Rich Frugal Life’s 2nd Annual Year in Review – 2021

Welcome to our second annual “year in review” on the Rich Frugal Life blog! In this post, I’m sharing our 2021 financial results, with all the details of our expenses for the year, passive income, savings rate, changes in net worth, our current investment portfolio allocation, and the final update on our 2021 financial goals.

Since there’s a lot to cover here, I’m just going to jump right in. Enjoy!    

Why share our 2021 year in review?

For the same reasons I share our monthly financial updates here on the blog…

I’m nosey and find other people’s spending and investing habits to be quite fascinating. I also like the idea of normalizing the discussion around money. Some of you may feel the same. If so, this post is for you!

2021 YEAR IN REVIEW – Net Worth Update

Net Worth

We calculate net worth by subtracting total debt & other liabilities from total assets. We include cash, investments, home equity, and an immaterial amount of other assets in “total assets”.

Surprisingly, 2021 was another stellar year for market investors and homeowners! We’re heavily invested in both, so reaped some of these rewards.

Our net worth grew by 31% from December 2020 to December 2021. While a significant portion of this growth comes from job earnings and a high savings rate, a large part is attributable to the market growth.

The graph below depicts our net worth growth over the past 9 years, which is when we began tracking it as a couple.

For those of you in the early stages of your financial journey, notice how the line gets steeper in the later years. Although the early stages can feel slow and frustrating, the time it takes to get to each next milestone should continue to get shorter and shorter as you progress. So, hang in there!

Not that long ago, our net worth was much lower, but the growth has accelerated over time. Our current net worth is now double the value from 2018, and several multiples of what it was at the beginning of our journey.

Debt

We ended December with $193,779 in debt, the majority of which relates to our mortgage. During the year, we made additional mortgage payments of $2,000, which was much lower than 2020, as we’ve since switched to an investing strategy vs. debt paydown.  

The remaining debt is a small project loan from replacing our HVAC systems last year (0% rate). I paid off my student loans mid-year.

Annual Savings Rate

Our after-tax savings rate clocked in at 69.5% for the year!  

I’m excited that we were able to maintain a high savings rate after switching to a one-income family. Admittedly, it’s a very good income. However, the amount was much lower than usual this year because of pandemic-related cuts to bonuses.  

You can read more about my first 1^st year of early retirement here.

2021 YEAR IN REVIEW – Annual Spending

Ok, full disclosure time! The table below shows our expenses for the entire year (excluding income taxes), along with some additional thoughts… or excuses.

*Does not include 2021 spending for home renovation of $16,177 (primarily from our renovation “sink” fund), or charity contributions made (which we don’t share publicly).

Budget Review

Despite overages in a few categories, our total 2021 spending came in $1,222 under budget! We also spent $3,116 less than the $55,450 spent in 2020. 

Budget fails

Our largest overage (by far) was in the medical category, where we spent $3,914, compared to a budget of $780. Yikes! The majority of this spending came from my mysterious illness early in the year and the domino effect of tests and procedures that followed. It was unfortunate and none of the tests were helpful in determining the root cause or solution. Luckily, I’m feeling better, and we have a robust emergency fund that can handle such surprises. A small portion of this overage came from a change in how I treat OTC medicine and vitamins. While these used to go in the household consumables and grocery categories, respectively, I now code both to medical.  

Groceries were the second largest budget overage at $806 over.  We’ve reduced our food spending significantly over the past few years but were tracking way ahead of budget during the first half of the year. We were able to rein in spending somewhat during the second half of the year, but still missed the target here. That said, we beat our budgets for both alcohol and restaurant spending, resulting in a net overage for food and beverages of only $65.

Budget wins

To offset the overages above and beat the overall budget, we came in under budget in several categories.

The biggest budget savings came from the delayed opening of the world (or at least our comfort level with it), which caused us to spend less on travel ($1,274), restaurants ($536), and personal care services ($1,040). Okay, some of these personal care savings are from my wiliness to age a little more gracefully.

As far as spending less on travel and restaurants, it’s a budget win, but perhaps not a life win. These are both areas we’re looking to spend more on in 2022 after reaching Financial Independence.

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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.  

2021 YEAR IN REVIEW – Passive Income

While we don’t share exact W-2 salaries or related income (i.e. 401k match, deferred income, & wellness benefits), a growing portion of our annual income now comes from sources outside of the corporate office.

Here’s a summary of our Non-Employer Related Passive & Other Income for 2021:

Investment Income (Dividends & Interest)

These are the categories I care the most about, because investment income is truly passive, and we’ll be able to use this money to fund a portion of our expenses in retirement.

Our investment income for 2021 was $11,773, which is enough to cover 22% of our expenses this year and 29% of our planned expenses in retirement. Although not all of this money will be immediately accessible to us in early retirement since it sits in retirement accounts, $5,059 was derived from our non-retirement accounts.

Dividends were up 18% over last year; however, total investment income is only slightly higher. This is primarily due to a switch out of certain dividend paying investments in an old retirement plan early in 2021, and reduction in cash held.

That said, I’m confident that this number will continue to grow in the future as our portfolio grows.

Reselling

We sold an old fridge and a couple other things on Facebook Marketplace, but the majority of this income was from Poshmark sales.

Cash back rewards

This includes cash back from credit card rewards, as well as earnings from Rakuten (formerly E-bates) (referral link – Get $30 back).

We put everything we can on our cash back credit cards to maximize the rewards. However, we pay off our credit card balances in full each month to avoid paying any interest charges.

2021 YEAR IN REVIEW – Investment Update

Our Financial Independence portfolio, which consists of cash and investments, excluding our daughter’s 529 Plan, increased by a whopping 39% from last year!

We continued to plow as much money as we could into the market this year. We maxed out Mr. RFL’s 401k, as well as our IRA contributions (Traditional IRA for me for tax purposes and a Roth IRA for Mr. RFL), and our HSA Plan, and put as much extra as we could into our taxable brokerage accounts.

This effort, along with the market’s generous returns, helped us to finish the year with a FI portfolio balance of $972,000…or 97% to our FI Number.

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

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

Cash & Bonds

Although I previously omitted our emergency cash and the assets under Mr. RFL’s deferred compensation plan from this calculation, I’ve decided to included them going forward, for a more realistic view of our portfolio allocation.

Our bond investments are primarily held in Total Bond Market and Total Corporate Bond (or similar) Index Funds.  Approximately 11% 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.

Additionally, we’ve recently added I-bonds to our portfolio as a hedge against inflation in the near term. The 7.12% interest rates currently being offered were too good to pass up. Since they can be cashed in after 12 months, this will eventually serve as an extension of our emergency fund, and we’ll further decrease our cash holdings without losing the comfort of guaranteed liquidity.

While cash is currently over our target of 2-3%, we’re nearing the end of our home renovation, so won’t need to hold as much cash while Mr. RFL is still working. A third of this cash was already used to buy more I-bonds during the first week of January 2022. We anticipate spending the rest of the excess over the next few months as we complete a few more projects in our backyard. 

Real Estate

We continue to be interested in real estate investing. However, given our shortage of time these days, we primarily invest through home ownership of our primary residence (though we don’t count this in our “investments” balance) and publicly traded REITs.

We also invested $5,000 into Fundrise during 2021 to dip our toes in real estate crowdfunding. So far that investment is panning out well, growing to just under $6,000 in less than a year. Of course, we haven’t tried to liquidate anything yet, which is sometimes the difficulty with these types of investments. 

Traded REITS are technically stocks, but they sometimes behave differently than the rest of the equities market. Because of this, they provide some additional diversification.  

Stock

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

Currently, around 7% of our investments are in individual stocks. The majority of this (5%) represents vested options Mr. RFL received from his current employer. Overall, we prefer to have greater diversification so try to keep this percent lower. I don’t have the time or risk-tolerance to invest heavily in individual stocks. On the contrary, I have no fear that the Total Stock Market fund will fall to $0.

Approximately 14% of our stock 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 to draw from for when the market is in a down year. However, 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.

Approximately 9% of our investments are in non-US International Stock Funds. I’ve read that most people have “home country bias” in their portfolio, so it’s probably not unusual that most of our investments are in US-listed companies. However, the continued underperformance of international funds and increase in globalization makes me more comfortable with our allocation.

2021 YEAR IN REVIEW – Financial Goals Update:

We set six financial goals for 2021, which I shared on Instagram last January and during our 2021 mid-year financial update on the blog.

If you’re interested in our finance goals for 2022, you’ll find them here.

Here’s how we did in 2021…

1. Savings rate of 65%+ on after-tax income

We beat this goal with an after-tax savings-rate of 69.5% for the year!

2. Max out tax advantaged accounts

Done! We maxed out contributions to Mr. RFL’s 401k plan, both of our IRA plans, our Health Savings Account, and our Dependent Care Flexible Spending Account.

3. Invest $40k in taxable brokerage

We BLEW this goal away! After surpassing this goal mid-year, we ended up investing just under $81,000 into our taxable accounts last year. Since the pandemic caused our income to be lower than usual, with an abnormally small bonus and no stock compensation, this “beat” was probably the most surprising.

4. Pass 65%+ FIRE

Goal achieved! As shared in our December 2021 financial update, we ended the year at 97% to our $1,000,000 FIRE goal!

Technically we set this goal before lowering our FIRE number last year; however, we’d still have surpassed it under our original FIRE calculation.

5. Increase charitable donations by 20%

We donated 33% more in 2021 than we did in 2020. While there’s still room for improvement in my opinion, we decided to hold back on giving more this year, since we plan to open and fund a Donor Advised Fund (“DAF”) for charitable contributions in 2022.

6. Stretch goal – Lean FIRE

If you read our June financial update, you saw that we passed this milestone mid-year.

There you have it, Rich Frugal Life’s 2021 year in review.

We’ll be celebrating something big in early 2022!  What are you excited to accomplish this year?

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