high interest” but it’s nothing of the sort.
JayCeezy says
“I went to the bank last week, and opened up a high-interest checking account. It paid so little that I needed an explanation for the name. The banker told me that you need to be high to consider that interest.” – Nick Arnette
Ben says
Hi John, long time reader here. Thank you for this post – it has been both fascinating and very instructive to observe how you have grown your net worth and nurtured your various sources of income over time.
Based on the numbers you provided above, it looks like you have an effective tax rate of just 21% ($50k / $235k) which seems quite low especially considering that CO has a state income tax. Well done on that!
I would love to understand a little more of the detail behind how you have managed to keep your taxes so low. I presume it is a combo of depreciation deductions on your rental properties, business deductions from your online stuff – anything else? Do you use a solo 401k, IRAs, or some other methods of lowering your taxable income?
Thank you in advance.
ESI says
Hey, Ben!
A few thoughts:
1. I don’t obsess much about taxes. I don’t try to pay more but I also don’t jump through hoops to pay less. I live my life, want to concentrate on the big things (like ESI), and let taxes fall where they may.
2. The tax costs I shared are based in part on estimated 2020 tax payments. Just realize that I may owe more for 2020 once my final return is completed.
3. A good portion of the income (the dividends) are in non-taxable accounts. I’ll pay for those when RMDs eventually hit. 😉
4. I do have some large deductions including depreciation on my real estate and charitable giving.
5. I do contribute the max possible each year to a SEP IRA. It saves me some now but again, RMDs will be getting bigger.
I think once you factor in all those you’ll see that the taxes I pay are fair, not high or low but in line more with what you’d expect.
Ben says
Thanks John, that makes sense. I had forgotten your note about the contribution you made to your DAF too, which would make a pretty big difference.
Financial Samurai says
Nice diversified income streams there! Baller!
I’m going to try to make as much as money as comfortable as possible this year and then retire after I get vaccinated. I’m just too tired of all this stuff. But I’m just gonna look on the bright side.
Let’s hope the stock market and real estate market continue to do well for us! Baby needs some new shoes!
Sam
PWilliam says
Always interesting to read these posts–thank you for providing the detail that you do. I am curious as to why you neither count your donations to nor distributions from your Donor Advised Fund as expenses? I get that you donate appreciated assets, rather than cash. I do the same with my DAF, but it reflects an outlay of net worth that is the same as cash, so I think that it is an expense just like if you had sold the stock and then donated the $ proceeds. Or, if you want to think of DAF balances as part of your net worth, then I would think that you would want to list the $70k in distributions out of the DAF as expenses.