At the end of 2016 when Mrs. Broke Architect and I set down to develop our financial plan for 2017, we had a net wealth of – $83,671 (To refer to my Net Worth vs Net Wealth Whats The Difference blog post to see how I calculated this number) . The purpose of our meeting was to review our spending from 2016 as a well as set a few financial goals for 2017. So, when we marched into 2017 our stated and written goals were to:
- Continue to max our 401k contribution.
- Reduce the outstanding balance on our mortgage by 12%.
- Grow our net wealth from the negative to positive.
When we setup these goals, we knew it was going to be a serious challenge to accomplish all of them. Based on our calculations, we figured that we would fall short of our net wealth goal by $7,745 if the following happened:
- (Max out our 401k to $18,000) – This was the only goal we knew we could accomplish based our income.
- (Reduce our outstanding mortgage balance by $42,889) – This goal required increasing our side hustle income.
- (Receive an 8% return on our investments, which includes our 401k, Roth IRA, and an investment account.) – Although an 8% return is conservative, getting this level of return is completely out of our control. We had no idea of what the stock market was going to do.
Even if we had ended 2017 with a net wealth of -$7,545 we would have been very happy with our progress. A net wealth of -$7,545 would mean that we would have had a $76, 126 change in position in one year. That would have been amazing.
But, of course, that is not the way things worked out. Actually, 2017 turned out better. It was an incredible year financially for the Broke Architect household:
- We placed $18,000 in our 401k (GOAL ACCOMPLISHED).
- We increased our side hustle income and decreased the outstanding balance on our mortgage by $43,198 (GOAL ACCOMPLISHED).
- Our net wealth by the end of the year was $24, 992 (GOAL ACCOMPLISHED).
- The 2017 our S&P index fund had a return of 20%. That is more than twice the amount we estimated.
- We also placed $3,000 into a healthcare saving account (HSA).
Due to the great 2017 stock market returns, the Broke Architect Household was able to meet all of its financial goals. By the end of 2017 our change in financial position was $108,593. We could have never dreamt of getting a 20% return from our stock market investments.
So, at the end of 2017 when Mrs. Broke Architect and I held our family’s annual financial review meeting to set our goals for 2018. Our goals were very similar to the ones we set for 2017, in a nutshell we are hoping to continue to grow our net wealth. Because I believe in sharing information I will share our 2018 financial goals with you all:
- Continue to max out our 401k contribution
- Max out our HSA contribution
- Reduce the outstanding balance on our mortgage by another 12%
- Grow our net wealth to over $100,000
- We are planning and hoping for an 8% return on our investment in 2018.
As a side note, another item that came up during our annual financial review meeting was that we over spent our 2017 grocery budget by $1,500. That is a huge bust in our budget, it’s a 30% increase in grocery spending that we did not plan for. Has the cost of food gone up that much? Let’ review how we got ourselves into this situation:
$1500 of additional spending per year equals:
- $125 per month of additional cost (if we shopped once a month)
- $31.25 per week of additional cost (This how we shop)
- Seeing that our grocery budget was $125 per week, we quickly realized that we really spent $156.25 per week.
- Now to be truthful what really happen was that we did not budget any funds for the “I need to stop by the supermarket to pick up something” cost. You know, the “we ran out of milk and I need some to cook dinner” items.
I only bring up our grocery spending issues to point out that even a small amount of extra spending can add up. And that even Mr. & Mrs. Broke Architect over spends sometimes. Spending an extra $31.25 does not seem like a big deal but over a one-year period it added up to $1,500. Personally, I want to know when we are spending such a large sum of money such as $1,500. After a little investigation we realized that we were nickel and diming our way to increase grocery spending.
To resolve our budget problem, we decided to increase our grocery budget by $20 per week which adds up to $1,040 per year. Knowing that we over spent on groceries in 2017, we will be paying closer attention to our 2018 grocery spending.
Remember, now one will care about your money more than you, not even your financial advisor.
Please share this blog post with your family & friends and feel free to ask any questions money planning in the comments section.
The Broke Architect