Passive Portfolio Income: My Financial Wallchart

Financial Wallchart

Hello everyone! Thanks for visiting The Green Swan today. I hope you are ready to take a trip back to grade school because I will be talking wallcharts! At least that is what I think of when I hear wallchart. Specifically, I think of the daily chart of smiley face or frowny face stickers that mark whether I was well behaved in school or not. Another day, and another disappointing frowny face…not my favorite reminder of wallcharts, to be totally honest. 🙂

Today we have a much more exciting wallchart to discuss, a financial wallchart!

What is a Wallchart?

A wallchart is a chart or poster for display on a wall information for tracking, educational, or entertainment purposes. For example, my daily tracker of performance in elementary school was a wallchart. Again, this is not my favorite example, but the one that comes to mind first. Do you remember these?

Wallchart

But I’ve turned a negative into a positive. Now wallcharts are great! And the one I want to share with you today is my financial wallchart, tracking my progress toward financial independence (FI).

Creating a Financial Wallchart

I created my financial wallchart to provide a simple, visual representation of how I’m tracking on my Financial Independence goal. While simple, it is jam-packed with information. Don’t have a wallchart yourself, perhaps it is time to start one today? It is the manifestation of all things great about tracking expenses and investments, putting them together in harmony to answer the all-important question…am I there yet?! Yes, you’re kids in the backseat want to know the same answer…

Need help tracking expenses and investments? Check out Personal Capital – Join for Free. It is free and easy to setup. The best part, it aggregates all your accounts in one quick and easy location to view and track.

Creating the financial wallchart was easy. All you need is two data points (annual expenses and an estimate for retirement income or passive portfolio income) and to track them over time. Setting up your own financial wallchart can be as simple as the three steps outlined below.

I’ve been tracking my expenses since I entered the “real world” in 2007 (a full 10 years now!); however, the chart below only shows 2009 onward as that is the first full year Lucy and I were married with our finances combined.

Step 1: Determine value of your investment portfolio

  • On a combined basis, Lucy and my investment portfolio amounted to approximately $1 million as of January 1, 2017. Since our investments are what we will eventually live on in retirement, this is what we start with to estimate our sustainable passive portfolio income. This does not include other assets such as our home and autos, etc.

Step 2: Estimate Sustainable Passive Income from Investments

  • For this step I simply multiply my investment portfolio balance by what I consider to be my safe withdrawal rate (SWR). There is a lot written about SWRs, and many folks consider this to be 4% based on historical market performance. However, given the lower interest rate environment we live in today and the extremely long retirement horizon I will have (an estimated 50+ years of retirement), I use a more conservative SWR. My view is something between 3-3.5% is a safe enough SWR. For the sake of my financial wallchart I use 3.5%. This provides me with an indefinitely sustainable passive portfolio income of approximately $35K as of 1/1/2017 ($1 million portfolio X 3.5%).
  • This does not include Social Security income as I don’t want to rely on this income. I’m only 31, who knows what form or fashion Social Security will be by the time I reach “traditional” retirement age. If you are closer to receiving Social Security or have other assets that you can estimate the value of, such as investment real estate, pensions or annuities, you could add those annual income figures here.

Step 3: Track and Record Expenses

  • For 2017, Lucy and I expect our total expenses to come to around $69K. While this is just our budget for the year, we have a pretty good sense of what our expenses will be given our history of closely tracking expenses. Ultimately, at the end of the year, we will update the chart for our actual expenses.
  • Better yet, have an idea of what you picture your expenses to be in retirement. We have an estimate of our retirement expenses, but I’ll save that for another post…Either way, a great starting point for estimating retirement expenses is having a sense for how much you spend today.

My Financial Wallchart

Financial Wallchart

I update my financial wallchart annually. For example, the 2016 data points are based on my investment portfolio size at the beginning of the year (1/1/2016) and my 2016 expenses. The test is at which point my investment portfolio at the beginning of the year will be sufficient to cover a year of expenses. At that point I consider myself FI. Lucy and I still have a ways to go, but I estimate reaching that milestone in 2020 or 2021.

Trend Overview

By the looks of it, we’ve simply been treading water in recent years. What we gain in passive portfolio income we give in increases to our annual expenses. Of course, there is more to the story and that is the benefit of tracking expenses over time. Seriously, you don’t have Personal Capital yet?!

Our passive portfolio income is easy, simply 3.5% of our investments. As we continue to pay ourselves first, saving and investing for retirement, our passive portfolio income estimate has continued to rise.

However, there is much more to explain on the expense side:

  • 2009 to 2011 was a period of not much excitement. We could do a deep dive into these numbers, but they were generally flat so there isn’t much for takeaways here. However, 2011 was when we moved to San Francisco. While some expenses were covered by my company which helped big time, other expense categories like shopping and entertainment went up…no shocker there.
  • In 2012 we moved to Charlotte and mid-year we bought a house. This is definitely a form of lifestyle inflation, but it was the lifestyle we wanted. We were finally ready to be homeowners and we had intentions to start a family soon (although as you know, I’ve since grown a little tired of being a homeowner). The jump in expenses was mostly related to the mortgage on the home.
  • In 2013 expenses jumped again, albeit more modestly. This was our last shebang with no kids so we took a very memorable trip to Peru and visited Machu Picchu. This trip led to the increase in expenses, if only we had entered the world of travel hacking by this time…
  • 2014 – another year another bump in expenses…this time due to a kiddo. This is a decent jump from the baseline set in 2012, but that’s what labor and delivery and the added expense of daycare and other child-related costs will do.
  • 2015 represented the first full year of daycare (2014 was a half-year). 2015 also saw our first major unanticipated healthcare expense. Our little one suffered from ear infection after ear infection. Nothing helped, so ultimately we went the route of ear-tube surgery. A simple 15 minute operation that costs bank! And a high deductible health plan meant we felt the brunt of a couple thousand dollars in unexpected expense. 2015 was also the year Lucy contracted pneumonia. That wasn’t fun! And lastly, we did have a few new furniture purchases in 2015 too.
  • 2016 was a bit of a reset year for us. Daycare expense is still the norm, but we didn’t have any major healthcare or furniture expense. For full detail on 2016, check out my 2016 recap post.
  • The estimate for 2017 more or less uses 2016 as the baseline with a jump for labor and delivery…we are expecting again in early April (any day now!!!!)…as well as increased daycare for half the year. Both kids may end up being April babies…of which the birthstone is a diamond. Meaning the Mother’s ring for Lucy one day might be a bit pricey…something to budget for in future years! How could I let the April birthdays happen…! 🙂

Wrap-Up

So that’s a wrap on my financial wallchart. Quite a story it tells, huh? Eventually (slowly, but surely) our portfolio income will catch up to our expenses…and expenses should moderate eventually as well!

Are you ready to start your wallchart? If you have already, what story does your wallchart tell you? And if you haven’t already, check out Personal Capital. It’s free! What are you waiting for??

Check out our retirement lifestyle for part 2 in this series!

Thanks for taking a look!

The Green Swan

 

 

Wallchart Image reference:

https://www.brainwaves.net/jumbo-target-chart-and-sticker-bundle-3/

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30 Comments

  1. Hi JW,

    I like it – for me I do an equivalent but on a monthly basis so I can really see how I am going one small step at a time – it helps avoiding me getting depressed seeing not a lot of movement one year to the next 🙂

    Fingers crossed for the safe delivery, all the best for the new addition to the family 🙂
    FiL

    1. Oh nice! Good idea, FiL. Except in a down market I suppose… That would be a good time to switch to annual updates 🙂

      Thanks for the well wishes!

  2. Nice idea! I have a wall chart but for my two major savings goals – mortgage payoff and college savings. Every month (or quarterly for the college savings) I color in the bar chart with the progress towards my goals. I enjoy watching the amount saved towards the goal go up, and seeing the small amounts of progress made over time adding up to large amounts over the years. I started both of them in 2013 and it’s amazing the difference four years can make!

    1. That’s great Liz! Yes it’s truly amazing how small improvements consistently over time add up to a huge difference.

      Thanks for sharing!

  3. My initial reaction to your chart was you are experiencing lifestyle inflation, but after reading, I guess that’s what having kids will do to your expenses 🙁

    Still, your passive income portfolio seems to be growing nicely. Looking forward to reading your future updates!

  4. i like the wall chart. I really enjoy tracking to benchmarks to see how close i am getting to any goal. Finance or fitness related. My daughter also had ear infections which resulted in having Tubes placed. Don’t ya love it when an out of network doctor decides to show up and then you get a bill…ugh. We are now on the downswing of the daycare cost. we are about 1/3 of the cost from the peak from when my daughter was a baby.
    Its a great feeling getting that expense down.

    1. Oh an out of network doc, you folks couldn’t catch a break there!

      You’re saying daycare costs are going down as your daughter ages and gets into higher kid to teacher ratios? I’m not sure our daycare does that but over the weekend I confirmed that we’ll get a 10% discount on our eldest when the next one joins! That’s a good chunk of change!

      Thanks for the comment!

  5. I love visual things and this wall chat is a great idea! I’ll definitely make one for ourselves. Even though your expenses are also rising, what I also see is that the compounding effect starts to kick in at your passive income side. It’ll get better and better!

  6. I like the wall chart. I’m a visual person so this is something that is appealing to me. In my case, our expenses haven’t really changed much in the past 3-4 years. Our chart would show more of a flat expense line with maybe a slight up tick for increasing costs, and a passive income line that has jumped up sharply as we’ve gotten on the path to FIRE in the last year.

    1. That’s awesome, GFY. I wish my chart was like that but I’m hoping the expenses will flatten out this year and then should eventually go down as the kiddos enter the public education system. Having the daycare expense go away Will do wonders!

      Thanks for stopping by!

  7. I like the concept of wallcharts, and I’ve actually use them myself to great effect when getting started with excercising, after dropping out of organised sports. There’s something about visualising the progress in an understandable way that really makes you accountable in a more real way, should you decide to “drop out.”

    Good idea to take the concept and apply it to personal finance as well. I suppose, in some way, all charts that we’re using to track our progress is a sort of a wallchart.

    1. Agreed, any tracker is essentially a wall chart. I have lots of them in my financial excel workbook!

      I don’t have a wall chart for exercise though, that’s a good idea. I’ll have to start one!

      Thanks for stopping by, Lars!

  8. Nice chart! I’ll have to make one like that.
    Your expense is growing pretty quickly, though. What’s your plan to close the gap? I guess when the kids start school, it will be better.

    1. Thanks Joe! I’m hoping the expenses flat line in the coming years and like you mentioned drop a bit once they enter school. Otherwise I plan on continuing to invest heavily and hope the market does it’s thing and help via compounding!

  9. Nice chart, JW! I think you deserve a few of those gold stars we used in the classroom.

    Mr. Groovy charts our investments with a portfolio tool and we track every single expense. Visuals are great motivators!. The one that kept us in check was the chalkboard we hung to count down the days to retirement.

    BTW are you up for meeting us for lunch?

    1. That’s an awesome idea. I can’t wait until I’m closer to retirement to start my countdown!

      Yeah absolutely, let’s definitely meet up. I’ve often thought about wanting to get together with you folks at some point. I’ll shoot you an email.

      Thanks for stopping by, Mrs Groovy.

  10. Nice idea for a constant reminder and motivator. One thing I would do differently about that chart: It looks like the two lines are just moving parallel which incorrectly implies that they will never cross. But that’s deceiving. The expenses have grown by a bit more than 100% but the passive income grew probably more than tenfold. If you were to include the YoY growth rates it would become apparent that the income line grows much faster and will eventually catch up. Or you could do a log-scale for the y-axis to convey the progress in income generation. 🙂
    Cheers and good luck! Happy Monday!

    1. Great point! I appreciate the feedback, especially coming from an authority figure on the subject! I just calculated the growth rates on a five year basis and the expenses have jumped at a 9% CAGR while the passive income is growing at a 35% CAGR. And hopefully going forward that trend will continue with compounding!

      Thanks for the great comment, ERN!

  11. I plot a similar graph in my spreadsheet and update it monthly. I have to resort to monthly updates because of my lack of data – we only started tracking financials in the second half of 2016, so an annually updated graph would be a single point, and terribly boring.

    1. Haha good point. What will be nice though as those years start to stack up and being able to notice bigger trends! Good for you folks for starting to track more closely.

      Thanks for sharing, Mrs BITA!

  12. I use the Mad Fientist lab, which makes the same type of chart (although I can’t hang it on my wall). You plug in expenses, savings, and investment value and it spits out a chart that looks like yours and estimates your FI date. I love it and always put my numbers in first thing every month.

    My wife and I also went to Peru and Machu Picchu! Definitely a big budget hit. Definitely worth it!

  13. Cool idea and pretty simple to implement as well. Eventually that passive income line is going to overtake your expenses line and I’m sure that will feel great. And at just 31 years old, you are already in fantastic financial shape!

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