On our recent October Balance Sheet post, I marveled at the fact that somehow our net worth had climbed by almost $200K so far in 2013. But the most interesting part of that whole post, to me at least, was a comment made by Charles from Getting a Rich Life.
“You’ve crossed into the enviable position of your Net Worth increasing at a faster rate than your annual income.”
And until he said that, the thought had honestly not crossed our minds. But holy cow he was right. And it made me think back to some numbers I started crunching almost a year ago.
Your Money Or Your Life
Your Money or Your Life: 9 Steps to Transforming Your Relationship with Money and Achieving Financial Independence was originally written by Vicki Robin and Joe Dominguez over 20 years ago. It’s considered one of the classics of financial independence, written by a man and woman who walked the walk and talked the talk.
The book has been around for so long that I’m not going to try and better on the many reviews that already exist – like this one at the Simple Dollar that is quite thorough or this one from Mr Money Mustache which also has some background about one of the authors, Joe Dominguez. But long and short of it is that YMOYL (that is, Your Money Or Your Life) is basically an instruction manual to financial independence.
Mr PoP and I both read the book after MMM’s review last year, and one of the lessons that stuck with me the most was the heart of step 1 – making peace with the past.
Making Peace With The Past
In YMOYL, there are two main questions to answer to help make peace with your financial past.
- How much have you earned in your life?
- What have you got to show for it?
YMOYL recommends coming up with a fixed value of everything you’ve earned up until today and comparing that number with your net worth as a way to “come to terms with your past relationship with money, and [see] how much money you are able to earn, and what you have to show for it in measurable terms.” Only then are you “ready to look at the present”.
Question 2 is easy for us to answer. Readers of our blog know that we’re big advocates of tracking our net worth as one measure of our financial progress. Heck, you can see all of our net worth updates here.
But question 1 is harder. How much have we earned in our lives? Pre-tax? For all of our lives? Seriously? Surely it couldn’t be that much, we haven’t been working for decades or anything. But at the same time, I know our current net worth. Surely we needed to have earned more than this to have been able to save this much so far. So what was the answer?
I got to work estimating our earnings from the time we left school and moved to Florida (mid 2006). But since I had our incomes estimated on a yearly basis, and our net worth on a monthly basis starting shortly after we got married, I went ahead and took it a step further than the static one-time comparison that is recommended in YMOYL.
Instead, I made a graph comparing them over time.
A few notes on the graph:
- In this graph, the blue line is the total gross (that’s before taxes, etc) income that we’ve made through our jobs since graduating college. If it looks a good deal smoother than our lumpy income in recent years implies, that’s just because for ease I took our yearly incomes and divided them by 12 for the monthly incomes. Not perfect, but also easier than digging out 150+ pay stubs individually,
- The red line is our combined net worth. My records for our combined net worth start a few months after we got married (I have my own for another couple years before that, but not Mr PoP’s).
- The blue and red lines both correspond with the vertical axis on the left (in $).
- The green line is the ratio between the two: Net Worth / Total Gross Income. It is graphed to correspond with the vertical axis on the right. The best way to think of the green line is as representing the portion of the money that we’ve managed not to let slip through our hands and into someone else’s.
There it is, kindof a timeline of our adulthood to date, at least in terms of income and investments. It’s a heck of a lot of information crammed into that (IMHO adorable) little graph.
So What Are The Take-Aways?
- Bouncing around in a couple different jobs at the beginning of our careers has seemed not to have much of a negative effect on our overall trajectory. I hope this will continue to be the case for young adults for many years since we both feel these years gave us the valuable freedom to test the water and see what skills we wanted to use day-in and day-out in different settings.
- It’s also kindof mind boggling to think that at 31 years old, we’ve had over $900K (pre-tax) flow through our little hands. (Well, kindof. The gub’mint kept its chunk of it before we even got to see it… but we still count it here for the YMOYL exercise.) For two people with 7.5 years working each, puts our mean yearly pre-tax income at $60K per person. Above average, for sure, but not insanely unachievable – just ask Michelle since she’s made that from her “side business” in just the last 6 months!
- That said, making more money is awesome, but if you spend it all (even if that spending is “investing” as was the case with all the money we poured into our duplex), the impact to your bottom line is small in the short term.
- We are NOT omniscient and NOT investing geniuses. If we were, neither of us would have quit our jobs in summer 2008 instead of both doing so. =) But we’ve already covered our lack of a crystal ball for investment returns.
And the biggest takeaway…
- Talking about money with others has an outsized impact. Just look at the slope of the green line from before we started blogging (in May 2012) and after. I truly believe that Mr PoP and I have more success together than we would as two entities plugging away separately. (ya know, “the whole is greater than the sum of the parts”…) But blogging about money and including thousands of other people in the conversation seems to add another dimension to that in a way that we really didn’t anticipate when we began this project.
After looking at this together, we can see that we’re at peace with our financial past. (Goal achieved on that account, YMOYL!)
Our financial past isn’t perfect, but with this representation, we can see that we’ve been pretty consistently on a positive trajectory, and we’ve even picked up pace in the last couple of years. That feels good. Not good enough to get complacent, but good enough to help keep us motivated for a while.
Have you ever done this kind of YMOYL exercise of making peace with your financial past?