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?
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
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.
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…! 🙂
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: