Rich Frugal Life’s 2022 Mid-Year Financial Review: Budget, Goals and Portfolio

Today, I’m sharing the results of our 2022 mid-year financial review.

Here in the Rich Frugal Life household, we like to perform a deep dive into our finances twice a year. During this review, we compare our year-to-date spending to the budget, analyze our investment portfolio allocation and targets, and assess how we’re tracking towards our annual goals.

Mid-year financial review process

We typically perform many of the same tasks during our mid-year financial review as we do for our year-end review. 

If we’re veering off track in any one area, we discuss and make corrections. Sometimes this means creating an action plan to rein in spending if we’ve gone over, or reallocate our investments. Other times, it means adjusting the targets themselves.

It’s good to stay responsive with your financial planning. Rigidly sticking to budgets or targets you set under different circumstances or using assumptions that are no longer viable can lead to unwanted stress or feelings of deprivation.

We’ve already made one adjustment this year when we increased our 2022 spending budget to allow for more splurges.

Here’s a look into our 2022 mid-year financial review.

Our Current & Target Investment Portfolio Allocation

During our mid-year financial review, we compare our current portfolio allocation to our target allocation to assess how we’re tracking. We also discuss and update our investing strategy, if needed.

As shown in the table below, our current portfolio allocation falls roughly in line with our targets, with the exception of international stock which is a couple percentage points below.

Our investment allocation is also not too far off from where it was 6 months ago, during our 2021 year-end review.

Here is the investment allocation of our Financial Independence portfolio, as well our current targets, for each asset class:

Overall, we continue to feel comfortable with our target allocation, based on our age, risk level, and time to retirement. You’ll have to make sure your investment allocation is right for you.

Here’s a bit more about what we invest in for each category above.

Cash

Our cash balances are primarily invested in high-yield savings accounts. We’ve finally gotten this amount down to a reasonable number.

Maintaining a 3% cash balance, which represents approximately six-months of expenses, feels about right given the current economic climate. 

Bonds & Fixed Income

As of mid-year, we have $26,000 locked up in Mr. RFL’s deferred compensation plan (fixed income, with 100% match).

We also have approximately $51,000 invested in I-bonds. While I-bonds haven’t previously played a significant role in our portfolio, they are now something we’re investing in for diversification, inflation-protection, and to provide guaranteed cash flow in early retirement.  

The remainder of our bond investments are primarily held in Total Bond Market and Total Corporate Bond (or similar) Index Funds.  Approximately 9% of our bond investments are held in high yield bond funds, also known as non-investment grade or junk bonds. We also hold a small percentage of tax-exempt municipal bonds.

Real Estate

Although we’re interested in many forms of real estate investing, our exposure remains limited at this point in our lives. Currently, we have money invested in our live-in fixer-upper (which is not included in our investment balances), publicly traded REITs, and Fundrise.

Traded REITS are technically stocks. However, because they are typically tied to physical real estate, rather than corporate valuations, REITs sometimes behave differently than the rest of the stock market.

We invested $5,000 in Fundrise in May of 2021 to dip our toes in real estate crowdfunding. So far, the investment is panning out well, growing by over 22% in the first year. That’s much better than the stock market’s returns over that period, which lost ~15%! Proof that real estate can add meaningful diversification to your portfolio. We’ve also received $71 in dividend payouts, which we cash out each quarter. Recently we decided to invest another $3,800, and will likely invest more in the future.

Note: The Fundrise links herein are referral links. You’ll receive $50 in Fundrise shares when you sign up for an account using this link (no $$ investment required)! If you choose to invest, you can get started with as little as $100 and don’t need to be an accredited investor. For full transparency, if you sign up for an account, I’ll also receive $50 in Fundrise shares, so thank you for your support!

Stock

Currently, around 11% of our investments are in individual stocks. The majority of this (10%) represents vested options Mr. RFL received from his current employer. Our current exposure to company stock is higher than I would like, but the timing of Mr. RFL’s blackout periods and market swings haven’t provided us with a great time to exercise. We’re hoping to get this down to 5 or 6% by year end.

Overall, we prefer to have greater diversification so try to keep the percent invested in individual stocks lower.

Most of our equity investments are in broad-based market index funds, with the largest holdings mimicking the total stock market.

Approximately 10% of these holdings seek high dividend yields. While we don’t plan to live only off the income of our portfolio when we retire, it is nice to have an income stream that doesn’t require us to sell shares.

Since high dividend paying stocks are generally more mature companies with lower growth rates, we don’t want to put too much in this basket. Fortunately, even the total stock market index funds pay a small dividend. 

Approximately 7% of our investments are in non-US International Stock Funds. Given the current state of the world, I’m ok with staying a bit below our target for now.

Mid-Year Budget Review

As you may know from our monthly expense reports, I track and review our actual spending every month.

Despite my obsession with tracking our spending, we don’t worry much about how that spending compares to our budget. Why? Because we’ve already reached financial independence! We’ve also historically saved between 50 – 70% of our income.  

Yet, budgeting is still an important part of our financial strategy because it outlines our spending plan, which is based on our values and goals for the year. Having a budget and tracking our expenses keeps us aware of where our money is going and ensures that we don’t veer too far off track. But it’s a flexible.

I perform a full year-to-date comparison of budget twice a year, during our mid-year and year-end financial review.

Here’s a look at our 6-month YTD budget to actual comparison (using our revised budget):

Budget Review

Although I try to budget month by month, I don’t always get the timing right. There are always some variances.

Fortunately, we weren’t significantly over in any one category during the first half of this year and are tracking to be at or below budget by year-end.

For the few categories in which we are currently significantly under budget, most are due to timing and will likely be closer to the budgeted amount by year-end.

If you’re interested in more details of our spending or what we include in each of the categories above, you’ll find that and more in our monthly financial updates.

2022 Financial Goals Update:

This year, I set an ambitious 40 goals for myself (in honor of turning 40)!  Some of those goals are going better than others, but I’ll save the complete update for year-end.

For today’s post, I’m going to focus on how we’re progressing towards our 2022 financial goals.

1. Achieve financial independence!

Goal achieved! Despite all the turbulence in the stock market this year, we achieved financial independence in January.

2. Max out tax-advantaged accounts (401k, HSA, Dependent care FSA)

We are on track to achieve this goal. Since most of our tax advantaged contributions occur ratably over the year via paycheck deductions, we should reach this goal in December.

3. Invest $75,000 in brokerage/taxable accounts

Goal achieved! This goal was based on the assumption that Mr. RFL’s bonus and equity pay outs would be good this year, which they were.

We invested $123,000 into our taxable brokerage account during the first 6 months of the year. About $30,000 of this came from a reduction in our existing cash holdings. The rest was our regular investment of Mr. RFL’s paychecks, bonus, and equity payouts.

Our taxable investments for the second half of the year will be much smaller since our cash balance is now at our minimum target and we aren’t expecting any more lump sum payments.

4. Save 75% or more of our after-tax income

We’re on track to achieve this goal. Our YTD savings rate is currently at 89% (87% if we exclude inheritance money received earlier this year).

5. Spend less than $55,000

We recently raised our budget for the year to $60,000, so I’m no longer concerned with beating this number. Although we only spent half of this amount during through June, I expect our spending will be higher in the second half of the year. Because we increased our budget, I’m revising this goal to $60,000.

6. Set up and fund a Donor-advised Fund for charitable giving

We have done the research and have a plan in place. However, opening and funding a donor-advised fund is slated for Q4 of this year, so we haven’t completed this goal yet.

7. Update our financial forecast spreadsheet & create a portfolio withdrawal strategy plan

Completed! Although we don’t intend on drawing down on our investment portfolio for a couple more years, this was still a useful exercise.

I’ll share our strategy on the blog in the the near future.

8. Finalize official will and trust

Oops. This one is a still a fail. While we have a mostly completed software-based will and trust, we haven’t finalized anything yet.

Additionally, I’d prefer to have a formal plan drawn up by an estate attorney given that we have a young child and a large sum of money. Mr. RFL is comfortable enough with the DIY option. Either way, we really need to get on this one soon!

9. Successfully complete two-year clothing ban challenge

The clothing ban started off as a one-year no spend challenge which I subsequently extended a second year. Although I technically ended the challenge a couple weeks early, I didn’t spend a penny on clothes, shoes or accessories for almost two years, so I’m calling this a win.

That’s it for Rich Frugal Life’s mid-year financial review. Stay tuned…

Sharing is caring! If you enjoyed this post, please consider sharing it on social media. This helps the blog continue to grow and reach a larger audience. Thank you for your support!

Disclaimers:

The content included in this blog reflects the author’s opinions and personal experiences, which may be different than your own. This blog is not a replacement for, nor is it intended to represent, financial or investing advice.

This post may include affiliate or referral links (blogging isn’t cheap). You can show your support for this blog by using one of my referral links or by making any purchase on Amazon a link on this blog. Using one of these links to make a purchase or open a new account may provide a small commission or referral fee to us (at no additional cost to you). Thank you for your support!!

Rich Frugal Life is a member of affiliate programs for Amazon, Personal Capital, and other vendors. Personal Capital Advisors Corporation compensates Rich Frugal Life for new leads (Rich Frugal Life is not an investment client of PCAC).

Please refer to our disclosure and privacy policy for further details.