With January already halfway behind us, it’s time to fire up Quicken and figure out how I did in 2016, and my suggestion to you is that you do the same!
I’m going to break my 2016 performance summary out into two posts. This post will be focused on cash flow and net worth. I’ll do a follow-up post detailing the performance of my portfolio.
So, how did 2016 go for me? Let’s look at the details.
2016 Income Summary
Our total household income took a hit in 2016, although not by as much as expected. Due to a quirk in the timing of bonus payouts, along with my layoff in 2014 and re-hire in 2015, my annual income has been jumping around a bit lately. Basically, my bonus went down quite a bit in 2016. Luckily, however, my annual base salary increase was larger than I was expecting, and my wife’s side-hustle business grew profits by 8% which was a great surprise. Both of these increases contributed enough so that our overall income was only down by 7%.
Here’s how our income broke down as a percentage of total household income:
- Base Salary: 80% of income (+2% growth vs. 2015)
- Cash Bonus: 15% of income (-40% decline vs. 2015 – Ouch!)
- Spouse’s Side Hustle: 5% of income (+8% growth vs. 2015)
- Total Household Income: 100% of income (-7% decline vs. 2015)
There are two things that I’m not including in my income and those are my employer’s 401k matching or the increase in the value of my pension plan. I’ll include those in the savings calculations.
While I’m not happy about the 7% income decline, things could have been worse for sure. For example, I could still be looking for work! Plus, at least I knew the decrease was coming, so I was able to plan for it and cut expenses appropriately. Unless something unforeseen happens, income will start rising again in 2017.
2016 Expense Summary
Since we knew that our overall income was going down in 2016, we tried to cut expenses where we could without cramping our style too much by being cost conscious about every little thing. But we did try to cut a few areas specifically. We made a conscious decision to eat out less, which was not only helpful for our checkbook balance but for our waistlines as well. That saved us some money. And, we were more vigilant with our grocery spending, which saved us quite a bit too.
We also just got lucky on a couple of things. First, our orthodontics bill was down substantially since both kids are finally out of braces. Second, we spent some money in 2015 to fix-up our basement which we didn’t do in 2016, so that helped contribute to lower expenses in 2016 vs. 2015.
Overall, our expenses came down by 5% and we didn’t feel too much of a change in lifestyle.
2016 Savings Summary
So, the real question is, how much did we save? We all know that your savings rate is the biggest factor in determining when you will achieve financial independence (Are You Saving Enough?). By bringing our expenses down into line, even with our reduced household income, we were able to increase our savings rate from 24% in 2015 to 26% in 2016 – Wahoo! I was pretty psyched when I pulled all the numbers together.
13% of our income went into tax-deferred accounts and 13% went into after-tax accounts and towards paying down our mortgage early. If you include the increase in the value of my pension plan at the office that adds an additional 12% to our tax-deferred savings, bringing the tax-deferred savings rate up to 25% and our total savings rate up to 38%. Boom!
Overall, the 2016 savings rate was a big win!
2016 Net Worth
Just as your savings rate is the most important metric in getting you closer to financial independence, net worth is the most important metric in telling you how close you’re getting (The Importance of Calculating Your Net Worth). So how did our net worth do in 2016?
Another double-digit increase. Buoyed by the strong bull market and a robust savings rate, our net worth increased by 13% in 2016. I’m pretty happy with that. If we can keep that growth rate up, our net worth will double in 5.5 years! That would be nice, although I don’t expect the market to keep going strong for that long.
2016 was a good year, and I’m glad that we were able to weather our overall income decline by controlling our expenses and even increasing our savings rate at the same time. In 2017, our income should go up a little with my annual merit increase, and our expenses should stay relatively flat. With that in mind, I’m hoping to increase our savings rate another point from 26% to 27% or from 38% to 39% if you include my pension.
Ok, that’s my cash flow and net worth 2016 performance summary, now it’s your turn!
How was your 2016 financial performance? Did it turn out how you expected? How are things looking for 2017?