When I look back, I can’t pinpoint that moment we conclusively decided to grow and track our net worth. I know from the start I always tried to “save”, but the next step of strategizing money placement with the explicit goal of growing net worth . . . just wasn’t in my mind. Rather, there were a series of more passive steps (or really stubborn ones) we took along the way which led to this eventuality. Here are those steps:
Moving Savings to a Higher Yield Account
When I got out of college I had a BofA checking account which automatically transferred change to a linked ‘savings’ account. For a couple of years I exclusively used that savings account, and because I was stubbornly frugal, over time savings added up.
One day looking at my statements the 0.01% yield caught my eye – and pissed me off. We researched and went to a different bank which advertised up to 1.25% with a minimum required balance of $2,000. This was the highest we could find at the time (around 2011.)
Naturally this new bank dropped their rates 2 months after we joined, so we were only getting about .08% until we left them too and found a bank with a 1.5% yield five years later. Ballin.
Accepting Higher Risk and Investing
As our liquid savings grew in our low-yield account, the growth wasn’t keeping up with inflation nor with housing increases. Interest rates were abysmal, but the markets were climbing up from their 2008 trough.
“I learned then that every year I earned the same salary as the year before, I was essentially accepting about a 2% pay decrease, give or take.”
At the time I also worked in the headquarters of a small company, where I sat down the hall from the CEO and HR departments. That year I heard them celebrating with drinks one late night because they managed to keep annual pay increases between 0 and 1% across the company, when inflation was marked at just over 2%. I learned then that every year I earned the same salary as the year before, I was essentially accepting about a 2% pay decrease, (give or take).
It was the first time I decided to take things into my own hands. I didn’t really know what I was doing, but I researched online brokerage accounts and, at the time, (2009) determined Scottrade to be the cheapest – $7.00 per trade, with no annual fees. I opened an account with them and purchased as many shares of amazon as I felt comfortable with. At the time AMZN went for ~ $178 / share, and at the time of this writing they are worth ~$1294 / share. I wanted to purchase GOOGL as well, but just didn’t have enough cash to buy them and keep a safe amount in our liquid savings account too.
Thus began an education (which is still ongoing) regarding growth vs value stocks, dividends (AMZN doesn’t have one) and reinvestment accounts. If I could do it over, I would have opened a reinvestment account and gone with GOOGL instead.
Accepting Higher Risk and Investing Part 2 – Admitting You Don’t Know What You’re Doing and Outsource
I was lucky that (so far up to 2018) my picks in Amazon, NVidia, MobileEye, NXPI and so forth worked out. I made money on all of them, firstly because we’ve been in a bull market, but also because tech stocks can be much like the housing market – driven by hype and emotion. People get excited about nascent technologies and throw money into it with the hopes it’ll turn into the next Google. I bought into AI in the datacenter, and autonomous driving and semiconductors before most of the hype, and it played to my benefit. But I don’t want to micromanage money. I still don’t know enough about what I’m doing, and even if I did, research shows that active fund managers don’t outperform index funds in the long run.
That’s why we still pay fees (pretty high ones, too) to a money manager. I don’t like paying the fees, especially when there are a number of robo-advisors out there now for a fraction of the cost – but I study what our manager does. I see what he considers to be diversification. He sends us publications and material I would never have access to otherwise.
Not Settling For an Overpriced Cost of Living
In 2014 we moved from the east coast to the west coast, and experienced our first extreme housing crisis. Co-workers of mine were receiving notices in the mail from landlords informing them rent was doubling and they had to pay up or get out. One of my coworkers told me his rent jumped overnight from $1,600 a month to $3,000 a month, and he agreed to stay because he had nowhere to go. House flippers and investors were paying cash for everything, while traditional buyers were getting priced out.
I was scared. I had just gotten out of cripping college debt and wasn’t ready to jump into more, especially when, in my mind, the markets did not appear rational. As a result, I lived like a transient, ready to jump ship and move to another city at the moment we received our rent-increase notice.
Living this way meant I saved everything. Before long we had more saved up in cash than we made annually. The money was just sitting around, doing nothing, returning a super-low yield (at this point it was still in that .08% account). House prices were jumping 10% – 20% a year, with 2015-2016 being the steepest ascent.
We realized we had to make a decision – buy a house and give up all of our hobbies and life to hang on to it . . . Or leave.
So, we left. We bought a house in a different city in 2017, at a much more affordable price and much closer to a lifestyle we love. The move was expensive, stressful and painful. I took a major pay cut, salary-wise to avoid going into extreme housing debt.
It will take years to know whether or not this city was a good move financially, (job opportunities and salaries are limited) but at least for the time-being we’ve managed to fix the price of our costs of living and add some stability to our life situation. Being debt-free is the new American dream, after all.
Seeing Our Savings All in One Place
Fintech has expanded in the past couple years. Some would argue Silicon Valley is the new Manhattan. As a result a large number of money management tools are available that weren’t five years ago. I signed up for one in late 2016, aggregating all of our accounts – cash, stocks, funds, 401ks, IRA’s – in one place.
I think the power of visually seeing it all on one screen was the moment where, in my mind, all those years of stubbornness and effort and strategizing (and in some ways, guessing) felt like it finally paid off. Seeing all that progress was a huge motivator to be more involved. And I felt empowered to be more involved, because I had more information in a glance and better tools at my disposal.
Perhaps this was where the seeds were planted . . . where everything went from just saving to this new idea of growing net worth. Either way it has paid off tremendously so far.