My 2018 year in review

by J.D. Roth

Across the web, I see other financial bloggers sharing their year-end financial summaries. Some folks had good years. Financial Samurai’s net worth increased by 6.5% in 2018. Others had mediocre years. Fritz at The Retirement Manifesto saw his net worth decline by 2.1% thanks to a volatile stock market.

Me? Well, I’m embarrassed to share how my year went financially. It sucked. No, seriously. It was terrible.

My net worth declined by 15.2% in 2018 — nearly $250,000!

Here’s a graph of the monthly changes to my net worth during the past two years:

My monthly net worth over time

What happened? Did I buy a Lamborghini? Did I spend a ton during my recent three-week trip to Europe? Have Kim and I been binging on cocaine and chocolate? Nope. While there’s no doubt that my habits contributed to my loss of wealth, there are larger forces at play here.

Let’s take a closer look.

Note: As a reminder, your net worth is a snapshot of your financial health. It’s what you own minus what you owe. While not a perfect measure, net worth is a useful tool for tracking your financial progress. Want more info? Here’s how to calculate your net worth (and what to do with it).

Three Big Bruises

It’s easy for me to rationalize my huge decline in net worth, to explain that it’s mostly just smoke and mirrors. But I can’t help thinking I’m fooling myself. Let me explain.

My loss of wealth seems to be due to three main factors:

It’s obvious how the investment losses effect my net worth, but let’s explore the first two points.

In theory, the improvements we’ve made to our home should increase its value.

We’ve spent a grand total of (drumroll, please) $143,290.09 on remodeling projects since we moved in, which is nearly one-third of the $449,665.36 purchase price. However, that doesn’t mean the home is now worth $587,959.64. (I wish!) I’d be happy if we recouped 50% of our costs, which means our place is probably worth about $516,314.60.

That said, for accounting purposes, I treat remodeling expenses as if that money is simply gone, as if I’d spent it on something disposable. Meanwhile, Zillow says our home is worth $428.068.00. In other words, the combination of home improvements and declining property values has dinged my net worth by $160,000!

A similar thing happened with Get Rich Slowly. Technically, purchasing the site shouldn’t have affected my net worth (assuming it’s worth what I paid). I’m merely converting one asset (cash) into another (the website). However, I’ve never included the value of my businesses in my net worth, and I don’t intend to start. That means (from an accounting perspective), the money I’ve put into this site has vanished.

So, you see, it’s easy for me to rationalize and justify, to explain away my loss of wealth. Easy, yes, but stupid. I am part of the problem.

Lifestyle Inflation and Frictionless Spending

There are some good reasons that my net worth dropped in 2018. But there are some bad reasons too. Some of the drop comes from increased consumerism on my part. To wit:

After my divorce in 2012, I was proud that I created a lifestyle that cost me about $3000 per month. This seemed like a completely reasonable amount for the level of luxury it gave me.

When I bought the condo in 2013, my expenses increased to about $4000 per month. While this bothered me a little, I felt like it was a worthwhile price to pay for what I received in return.

After Kim and I returned from our RV trip across the U.S., I found that our lifestyle was costing me closer to $5000 per month. Holy cats! I decided to take action, which is why we moved from the condo to our country cottage.

The trouble is that my monthly expenses haven’t dropped since moving. Yes, the monthly carrying costs on this house are about $725 less than the condo, but I haven’t banked that savings. Instead, I’ve used it to fund lifestyle inflation. I’m still spending about $5000 per month.

This needs to stop.

In Pursuit of Personal Profit

I’ve spent much of the past ten days poring over my finances. I created a spreadsheet of monthly spending, then systematically worked my way through, looking for expenses to cut. With two hours of work, I found $464.27 of recurring costs that I could trim from my budget immediately. That number will increase to $741.97 after a couple of contracts end.

My expenses spreadsheet

On top of that, I want to change my current spending patterns. How much can I save by curbing my epicurean habits? A ton, I hope. Plus, I plan to build barriers between me and frictionless spending.

Ultimately, I have two financial goals for 2019.

The bottom line? I want to earn more than I spend in 2019. In my dream world, by the end of the year I’ll have a positive saving rate for the first time since I sold this site in 2009. My goal is for my wealth to grow, not shrink.

I know that I’m in a fortunate position. I have a substantial nest egg and can afford to live well. There are many others for whom living on $4000 per month would seem like luxury, not like cutting back. I get it.

That said, it’s scary to crunch the numbers and see that my net worth declined by $250,000 in one year — especially when all of that money vanished from my regular investment account, the one that contains the pool of cash I need to live on for the next decade until I can access my retirement accounts.

In a way, this situation has brought me full circle. When I started Get Rich Slowly back in 2006, my primary focus was frugality. As I earned and saved more, my attention turned to building wealth. After I sold the site, I was more concerned with maximizing happiness through managed spending. Now, though, I feel like I’m returning to my roots and it’s exciting!

Updated: 02 January 2019

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