Rich Frugal Life’s 3rd Annual Year in Review – 2022

Welcome to the third annual “year in review” for the Rich Frugal Life blog! In this post, I’m sharing our 2022 financial results, with all the details of our expenses for the year, passive income, savings rate, changes in net worth, and our current investment portfolio allocation.

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

Why share our 2022 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!

2022 Year in Review – Net Worth & Savings Rate Update

Net Worth

We calculate net worth by subtracting our total debt & other liabilities from our total assets. Total assets consists of cash, investments, home equity, and an immaterial amount of other assets.

Although the stock market pummeled most of our investments and we donated $40,000 to a charitable fund, our net worth actually grew by 14% from December 2021 to December 2022.

While some of our investments did experience growth during the year, the majority of our net worth increase was due to earnings from Mr. RFL’s job and on our existing investments, as well as a moderate inheritance received during the year.

The market was dismal during 2022, but we continued to invest throughout the year. As such, most of the investments we made were purchased at a lower price point. This means we got more shares for our money and should reap the benefits in future years when the market recovers.

The graph below depicts our net worth growth over the past 10 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, even despite a massive turndown in the stock market. While getting started 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. Compound interest is your friend, 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 more than double the value from 2018, and several multiples of what it was at the beginning of our journey.

Debt

We ended December with $169,000 in debt, the majority of which relates to our mortgage.

We didn’t make any additional mortgage payments this year, which is in accordance with our investing vs. debt paydown strategy.  With the stock market down ~20% and current high-yield savings rates above our mortgage rate, this seems like a good strategy to stick with in 2023.

The remaining debt is a small project loan from replacing our HVAC systems in 2019 (0% rate). I paid off my student loans in 2021.

Annual Savings Rate

Our after-tax savings rate clocked in at 87% for the year! This is our highest percentage ever.

Although we spent a little more this year, our savings rate was boosted by Mr. RFL’s promotion early in the year, a huge vesting of company stock, cashing out stock options, and the aforementioned inheritance.

My new part time job barely made a dent in this, clocking in at just $3,000 of net income this year, after payroll and withholding taxes.   

2022 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 2022 spending for home renovation of $22,779 from our renovation “sink” fund, or charity contributions made, which we don’t share publicly or treat as “expenses” (to encourage more giving).

Budget Review

Despite overages in a few categories, our total spending came in $5,199 under our final 2022 budget! Although that’s technically above the original 2022 budget we set back in November 2021.

Our 2022 spending is $3,467 more than the $52,334 we spent in 2021 and $351 more than the $55,450 spent in 2020. 

Despite allowing ourselves the freedom to splurge more in 2022, it seems that our spending has been remained fairly consistent. We may have found our sweet spot.   

Budget misses

First, I want to note that we do not stress out over budget “misses.”

Our purpose for budgeting is to plan cash flows and track spending. The budgets we choose are estimates or goals, rather than something that we’re strict about. This method of budgeting works for us given where we are on our financial journey. If you’re struggling to pay your bills, you may need to be stricter. However, if you’re aren’t, a budget can just be another tool that helps you achieve your goals and stay on track.

Our largest overages this year were related to dining out, drinking, and shopping (specifically clothes shopping).

We planned to spend more on restaurants this year but overshot our goal by around $600. That’s okay. Much of the additional restaurant spending was spent on weekly “day dates” with my spouse. Spending money on our marriage is well worth it to us.

The additional spending on alcohol was mostly because we decided to re-join the wine club of a pricey Napa Vineyard we love. Since we don’t drink expensive bottles of wine regularly, we’ll probably cancel the membership again once we’ve stocked back up.

Clothing was another category where we drastically exceeded the budget this year, approximately doubling it. Apparently, I had some pent-up clothing spending to do after completing my 2-year clothing ban in June. I’m satisfied with what I’ve got now, so hopefully this number will come back down in 2023.

The final category where we experienced a significant budget miss was in the Fitness and Wellness category. This was primarily due to upgrading my Apple watch, which I didn’t budget for. We also spent more on fitness activities than planned. Any spending to improve physical or mental health is worth it to me.

Budget wins

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

Our biggest savings came in the Furniture, Tools & Other Home Purchases category, where we came in $2,700 under budget.

Although we bought plenty of stuff during the year, we scaled back our plans to buy all new outdoor furniture. Additionally, Mr. RFL didn’t buy the fancy $1,000 tools he’d budgeted for this year. Unfortunately, the cost of those tools is a bit higher now (yay inflation).

The other big budget savings was in the Travel category, where we came in ~$2,300 under budget. Last year we came in under budget because we just didn’t travel much. However, this year, it really was a win! We enjoyed all of the vacations we’d planned when setting our budget… they just cost less than expected. Most of these savings were due to some very beginner travel hacking we did, which saved us a couple thousand dollars on lodging for our trips.

There were a few other categories where we came in $400 – $600 under budget as well. Some of these categories, such as Medical and Home Maintenance, were under due to cushion I typically build into the budget for unplanned expenses, that we ultimately didn’t need to spend. Others were just less spending or a change in our spending habits during the year.

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Overall, I’m happy with where we landed for the year.

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 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 2022:

Investment Income (Dividends & Interest)

This is the category I care the most about, because investment income is truly passive. We’ll be able to use most of this money to fund our expenses in early retirement.

Our total investment income for 2022 was $23,111, almost double the amount we earned in 2021!

This passive income is enough to cover 41% of our current expenses and would cover 51% of our expenses in retirement, if we set our FIRE budget at $45,000.

Not all of this money will be immediately accessible to us in early retirement. Some of our investments sit in retirement accounts. Of the investment income earned, approximately 2/3 or $15,391 was derived from non-retirement accounts and would be available to cover our immediate expenses.

Thanks to the magic of compound interest, we’ll continue to reinvest these dividends and watch this number continue to grow until we need to start withdrawing from our portfolio.

Reselling

This income is from Poshmark sales, which I decided to dial way back on this year. In fact, most is from selling one pair of designer shoes.

Cash back rewards

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

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.

Blog & Referral Income

I made very little from the blog this year, which is not surprising given that I relied solely on affiliate revenues and decided not to include ads this year.

The bulk of my referral income this year came from Fundrise, a popular eREIT. While I can’t track sign ups perfectly, I believe that the majority of this income came from sharing my referral code on a site that is not my blog, so I’ve excluded most of it from blog income.

We liked the low dollar commitment to begin investing with Fundrise and have been happy with the returns thus far. It has been comforting to see this portfolio increase over the past year despite the stock market falling 20%. Diversification was our primary reason for expanding our investments further into real estate.

Now that we’ve been invested for almost two years, it’s about time for me to write a formal review for the blog… when I get a chance.

Note: The Fundrise link above is a referral link. If you decide to open a new account using this referral link, you’ll receive $50 worth of in free shares, regardless of how much you choose to invest. For full transparency, I’ll also receive $50 in free shares.

Not included in the total above is the $180 worth of free meat and seafood I received from ButcherBox referrals this year. Somewhat surprisingly, my ButcherBox Review has become one of my most popular blog posts. I just wanted to share my experience with the service and money saving hack, but I’ll gladly take all the free food I can get. Since I receive my referral income in the form of a discount off future purchases, it’s not technically income, so I excluded it here.

2022 Year in Review – Investment Update

Our Financial Independence portfolio, which consists of cash and investments, excluding our daughter’s 529 Plan, continued to increase during the year after passing our million dollar target in January, albeit at a much slower pace than expected due to the market declines.

Despite the bear market, we funneled another $178,000 into our investments during the year. This number includes company matches, but excludes reinvested dividends. It also excludes contributions made to our charitable donor advised fund, which we don’t count in our net worth.  

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 selected 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

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

Approximately 10% 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 have approximately $50,000 in I-bonds, as a hedge against inflation for the near term. The interest rates have been too good to pass up lately, and these now serve as an extension of our emergency fund, offering us better returns for guaranteed liquidity. The recent reminder of the risks of inflation has led us to consider including I-bonds as a part of our bucket strategy in early retirement.

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.

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.

We fell a below our target allocation in December when my old 401k plan eliminated the REIT investment option from its plan, which is where the majority of our REIT investments were held. It’s more tax-efficient to hold REITS in retirement accounts, so we’ll work to shift allocations in our other retirement accounts in early 2023 to get back up to 5%.

As mentioned above, we also have around $10,000 in real estate crowdfunding with Fundrise (referral link). 

Stocks

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

Currently, around 6% of our investments are in individual stocks. The majority of this (5%) represents vested options Mr. RFL received from his current employer. This is in line with our goals. We prefer to have greater diversification so try to keep our exposure to individual stocks pretty low.

Approximately 10% 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 7% of our investments are in non-US International Stock Funds, which we’ll work to increase back up to target in 2023. While I realize this represents “home country bias,” the continued underperformance of international funds and increase in globalization makes me more comfortable with our 10% target.

Hope you enjoyed Rich Frugal Life’s 2022 “Year in Review”! How’d your year go?

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