Year: 2021

Have you ever heard of the “fresh start theory”?It’s basically a theory that people are more likely to tackle and achieve their goals if they begin them on a landmark date … Like the 1st of the month, their birthday, January 1st, or any date of significance.
Landmark dates are motivating. They mark the exact date when you stop being the old you, and start being the new you! They encourage forward-thinking activities, instead of past habits and happenings.
2020 is almost over. Byeeeee 👋 . 2021 is nearly here. Woohoo! 🎉 It’s time to set some goals using Jan 1st as our landmark date!
(I know, New Years goal setting is kinda cliche. But, goals are necessary. And, if you don’t set goals now, when are you gonna set them?)
My 2020 Mid-Year Goals Recap
Six months ago, I shared some goals for this past year. Here are some cool things we accomplished this year…
Roth IRAs funded! Wife and I funded our favorite flexible tax-free accounts in January 2020. We contributed the max amount ($6k into each Roth), and we’ll be prioritizing this again in 2021.
I got a job! And not just any job – a fun one that lets me work when and where I please :). I’m extremely thankful to find work and remain gainfully employed through one of the toughest job years in history.
We gifted $2,500 to a new baby nephew. My wife and I set up a Unified Gift to Minors brokerage account for our newest family member. This money is invested in a total stock market index fund and will hopefully grow to be 5 figures when the kid turns 18!
We sold our spare car! It was sitting and collecting dust for too long! The $7,700 cash we sold it for went straight into the stock market. Not only has this investment increased about 10% since then, we’ve also saved $160 per month in car expenses since August.
Made more than $3k in sign-up bonuses! We ended up making $2,200 from churning bank accounts and $1,200 from opening 3 new credit cards. Pretty dang good!
I got some health insurance: This was on, off, then back on my list throughout the year. After a bit of luck, I was able to score some benefits through my employer starting in October.
And some goals we didn’t accomplish 😔…
Buying people stocks instead of birthday/Christmas gifts: My plan was instead of giving people physical presents for birthday/Christmas, to buy them stock in various companies instead. I did this for my Dad in the past who loved it! But, as it turns out, other members of my family think stocks are boring… (And apparently gift giving is supposed to be about the receiver, not the giver – who woulda thought?). Anyway, my family all got physical presents this year.
Sell a rental, refinance the duplex & invest in another real estate partnership: Almost all my real estate goals were squashed in 2020. And, I’m fine with it! I don’t think waiting is a bad thing… Patience is important in volatile years and opportunities in real estate will come and go like buses throughout my life. I’m in no rush. 
Foster/adopt a kid: We did make some small progress toward becoming an approved resource family. It’s a long process, and we’ll continue this through 2021.
A million other little good and bad things happened this year, most of which we didn’t really plan for. So it feels weird listing them as “accomplishments” because some were out of our control… Things like passing $500k in net worth for the assets we’re tracking, receiving a government stimulus handout, spending only $332 this year on restaurants (our budgeted amount was $2,400), losing 5 figures on some of my rentals from missing rent and vacancies 😳, etc.  
This year was really hard to predict. I think you will all agree! How did you go on your 2020 goals this year?
My 2021 Goals & Stuff to Figure Out
Here’s what my wife and I are planning for next year…
Financial stuff:
Roth, Roth, Roth!: My wife and I were late to the Roth game and have been trying to play catch up ever since we opened our accounts in 2016. They are one of the most flexible accounts for early retirees, and we plan to invest as much as we can each year, as early as we can each year. Even if it means selling other assets to fund them, Roth IRAs are our No. 1 priority.  $6k is the limit for 2021 to invest in each Roth account.
100% contributions to 401(k) (until it goes away): My workplace notified me that my benefits plan (healthcare and 401(k)) will be terminated at the end of March 2021. It is yet to be determined whether alternatives will be offered, but my guess is no.😪  So I want to stuff as much money in my 401(k) as possible early in the year. I don’t earn a huge amount from this job, so 100% contributions in Jan/Feb/March might only be ~$7k or so added to this account.
Sell a rental property: I still owe y’all a post on why I’m slowly transitioning away from rental properties. Anyway, our plan is to sell 1 property this coming year and transition the money to our brokerage account. This might be $25-50k depending on the property we sell and price we get after fees.
Build a donation machine!: I’ve been thinking about setting up a donor advised fund with Fidelity. It’ll allow us to invest our donations, and direct them to charities when we see fit later in life. Starting probably very small, like $2k, we can add to this each year and possibly grow it into a self-sufficient foundation!
Family, fun & community stuff:
Continue the foster/adopt process:  It’s still weird talking about this publicly, because my wife and I are a little unclear about where this road will actually take us. What if we get all the way to the end and realize we’ve bitten off more than we can chew? What if we try it and decide fostering isn’t for us after all? I’m guessing all new parents have feelings like this no matter how kids come into their life. Anyway, I’m happy to share more info about this if you guys agree to not hold it against us if we decide not to end up adopting anyone. Deal?
Travel while working remotely: Due to covid, my wife and I cancelled a 10-day trip to Hawaii, and a 9-day all-inclusive trip to Mexico in 2020. We’re planning to re-book these trips this coming summer… And now that I work 100% remotely, we want to try working while traveling. This is kind of a test — working while traveling is easier said than done 🙂
Buy/sell more stuff online — earn $1k cash:  I’m really having fun hawking random items when I find them out and about. The reason I haven’t set a $ goal around this activity thus far is because it’s kind of unpredictable, and I treat it more like a hobby vs. a side hustle. That being said, who knows, maybe I can try and shoot for making an extra $1,000 this year? I’ll start keeping track!
Podcast guest spots:  This year I was a guest on 3 podcasts, and have a few offers to be on shows in 2021. I’m not a huge fan of having my voice recorded, but doing uncomfortable things keeps me on my toes. I’m shooting for another 3 speaking spots this year.
Create a short writing course for beginners:  Last year I created and hosted a short writing course, teaching people some basics I’ve learned over the past few years. I’m planning to launch a V2 course and offer it to more people who want to start writing or blogging!
Your 2021 Goals?
People say goals should be specific, measurable, have deadlines, etc. I agree, though I don’t think annual goal-setting is a single activity that can be done in one sitting. For me it’s an evolution; a constant process throughout the year…
Generate ideas → list them in order of priority → clarify goals → determine steps → action → tracking → adjustments → more action → success.
You probably noticed some of my goals aren’t very specific. That’s cool with me and I’ll be fleshing them out over time.
If you haven’t put much thought into your financial goals yet, here are a few common ones to get your juices flowing:
Pay down x amount in debt
Save and invest xxx  (don’t know how much to save? Try this calculator I found on Best Interest Blog that generates a $ figure goal to save in 2021)
Achieve savings rate of xx%
Introduce a friend to the FIRE movement!
Rebalance your portfolio, or try investing in a new asset class
Start side hustle of xyz
Buy a rental property
Refinance your house, or auto loan, or student loans!
Donate $xxx to giving and charity
Declutter and sell stuff you no longer use
Try to improve your credit score!
Build up your emergency fund
Take a course, progress study, learn xyz skills
Negotiate full time work-at-home or better work/life benefits
Achieve FI, quit your job, and buy a one-way ticket to remote island?
What’s on your 2021 list?
Have a great week, and HAPPY NEW YEAR!!! 🎉 🎈🎉 🎈
(ps. We’re taking this Friday Jan 1st off. Posts will resume starting Monday the 4th!)

Joel is a 35 y/o Aussie living in Los Angeles and the guy behind 5amjoel.com. He loves waking up early, finding ways to be more efficient with time and money, and sharing what he learns with others. Rise Early | Retire Early! […]

I used to hate filing my taxes. Every year I would complain, procrastinate, make excuses, then finally on deadline day I would take a messy stack of forms to my tax guy and cry for last-minute help. It wasn’t fun at all.Then something changed. I grew up. I put a system in place. And lucky I did!
Today, even though my tax situation is more complicated than most families’, filing is an absolute breeze! (This year I’ll receive probably 18 x 1099’s and W2s for income/interest, I manage 5 physical rental properties — each of which has 5 or 6 tax forms and large numbers to crunch — some LLC company filings to do and various K1 statements from other partnerships.) 
My tax organizer system really just boils down to a few simple steps — and being organized is 100% FREE. In this post I’m going to share these tips, and hopefully some of them can help you kick your 2020 tax return in the buttocks.
First of All: Check Yo’ Attitude!
If you think filing your taxes will be a sucky process, then it will be! I’m not saying you have to love every second of it, but try not to roll your eyes and think of all the negatives. That only makes it harder for yourself.
The more positive you think, the less painful it will be. The earlier you get your file submitted, the more free time you have to enjoy the year! The better you follow your tax organizer system, the easier it gets every single year going forward.
Let’s get started…
1. Create One Single Place for All Your Tax Docs
Your filing and folder system is the most important step. Personally, I use Google Drive to keep all my stuff, and there are several reasons why I like keeping it in the cloud. But, you can certainly have these files secure on your personal desktop, or do it old school with hard copies. Just make sure it’s all in one place.
Here’s what my drive looks like. All my years are in simple folders:

All tax documents are grouped by category.  Personal income, investment forms, each rental property, partnerships and LLC business, and misc deductions each get a folder of their own:

Inside the folders are the actual tax forms, receipts and scanned files.

Pro Tip: Why I Store My Tax Files in the Cloud
The benefits of having my tax information stored in the cloud are:
I keep zero paper in my house. Once I scan something and upload it, I recycle or shred the paper immediately. My online tax organizer is slim, out of sight and out of mind.
Using Google Drive, all my forms are searchable (provided I label them correctly).
I can work on my tax return anywhere, on any device. This is important for steps #3 and #4 below.
I can share these online folders and private links with my tax team (instead of trying to email 100Mb of attachments and scans to them). My accountant LOVES this system.
2: Create a Quick Tax Tracking Worksheet
The purpose of the tracking sheet is to help you compartmentalize all of the docs and forms that make up your return, as well as keep track of what you have received vs. what you are still waiting on.
Here’s a look at my tracking sheet for 2020 (example). Feel free to download this basic sheet here: tax doc tracking template and make your own modifications.

Each year, I find my previous year’s tracking sheet and cut/paste all the data to start a new sheet. It’s a template I use over and over again and most of my forms and tax documents stay the same each year.
Eventually, when I send all the information over to my tax team, I also send this sheet to help them find everything within the folders. I try to label every form specifically, and I put special notes if there’s something different from last year.
3. Scan, Save, and Track All Tax Forms as Soon as You Get Them!
Through the beginning months of the year, you’ll start to receive forms. W2’s and 1099s from employers, bank forms, investment stuff, etc etc. Some of these forms will come via postal mail, some will be sent to your email, and some you’ll have to log into portals to find.
Try and get in the habit of opening, scanning, filing, and noting in your tracking sheet as soon as you receive a document.
It takes me about 3 minutes when I get sent a tax form or statement. I open my mail, grab my iPhone, use a free app called Scannable to take a photo of the form, and immediately upload it to the relative folder in my Google drive. Then I quickly open the tracking sheet in Google Sheets, and note what I received. Done.
Same thing when I get an email saying, “Your 2020 tax forms are ready to download”… I stop whatever I’m doing, log into the bank or whatever portal, download my forms, upload it to my drive and track it. Literally done under 5 mins.
Instead of spending months drowning in documents and trying to remember where I put all the forms, my annual filing process is broken down into simple 5-minute activities. Easy stuff!
4. Track Receipts Throughout the Year
Just like the step above, having a quick and easy way to store receipts throughout the year makes it 100 times easier when filing time comes.
For those of you who use Mint.com to track your expenses, there’s actually a label you can assign to different transactions throughout the year. I check this every month when doing our budgeting exercise (although not many of my expenses are deductible).
For Personal Capital users, the same can be done in their system under the transaction tab.
Doesn’t matter if you think you’ll be doing an itemized deduction or taking the standard deduction (apparently 90% of households just take standard deduction), it’s still a great practice to label each expense related to tax!
Reviewing them at the end of each tax year ensures you’re not skipping over any tax deductions and claiming every single cent that you are entitled to.
5. Create a Yearly Summary of Changes
One cool habit I’ve started is creating a simple list of relevant events that happened throughout the year. My CPA dude needs to know what happened in the past year so he can make sure I’ve received all the right forms and file a complete and correct return.
Here’s an example of major events or life changes that can affect your taxes:
Changed employers
Gifted to charity
Contributed to 401k
Added after-tax funds to HSA
Got a stimulus check (I’m 99% sure these are not taxable income, but you’ll prob have to note what you received regardless)
Shut down a business or LLC
Bought property, sold property, refinanced, etc.
New dependents to claim
Got married → individual changing to file jointly?
Other necessary personal information
Etc…
My guess is some of you guys already add this stuff in your net worth tracking or annual finance reviews. It’s always handy to keep general information like this recorded with your income tax organizer.
6. Hand Over Your Docs as Neatly as Possible
There are 2 ways you can hand off tax documents to your tax preparer…
The first way is to dump a messy pile of mislabelled and unorganized documents on their desk. Then, somehow expect them to know everything you did throughout the year, prioritize you over their 5,000 other clients, and magically get you the biggest refund possible.
OR …
The other way is to organize all your docs into a neatly wrapped present — with a bow on top. You can provide a tidy, well-explained cover letter with your annual events summary and instructions on where to find everything they need within your filing system. If you do this early in the year, you will be prioritized and they will LOVE YOU.
Remember, your tax preparer is busy this time of year. They probably work 80-100 hours during tax season, and anything you can do to make their job easier will make you stand out over other clients.
I aim to be my tax team’s favorite client each year. It’s not because I pay them more money than their other clients — it’s because I’m the easiest to work with.
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This was supposed to be the end of the article! But I emailed a draft copy to my brother, and he pointed out some additional cool stuff. With his permission, I’m sharing his notes…
I was thinking, there are other benefits outside of tax when all this comes in handy, example:
1) This year I applied for a mortgage and I had to upload a buttload of documents. I just counted. I uploaded 67 separate PDF’s to the bank, and that doesn’t include about 5 that I emailed them directly or had them call my insurance people. The process has taken about 2 MONTHS because of all the stuff we have — the wealthier you get, the more complicated it gets. Having a system in place to find past financial documents without much effort really pays off!
2) Similar process when Baby M was born, although I wasn’t 100% on the ball, I was pretty good. I collected all the medical bills that arrived over MONTHS, which are designed to confuse you and deliberately obfuscate the mess that is our medical system. I put each in a spreadsheet and then I could easily spot the duplicate bills, the ones that had no Explanation of Benefits, etc. You can then call them all on their bullshit and plan which bills to protest and which to ask for discounts on. Most importantly it got me a clear picture. 
3) You never know when you’ll need this stuff mid-year for one-off things. For example, 
– Applying for mortgage or other credit without a lot of warning. Asking for previous income amounts or tax info.
– You might apply for a job and be asked to prove your financial stability (eg, when negotiating a salary based on your last salary, or if you hold an office where you need to prove you are financially not a risk for bribery, etc).
– Every now and then I need to look up my kids’ SSN numbers and I know where they are with all the other info.
Anyway, just some thoughts about why this is a handy process outside of taxes!
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Ready to join the secret society of ninja tax organizers? Tell us your other efficiency methods in the comments below so we can all learn each other’s tricks. 🙂

Joel is a 35 y/o Aussie living in Los Angeles and the guy behind 5amjoel.com. He loves waking up early, finding ways to be more efficient with time and money, and sharing what he learns with others. Rise Early | Retire Early! […]

Before we get to the net worth update… I came across this funny old post from a couple years back called “Money Trails”…
Basically, it tells you how far your money will let you travel if you line up all your dollar bills, lengthwise, in a single long straight line…
Here’s how it works:
Convert the length of your dollars (6 inches per $1 bill) to feet… $542,510 = 271,255 ft.
Convert feet to miles… 271,255 ft = 51 miles
Google map a radius of 51 miles from your home and pick a location
Imagine laying all those dollars end to end to that location
From my home in Los Angeles, it looks like my money will take me down to my fav surf spot in San Clemente! Or, if my dollar bills could float (and I could walk on water), I could visit Catalina Island or that other tiny little remote island in the middle of nowhere on the left…

Unfortunately, I’d need a net worth of $26,252,150 to make it all the way to Hawaii. Or more than $35 million to visit my brother on the East Coast!
What a fun (and utterly useless) perspective on measuring your net worth!  I’m curious… How far can YOU get with your current dollars? Here’s the original post if you want to check out instructions.
Jan 1 2021 Net Worth Update: $542,510 (+$10,027)
Sweet! Another $10k bump since last month’s report!
Here’s the account summary, as well as growth shown in dollars and percentages for each asset we’re tracking:

December Abnormal Expenses…
We stayed in Los Angeles for Christmas this year to comply with our lockdown orders. Although not traveling saved us a few bucks, we still had some hefty December spending — and a negative savings rate. 🙁 Here are the major things that hurt our wallet:
Tax bill paid for rental property: Technically this $5k bill wasn’t “due” until the end of January, but I hate having outstanding bills just sitting around so we paid it early. This was paid with our property reserve account, and tax isn’t due again until next January.
Christmas presents, a tree, food, and booze: We dropped another $600 or so this past month on presents (+ a tree!), in addition to our November gift spending. Our grocery bill was pretty killer this month ($627) which is quite high for a family of 2. But, some of these were fancy meats and stuff we don’t typically buy, plus contributing to family meals for Christmas. My birthday was on Dec 30th and my wife made a special beef wellington with expensive filet mignon – delicious and worth every dollar!
Lower income for school holidays: My wife isn’t paid as a salaried employee, so we miss paychecks over school holidays. Thanksgiving and Christmas breaks total over 3 weeks of missing pay! This is one of the reasons we sit on a large emergency cash fund, to see us through dips in income like this. Summer break hurts the most, which we’ll tackle somehow in a few months when the semester is coming to an end.
December good stuff and wins!
Stimulus payments, $1200: We got our stimulus payments on Dec 31st – a nice little way to end 2020. We qualify for these checks because we have less than $150k in combined income.
Teacher appreciation funds: Because my wife is such a kickass teacher, the families and students gifted her a total of $365 in vouchers and cash this Christmas! Thank you to all you parents out there who gift money to schools and teachers. I can’t tell you how well this is received by teachers and how much it makes them feel appreciated. THANK YOU.
Trash turned to treasure: Out on a morning run, I came across a compost tumbler that someone was throwing away. I snapped a pic, created a free ad on an app called OfferUp, and someone picked it up a few hours later for $40!

My conscience got the best of me the very next day…  I noticed more free items and furniture out front of that same house and learned the people there were moving houses. I can’t imagine how much it sucks moving homes during a pandemic, so I ended up giving the $40 to the family as a moving present.
This is why I’d be a horrible business owner – I have a problem giving my profits away. At least I have a fun story to tell, and maybe some good karma down the road somewhere. 😉
Detailed Asset Breakdown:
CASH Accounts: $37,265 (-$1,954): We skipped a paycheck from my wife’s job this month, and also transferred some cash into our HSA account. This cash balance is trending downward, which is OK as it’s still higher than what we really need for our emergency fund.
Rental Property and Reserve Account: $233,228 (-$4388): We paid our property tax bill which accounts for $5,185 of this expense. Our positive cashflow was $797, which is the difference between $1,975 in rental income minus $1178 in total expenses. 🙂
IRA – Rollover: $137,226 (+$5,903): The increase in this account was solely from market growth and reinvested dividends. Someone asked me about why I don’t do a backdoor conversion of this account over to our ROTH… and the answer is that we plan to in future years. More to come on this topic!
IRA – Roths: $70,429 (+2,663): I’m excited to contribute to these Roths again in January for 2021. The plan is to transfer funds from our joint brokerage over these accounts to begin tax-free growth as early as possible within the year.
Joint Brokerage Account: $177,454 (+$4,015): I made some large buy/sell trades within this account in late December. Due to our low income in 2020, we were in a good situation to do large capital gains harvesting. Although we’ll pay a small amount of state income tax, we’ll pay 0% in capital gains tax and reset our cost basis for a bunch of stocks. At some point I’ll do a deeper dive into this account and explain what all that crap I just wrote actually means.
HSA: $2,850 (+$994): The increase here came from an after-tax contribution of $887.50 (prorated contribution for 2020) and the rest was market growth.
New 401(k) at work: $6,457 (+$2,196): This 401k has been only open for 3 months, so I’m proud that there’s already $6k in there. I get zero company matches, so this is mostly personal savings and a tiny bit of market growth.
Breakdown of Liabilities
Rental Property Mortgage: -$122,278 (+$240): If my calculations are correct, this mortgage balance will be less than $120k at the end of 2021 if I just leave everything alone. I could speed things up by making extra payments myself… but why do this when the tenants are paying it down naturally each month?
Credit Card Balances: -$121 (+$358): Other than this small credit card balance, my wife and I have no other consumer debt. 🙂
Overall, 2020 was a very good *financial* year for my wife and I. Since we only started sharing these monthly net worth reports in October last year, I can’t really give a complete and full 12-month comparison and overview. Something I promise I’ll do when I’ve got enough data!
How were your updates the past month? Share your milestones and juicy details in the blog comments — boasting is heavily encouraged! 🏆🏆🏆
Have a great weekend, peeps!
– Joel

**********PS: If you’re just getting started in your journey, here are a few good resources to help track your money. Doesn’t matter which route you go, just that it ends up sticking!
If you’re not a spreadsheet guy like me and prefer something more automated (which is fine, whatever gets you to take action!), you can try your hand with a free Personal Capital account instead.
Personal Capital is a cool tool that connects with your bank & investment accounts to give you an automated way to track your net worth. You’ll get a crystal clear picture of how your spending and investments affect your financial goals (early retirement?), and it’s super easy to use.

It only takes a couple minutes to set up and you can grab your free account here. They also do a lot of other cool stuff as well which my early retired friend Justin covers in our full review of Personal Capital – check it out here: Why I Use Personal Capital Almost Every Single Day.
(There’s also Mint.com too btw which is also free and automated, but its more focused on day-to-day budgeting rather than long-term net worth building)

Joel is a 35 y/o Aussie living in Los Angeles and the guy behind 5amjoel.com. He loves waking up early, finding ways to be more efficient with time and money, and sharing what he learns with others. Rise Early | Retire Early! […]

After a turbulent 2020, I’m positive about 2021’s outlook for stocks and real estate. We should see significant GDP growth (3-5%), a strong rebound in corporate earnings (20%+), and a massive unleashing of spending (saving rate back down to ~6%). As a result, there’s a high probability we will see new record highs in many major asset classes.
What’s concerning me is that the majority of us probably think 2021 is going to be better than 2020. Therefore, it may be hard to find the incremental buyer.
However, the great thing about asset bubbles is that they tend to inflate far past reasonable fundamentals. Therefore, even if you know things are ludicrously expensive, it’s worth hanging on for as long as possible.
2021 may be one of the greatest times to get rich. Let me share my 2021 outlook for stocks, real estate, and the economy. My beliefs will shape how I invest my money and spend my time.

Financial Samurai 2021 Outlook
I’m going to focus on stocks, bonds, and real estate because that’s where most of my assets are (~70%). I’m assuming these asset classes make up the majority of your investments as well. You are free to speculate all you want in Bitcoin and other asset classes. However, my focus is on building wealth with the majority of my assets.
10-year Bond Yield
Everything starts with the risk-free rate of return. Once you’ve made a proper forecast of the 10-year bond yield, you can then proceed to make your appropriate investments.
If you’ve been reading Financial Samurai since 2009, you know that I’ve consistently believed the 10-year bond yield would stay low or keep going lower. America has contained inflation. We’ve learned from many previous economic cycles. We have globalization. Technology makes information flow instantly. Federal Reserves are coordinated.
I believe the 10-year bond yield will increase in 2021 back up to 1.25% by 2H2021. In other words, the yield curve will steepen and banks will be one of the better investments.
To put things in perspective, 1.25% on the 10-year is still 70% lower than where it was in 2018.
I don’t believe the 10-year bond yield will surpass 1.5%. Once we take a step-function down in rates, it’s hard to move back up due to expectations. I also believe the aggregate bond market will have a flat year.
With interest rates inching up, the aggregate bond market index will likely have a flat year. I envision a scenario where bond yields make up for the decline in principal values. Everybody who is considering refinancing should refinance now while rates are still near all-time lows. Check out Credible for some real, no-obligation quotes. Multiple qualified lenders will compete for your business.
Now that I’ve established a view on the risk-free rate of return, let’s move onto my S&P 500 and real estate outlook.
S&P 500 Outlook 2021
The first part of making an S&P 500 forecast is making a decision on whether the index will go up or down. The second part is estimating the magnitude of growth or decline through GDP and earnings forecasts.
My S&P 500 bottom call in 2020 was spot on. However, my estimate on the amount of the recovery was not. I didn’t expect us to rebound as much. As a result, I did not buy enough on the way up.
For 2021, I expect the S&P 500 to increase by 8% in 2021 for a year-end target price of 4,088. If the S&P 500 can generate an EPS of $165, that puts valuation at 25X. If the S&P 500 can generate a $170 EPS, then its P/E drops to a more reasonable 24X for 2021.
A $165 – $170 EPS is equivalent to a 25% – 30% increase over 2020 estimated earnings (still waiting for 4Q2020). Therefore, from a price-to-earnings-growth metric, a 25X multiple is reasonable.
Consensus S&P 500 EPS estimates are for $190 in 2022. But the S&P 500 will only start trading on 2022 earnings beginning in 3Q2021.
2021 Valuations Are Expensive
To put a 25X earnings multiple in perspective, check out the chart below. 25X puts the S&P 500 at a 20-year high. And achieving a 25X multiple is predicated on experiencing a 25% earnings rebound in 2021. If earnings don’t come through, the S&P 500 will most likely be flat or decline.

However, it’s worth noting that 90% of the S&P 500’s market capitalization is now based on intangible assets such as R&D, IP, and software. Therefore, one could argue there should be a natural rise in valuations for companies that have higher operating profit margins and more defensible income streams.
Partly based on expensive valuations, investors should expect corrections of 5-10%, multiple times in 2021. Therefore, you may want to wait for these corrections to put new cash to work.
Wall Street S&P 500 Forecasts 2021
Wall Street is very bullish on the S&P 500. A couple of the biggest bulls are Goldman Sachs and JP Morgan, who have year-end 2021 S&P 500 target prices of 4,300 and 4,400, respectively. JP Morgan has a 2021 EPS estimate of $178 for a 36% rebound in earnings.
I sincerely wish Goldman and JP Morgan are correct. Their analysts and strategists surely make enough money.
However, I believe their forecasts are too high. Like children eagerly anticipating receiving every present on their wish list before Christmas, I fear they will be disappointed with only one or two presents.
We have three risk factors to corporate earnings:
Virus mutations that lower current efficacy rates of existing vaccines.
Much slower-than-expected vaccine rollout, delaying 2021’s expected economic recovery into 2022.
The Senate going blue, which breaks a lot of gridlock. More regulation and higher taxes should slow growth at the margin. Then again, we could see even stimulus package going forward.
Forecasting a 30% – 40% rebound in earnings growth to justify an S&P 500 level above 4,200 is too aggressive.

[GS way too bullish IMO]
Money should flow into Consumer Discretionary, Financials, and Energy. These are the sectors that lagged the most because they also got hit the most.
I don’t think tech investors should expect a similar type of outperformance as the economy rebounds. In fact, I think big tech has a 65% chance of underperforming. The NASDAQ is trading at 40X P/E, the highest since 2014. The index has essentially doubled in two years.
If there are any 1-2% dips, I will be buying the S&P 500. However, I’m not aggressively putting new money to work if the S&P 500 keeps marching higher. There are much better deals to be had in real estate.
Real Estate Outlook 2021
The median home price in America went up about 8% in 2020. That’s a 40% gross return on a 20% down payment. This level of growth is unsustainable, especially since mortgage rates are unlikely to go down further.

Despite the strong gains, I believe residential real estate will continue to do well in 2021. I forecast a 5% YoY national median growth rate in 2021, closer to the levels we have seen between 2015 – 2017.
Meanwhile, commercial real estate will start catching up as the economy opens. There should be deals to be had in the hospitality and office space. You want to buy those properties from owners who are over-leveraged and can’t hold on until the economy fully reopens.
Mortgage rates won’t increase by more than 25 basis points on average e.g. 2.75% on a 30-year fixed to 3%. Investors will smartly shift some of their stock gains to real estate. There will be an increase in appetite for cash flowing rental properties given the value of income has gone way up.
Once you’ve had huge principal gains, you want to convert some of these gains into a steady income stream. If you follow this strategy of consistently converting some of your capital gains into income-producing assets, you will become a very wealthy person over time.
Where To Buy Real Estate
For 2021, strategically, I like buying real estate where there is the biggest difference in company share price performance and local real estate price performance.
For example, the NASDAQ closed up 42% in 2020. Therefore, you want to buy real estate in places like the San Francisco Bay Area, where many NASDAQ companies are located. The amount of wealth tens of thousands of employees have made in the Bay Area is absurd.

I feel much richer after a 40% 2020 equity performance, and I don’t even work in tech. Many of these tech employees have seen far greater returns and will want to rationally diversify their investments.
I believe big-city real estate will make a nice comeback in 2H2021 and 2022. Therefore, you want to strategically buy before the comeback is really evident.
The herd always waits for a green light. In SF, I’ve witnessed the herd come back by 2003 after the 2000 dotcom crash and by 2012 after the 2008-2009 financial crisis. But this time, everything is recovering more quickly. If you are a renter, you should try and lock in a long-term lease now.
At the same time, I continue to believe in investing in the heartland of America. Not only is there a fanning out within cities to save on living costs. There is a fanning out across the country thanks to technology and the permanent acceptance of working from home. This trend is decades in the making as new great cities emerge across the country.
The easiest ways to invest in the heartland of America is with Fundrise or CrowdStreet. Fundrise has created diversified eREITs and eFunds for exposure. CrowdStreet focuses on individual real estate deals in 18-hour cities for accredited investors. Both are the leading real estate crowdfunding platforms today. Both are free to sign up and explore.
Your Goal For Real Estate Investing
In the latter half of 2021, there will likely be more discussion about inflation. Inflation chatter must pick up if the Fed stays accommodative and stocks and real estate continue to do well.

Therefore, you want to at least be neutral inflation by owning your primary residence. This way, you can at least ride the inflation wave while having a nice place to stay. Enjoying your appreciating asset is such a wonderful combo.
But in an inflationary environment, what you should really do is go long real estate by owning more than one property. This way, you can benefit from capital appreciation and rental appreciation. If you own only one property you can’t monetize any appreciation unless you can splice the property out or rent out rooms.
Let me give you an anecdote about the potential future of rental properties. During my latest rental lease negotiation, I accepted less rent for hopefully better tenants. However, as part of giving my tenants a discount from my original asking price for the first year, they’ve agreed to a 4% increase in rent for the second year starting at the end of 2021.
2021 Should Be Profitable
Although most of us are bullish on stocks and real estate in 2021, I still think these two major asset classes will perform well. The Federal Reserve and the Federal Government are accommodative.
If something bad happens in 2021, we can count on Janet Yellen and Joe Biden to bail us out. There’s no way they can’t since they just got into power. Once you have power, you want to hold onto it at all costs.
Further, there is a massive amount of savings that is ready to be unleashed. Take a look at your own balance sheet. Ask your friends and colleagues whether they’ve got large cash buffers. Chances are high they do because the national savings rate has been elevated since March 2020. This money will go back into the economy.
You may not be able to benefit from the latest round of government stimulus due to income restrictions. However, you can benefit by investing in companies and cities that will be beneficiaries of the stimulus.
I believe there’s a 75% chance 2021 will be a great year for stock and real estate investors. Just make sure you don’t over-leverage yourself. After all, even if there’s a 75% chance of making money, there’s still a 25% chance of losing money.
Best Way To Track Your Investments
The easiest way to track your investments is with Personal Capital, the best free financial tool online today. I’ve used Personal Capital to track my net worth, analyze my investments, check for excessive fund fees, and plan for retirement since 2012.
All you’ve got to do is sign up, link up your investment accounts, and then you can see everything in one place. There’s no rewind button in life. Stay on top of your finances today.

[Personal Capital Free Investment Checkup Tool]
Readers, what are your predictions for 2021? What are some big goals you have in mind? Do you believe 2021 will be a great year?
Disclaimer: As always, invest at your own risk. Don’t invest in money you cannot afford to lose. Always discuss your investment thesis with others. Run the numbers over and over again. There are no guarantees in investing.
Finally, if you are paying someone to invest your money, don’t forget to ask them how they did in 2020 and what their forecasts are for 2021. Have them review your 2020 performance and their 2021 game plan for you. You have the right to an explanation. […]

If you’re focused on paying off your mortgage, good for you. It’s generally always good to pay down debt. However, I’d also like to share with you the biggest downside to paying off your mortgage that may surprise you.
It’s been six years since I paid off my rental property mortgage. It was a mortgage for $464,400 I took on in 2003.
For the first year after paying off my mortgage, I felt great. But after that, the satisfying feeling of getting rid of debt wore off.
Perhaps the reason why the feeling was so ephemeral was because there was no congratulations card or fancy French Laundry dinner celebration. The only thing that changed was an extra $1,308 in cash flow, which went straight to savings or investing.
Before taking on this mortgage, I experienced an eerily similar feeling of ambivalence in my early 20s. After working for 60 – 70 hours a week from 1999 – 2001, while saving 100% of every bonus and 50% of each paycheck, I started thinking: what’s the point of it all? 
Maybe I was experiencing a quarter life crisis back then. What I did know was that my enthusiasm for working in finance faded after the September 11, 2001 terrorist attack.
In 2003, with my lack of enthusiasm, I was *this* close to leaving San Francisco for Honolulu until I found a 2/2 condo overlooking a park in Pacific Heights for $580,000. Once I took out the $464,400 mortgage, my motivation to work hard shot through the roof!
Suddenly, my paycheck felt meaningful because if I stopped paying, I’d lose my $116,000 down payment and trash my credit score. Without dependents, finally, I had something tangible to work hard for.

The Biggest Downside To Paying Off Your Mortgage

The biggest downside to paying off your mortgage is the complete loss of motivation to take risks and work as hard as you can.
Once you have no mortgage, you no longer have as much fire to improve your finances. You may start slacking off in your career or entrepreneurial endeavors as well.
A mortgage keeps you hungry.
Think about it. Without a mortgage, life is relatively easy. Your living costs drop down to hardly nothing. Food is abundant and cheap in this country. Meanwhile, there are a lot of cheap or free things to do for fun.
When life is easy, we tend to get soft. Not only do we get out of shape, we neglect our relationships, and ignore our finances.
When you’ve got everything covered, only the craziest of people bother to take risks. It’s irrational to work hard if you have no financial burden. When nobody is depending on you, there’s no pressure to provide.
Forget about trying to start your own business on the side or get promoted when you can just enjoy life now. The biggest downside to paying off your mortgage early may be indifference.
How A Mortgage Affects Behavior
Back in 2015, I made a new year’s resolution to pay off the rest of my ~$91,000 mortgage. I unleashed an inner money-making beast.
Instead of continuing to leisurely consult part-time for 15-20 hours a week at Personal Capital, I got motivated to look for more consulting work.
Due to my desire to pay off my mortgage debt that year, I ended up taking on two more consulting jobs for a total of 60 hours a week for three months. One company was a Series Seed startup out of Y Combinator. Another company was a Series B startup in the finance space as well.
All three companies were fascinating to consult for. For three months, I was making around $30,000 a month. I used all of the money to pay down mortgage principal and invested the remaining 20% in the S&P 500.
Having a mortgage made me want to boost my income. Three months of working 60 hours a week with three firms was as much as I could handle.
Took Things Down A Notch
As soon as I wrote the final mortgage check in 2015, my whole attitude changed. First, I stopped looking for more consulting work even though two out of the three contracts ended. Second, I decided to go on a 3.5 week trip to Asia to live life like a digital nomad.
I then spent several days up in Yosemite to see if bears poop in the woods. Then I went to New York City for two weeks to watch the US Open and see some friends! Once I paid off my mortgage, I began to completely slack off!
There was little motivation to try and maximize income. Why bother when the mortgage was already paid off? Back then, I was still $50,000 away from my $200,000 a year passive income target too. It didn’t matter. I wanted to relax.
Sure, not having to consult anymore meant less stress and a healthier lifestyle. But it’s not like I was stressed or unhappy working those hours in the first place. Instead, I was thrilled to be able to do what I wanted to do while making a very healthy income. Something new was happening every day at one of those three companies.
The biggest downside to paying off your mortgage is really the loss of motivation to try new things. Only when your back is against the wall will you do everything possible to change. Having a mortgage is like an implicit back stop to not slack off.
Below is a snapshot of my last mortgage payment on 5/12/2015 for the condo I bought in 2003.

My last mortgage payment on 5/12/2015. Balance was $464,000 in June 2003
A Recent Example Of How A Mortgage Affects Motivation
In early 2019, I bought a single family home fixer for cash. I went through a pretty arduous negotiation process that required writing a real estate love letter, a real estate breakup letter, and more.
In the end, I thought I got a great deal – maybe $100,000 – $150,000 below market price. I spent time remodeling the house to make it even better before moving in.

Then, as fate would have it, I found a really nice house a year and a half later right at the start of the pandemic. My wife thought I was nuts to buy another house so soon. However, it was in the neighborhood. It was also the perfect house for our larger family. The combination of potentially getting a good deal and providing a nicer living arrangement was too hard to pass up.
We bought it. With a new 7/1 ARM mortgage at 2.125% I was motivated to move into the new house immediately. So we did soon after closing. Every day we delayed moving into our new home felt like a waste of money due to the mortgage.
Took My Time Renting Out My Old House
With our old paid off house, I took a couple weeks touching up the house in preparation to rent it out. In the past, I would touch up the house in a couple days so it could be rented out ASAP.
Then, I passed on tenants who were willing to pay $150 a month more. They just didn’t feel right and I wanted to feel great about the tenants. I had no mortgage, so I could afford to wait.
By passing on these willing tenants, I had to wait another 7 days before finding my ideal tenants. When all was said and done, I gave up about $2,500 in rent over the course of a year.
If I had a mortgage on my rental house, I would have tried harder to find new tenants and signed with the first set of tenants. I just didn’t care as much for optimizing returns any longer.
More Reasons Not To Pay Off Your Mortgage
Here are some other reasons to not pay off your mortgage.
1) You lose your mortgage interest deduction. 
The mortgage interest is treated like a business expense for rental property and a tax deduction if it’s your primary residence. The higher your tax bracket, the more valuable the interest expense.
For those in the 32% Federal tax bracket or higher, you get better value keeping your mortgage. The ideal mortgage amount is now $750,000, if you can afford it.
2) You lose a low borrowing cost.
Interest rates are at all-time lows thanks to the global pandemic. Therefore, it makes more sense to hold onto a low fixed mortgage rate for as long as possible.
Because I believe mortgage rates will tick slightly higher in 2021, all the more reason to refinance now or hold onto your lower mortgage rate today.
My current mortgage rate is at 2.125%. I won’t be focused on paying down my primary mortgage for a while.
Another thing to keep in mind is whether you have a primary home mortgage rate or a rental property mortgage rate when you’ve rented out your home. Rental property mortgage rates are usually ~50 basis points higher than a primary home mortgage rate. Therefore, if you are renting out your home with a primary home mortgage rate, you’re more incentivized to keep it.
The cash you save by not paying down your mortgage can conceivably be used to invest in other assets that provide a greater return.
3) You tie up capital in an illiquid asset.
Unless you have a very diversified net worth, having a lot of capital tied up in a property can be bad.
Your property could blow over in the next storm, or burn down in a fire. If you are underinsured, you will pay dearly as insurance companies make it difficult for you to receive full benefits from a claim.
Most Americans have a majority of their net worth (~80%) tied up in the home. When the housing market collapsed in 2007 – 2010, so did the net worths of millions.
Hence, I wouldn’t have more than 50% of your net worth in property and 25% of your net worth in your primary residence.
4) You decrease your financial returns.
If you put 20% down, a 4% appreciation on the property means a 20% cash-on-cash return thanks to leverage. For example: $100,000 down payment on a $500,000 house that appreciates by $20,000 means your equity increased by 20% to $120,000.
If you decide to pay off the other $400,000 in mortgage early, the return falls all the way down to 4%. You also don’t have $400,000 to invest elsewhere. Of course, there’s always a chance you could have invested the $400,000 in something that loses value.
5) You might start being less efficient with your time.
Instead of consulting for lots more money, I decided to spend my time discovering what it was like being an Uber driver back in 2015. After all expenses, I was only making $22-$25 an hour driving. But if I had found another consulting contract, I could have easily made 10X that amount.
If I had focused on growing Financial Samurai, perhaps I could have made much more. When it comes to making money, less debt can make you less financially disciplined.
But I decided to try out Uber driving because I was curious and fascinated with people’s stories. Some of these stories ended up on here. Further, making a lower income or close to minimum wage helped me appreciate the opportunities I have today.
If you find yourself spoiled, clueless, or taking life for granted, please work a minimum wage service job as an adult. Your dejection will clear right up!
6) A chance your credit score might take a hit.
Some of the variables that go into determining your credit score include the amount of debt you take out and paying your debt on time. Therefore, paying off your mortgage may reduce the strength in these variables.
If your credit score takes a hit, you may not be able to get the best interest rate for your next mortgage, car loan, HELOC, or personal loan. If your credit score is borderline excellent (~760) and you plan on taking out more debt in the future, perhaps paying off your mortgage is not the best move.
Conversely, if your credit score is well over 800, then paying off your mortgage won’t make a difference to your credit score.
A Mortgage Can Motivate Both Ways
In a curious way, a mortgage not only motivates you to build more wealth, a mortgage also motivates you to pay it down. If your property ends up appreciating in the process, then all the better!
Despite losing motivation to hustle after paying off your mortgage, paying off your mortgage early is still a worthwhile goal.
It feels great to have less debt or no debt. Every extra mortgage principal payment is progress towards more financial independence.
With a new mortgage, I’m more motivated to continue building wealth. But the reality is, I don’t need any more motivation. I have two young children that provide the greatest motivation of all.
Each child is like a mortgage itself, reminding me to not mess things up. In fact, my son the other day said the sweetest thing, “Daddy, thank you for working so hard to buy this house!” Once I heard those words, my motivation rocketed to the moon!
Mortgage And Retirement
Ideally, it’s good to have zero mortgage debt by the time you retire or no longer have a desire to make more money. The challenge is to time the outcome perfectly.
After playing around with the retirement planning calculator, I feel paying off all mortgage debt by 2031 is the ideal scenario. 10 years is a long enough time to leverage cheap debt to boost wealth. My motivation to hustle will likely fade in 10 years.
Figure out when you plan to retire and divide your debt by the number of years left you plan to work. The amount will be how much debt you have to pay down each year to reach your goal.
Let paying off your mortgage be a great motivator to boost wealth and stay focused. By the time you truly retire, I’m sure you’ll be thrilled at no longer having a mortgage.
Refinance Your Mortgage
Instead of paying off your mortgage, you should strongly considering refinancing your mortgage with mortgage rates at all-time lows.
Refinance your mortgage with Credible, one of the largest mortgage lending marketplaces where lenders compete for your business. You’ll get real quotes from pre-vetted, qualified lenders in under three minutes. Credible is the easiest way to compare rates and lenders all in one place.
In my opinion, mortgage rates have a high chance of going up in 2021. The Fed has promised to stay accommodative. Stocks and real estate are likely going to continue doing well. And the job market is making a comeback.
All these things point to higher inflation, which leads to higher interest rates. Refinance your mortgage now before rates go up. They have never been lower, but are finally starting to tick back up. […]

To gauge performance, you need to have net worth benchmarks. Otherwise, you have no idea whether you are outperforming or underperforming the masses.
Even if your net worth is up 10% one year, it may be not be so great if the S&P 500 is up 20% and you’re still young. At the end of the day, everything is relative in personal finance.
Net worth benchmarks will help you stay disciplined in growing your net worth over time. Further, net worth benchmarks will change as you age and have different financial objectives.

Net Worth Goals Change As You Age

When I was in my 20s and early 30s, my net worth goal was to always grow my net worth faster than the S&P 500. This is easier to do the less money you have thanks to aggressive savings.
Now in my 40s, my goal is to try and earn a return equal to at least 3X the risk-free rate of return. With the 10-year bond yield at ~1.1%, my target return is only about 3.3%. Sounds like a pretty low hurdle nowadays. However, being up 3.3% is great if the stock market, bond market, and real estate markets are down 10% one year.
The more money you have, the more risk averse you tend to become. At least that’s my experience. Further, there’s no need to swing for the fences when hitting singles and doubles can provide for a healthy lifestyle. If you’ve escaped the rat race, the last thing you want to do is have to get back in, especially if you have young children.
For example, you can invest your entire $300,000 portfolio in the S&P 500 to earn potentially $45,000 (15%) or lose $45,000 one year. Losing $45,000 is not a big deal if you’re making a decent salary and are willing to work for many more years.
But if you have a $5,000,000 portfolio and are approaching retirement, shooting for a 15% return is unnecessary. If you can comfortably live off $300,000 a year, then you only need a 6% return. And shooting for a 6% return (a ~40/60 stock/bond portfolio) will likely protect you from losing more during bad years.
Let’s review various net worth benchmarks you can follow to gauge your net worth performance. My hope is for all of you to outperform.
Net Worth Benchmarks To Gauge Performance
* The S&P 500 Index. If you live in America, the easiest and most common benchmark is comparing your portfolio’s return with the 500 largest stocks in the country. The S&P 500 represents 14 different industries, thereby thoroughly representing the economic health of our nation. Wherever you live, just use your country’s largest stock index as a benchmark.
* Risk Free Rate Of Return Times A Multiple. The risk free rate of return is the 10-year bond yield, which changes every single day.  You need to figure out a reasonable multiple on that bond yield because you are guaranteed to return the yield if you put all your money into Treasuries.
What rate of return over the risk free rate (equity risk premium) do you require? My simple formula is to take the latest 10-year bond yield and multiply the figure by 3 or 4.

Annual returns of Stocks, 3 Month Treasury bond, 10 Year Treasury Bond
* Sector Specific Exchange Traded Funds (ETFs). If you work in the real estate industry and invest in REITs and homebuilders, then perhaps you should consider benchmarking your financial performance to a homebuilder ETF such as ITB, XHB, or PKB.
If you work in pharma at Pfizer, then consider ETFs such as PJP, IHE, XPH. If you work in finance and own your bank’s shares as part of your annual bonus, then maybe indexing yourself against XLF is a good idea. Whatever industry you are in, there is an index or an ETF for you to use.
* Consumer Price Index. The CPI is produced by the Bureau of Labor Statistics and is often maligned as an unrealistic gauge of inflation. For example, the current CPI is roughly 1.8%, but how can this be if tuition, food prices, and everything else that matters to you are soaring? The CPI should be considered the base case benchmark for everyone to beat.

* The Case-Shiller Home Price Index. The Case-Shiller Home Price Index has risen to be the authoritative benchmark for real estate performance. The Index breaks down home price growth by region. Given we’ve discovered that a lion’s share of the median net worth in America consists of property, then the Case/Shiller Index should be a relative good barometer for the median American. Home prices have been accelerating during the pandemic.

* Hedge Fund Index. Hedge fund managers are supposed to be masters of the universe. Unfortunately, in a bull market they generally lag because of their mandate to hedge. They have absolute return goals where investors expect them to continuously make money even during recessions.
One of the most widely followed hedge fund ETFs is HDG. The HDG is designed to reflect hedge fund industry performance through an equally weighted composite of over 2000 constituent funds. Recently, HDG has performed quite well to many investor’s surprise.

Alternative Benchmarks To Track Performance
* Your Parents Financial Situation At Your Age. Ask your parents what their circumstances were at your age. Did they own a home? A car? What was their savings level, salary, net worth? It may be a fun exercise to have a candid financial conversation with your parents. Be sure to use an inflation multiplier to get a like-for-like comparison. It could be interesting to get some subjective thoughts about their financial situation compared to yours.
* The Neighbor You Despise. Comparing yourself to your neighbor is one of the most common, yet worst ways to compare your financial situation because you don’t really know exactly how they got their money. Whenever we see a new car in our neighbor’s driveway, it’s hard not to feel envious. We wonder whether they got a great bonus at work or in my neighbor’s case an inheritance.
My neighbor is 26 years old and rides a brand new $10,000 motorbike along with driving a sports car because he has no living expenses living at his parent’s house. His parents travel back and forth between their two houses. He probably has an embedded net worth of $2,300,000 because he will inherit his parent’s house when they pass.
He would be OK if he didn’t leave his motorbike running outside every morning, rumbling the entire street with noise. But he still lights firecrackers at night with his other deadbeat friend because he has nothing better to do.
* Balance Sheet Affluent Formula. This formula was created by Dr. Thomas J. Stanley, author of Millionaire Next Door. The formula is: 10% X Age X Income = Expected Net Worth. In other words, your household’s net worth should equal 10% of the age of the main breadwinner times your household’s annual realized income [adjusted gross income is a good substitute].
If you are in the Balance Sheet Affluent category, also known as prodigious accumulators of wealth, your net worth should be twice the expectation. Hopefully that’s all of you Financial Samurai readers!
* The Average Net Worth For The Above Average Person. I firmly believe many Financial Samurai readers can and will achieve a $1,000,000 net worth by age 50 by aggressively contributing to their pre-tax retirement savings, investing an additional 20% of their after tax savings, owning a primary residence, and working on a side hustle.

* The Average Net Worth For The Above Average Married Couple. Building wealth is generally easier if you have a life partner. Many have wondered whether they should just double the net worth figures in the above average person chart above if they are a couple. That’s one way to do it if you believe in equality. Or, you can take a hybrid approach like I’ve done below. Read the article about various ways to calculate an above average couple’s net worth benchmark.

* The Average Net Worth Of The Top 1% By Age. If you’re really gung ho, then you might want to try and earn a top 1% income level for your age group, followed by a top 1% net worth as well. There are plenty of people who make a lot of money but blow it all due to a lack of financial discipline. Shoot for a $1,000,000 net worth by 35, $5,000,000 net worth by age 50, and $7,000,000+ net worth by age 60. These numbers are roughly 13% light because nowadays top one percent income is over $400,000 a year.

* The Median Retirement Household Savings In America. If you’re feeling unmotivated, then you can always follow the mean (average) retirement account savings of American families by age based on 2016 data. The sad part of this chart is that it’s much higher than the median retirement account savings of families by age, where the median 56 – 61 year old only has $17,000 saved. I hope you guys all agree that the below figures are not very inspiring.

Best Net Worth Benchmark To Follow
Given everything is always changing, you need a dynamic net worth benchmark to follow. Therefore, I think the best net worth benchmark to follow is the annual performance of the S&P 500.
So long as your net worth is growing in line with the S&P 500’s performance, you’re making progress. During down S&P 500years, hopefully you’ll be able to still outperform or still grow your net worth through aggressive savings.
If you are close to retirement or retired, I think the best net worth benchmark to follow is 3X-4X the 10-year bond yield. The 10-year bond yield encapsulates everything from inflation expectations to equity and real estate return expectations. Once you’re close to winning the game or have won the game, it’s important to dial down risk.
Assign Meaning To Your Numbers
Having more money tends to be better than having less money. But after a certain point, more money means nothing, and can often bring about misery if too much time is spent chasing the almighty buck.
Write out your financial objectives, make a plan, track your net worth, benchmark its growth against your comparison of choice, and go about living as full a life as possible. If the numbers are good enough for your lifestyle, that’s all that matters.
Since 2012, my #1 goal has been to earn enough money from my investments and my writing to never have to work a day job again. In order to do this, I had to figure out a way to generate as much passive income as possible.
Today, with two kids and a non-working spouse, my goal is to consistently generate at least $300,000 a year in passive income until my kids graduate from college. This may sound daunting, but that’s the challenge I’ve set for myself!
Best Way To Track You Net Worth
The easiest way to track you net worth is with Personal Capital, the best free financial tool online today. I’ve used Personal Capital to track my net worth, analyze my investments, check for excessive fees, and plan for retirement since 2012.
All you’ve got to do is sign up, link up your financial accounts, and then you can see everything in one place. There’s no rewind button in life. Stay on top of your finances today.

Personal Capital’s Free Retirement Planner
Readers, what do you benchmark your net worth performance to? What are your main financial objectives? What other net worth benchmarks can you think of? […]

My first house hacking was my first primary residence. Although I technically became a landlord, I didn’t consider myself a real estate investor.
I sold that property at my first opportunity. However, if I only understood real estate investing strategies, I would have never let that property go!
In 2011, my wife shared that she wanted to own a condo downtown and rent it out. I quickly disagreed with her and told her, “I didn’t want to fix toilets.”
Fast forward, and I now own multiple investment properties in my local real estate market. My journey reminds me of two things 1) I love real estate investing, and 2) my wife is always right!

Table of Contents

What is House Hacking?
House hacking is when an owner lives in their property and rents out other parts of the property. Ultimately, the tenants are the ones paying the monthly mortgage payment while the owner lives rent-free.
For example, a person can buy multi-family property (e.g., triplex), live in one of the units, and rent out the other units. Another example is a person who owns a single-family home, lives in one of the rooms, and rents out the other rooms.
My simple house hacking strategy was owning a single-family house and having roommates pay rent. I didn’t do this to start building wealth. Instead, I invited my friends to live with me, primarily for social reasons.
I technically became a landlord. I owned the property, but my roommates were helping pay the mortgage!
Benefits of House Hacking
Looking for your first investment property but unsure of where to begin? House hacking provides multiple benefits, especially to rookie investors.
Live Rent-Free
The first big benefit of house hacking is living rent-free! A mortgage payment is composed of the principal amount, interest payment, and potentially mortgage insurance. However, the tenants are the ones paying back the debt service.
Financing
Lenders offer lower interest rates to people who will occupy their property compared to investors who do not. Lenders offer low-interest rates to people living on their property because they tend to take better care of where they live. Thus, they are less risky.
My rental properties’ interest rate is about three to six percent higher than my primary residence’s interest rate.
Low Down Payment
Owner-occupied properties don’t require as much of a down payment compared to non-owner occupied borrowers.
For example, the Federal Housing Administration (FHA) insures mortgage loans and only requires a down payment of less than five percent of the purchase price.
Non-owner occupied properties require 20 to 25 percent of the purchase price for a down payment. The down payment for owner-occupied borrowers is significantly lower compared to non-owner occupied borrowers.
I won’t bore you with the math. But, this low down payment makes house hacking a steal!
Passive Income
Aside from living rent-free, successful house hacking can generate monthly cash flow, known as the net operating income. You can calculate the net operating income (NOI) by subtracting the monthly operating expenses from the gross rental income.
Net Operating Income = Gross Rental Income – Operating Expenses
Below is a list of monthly operating expenses to consider:
Mortgage payment
Property Taxes
Property Insurance
Utilities
HOA fees
Property Management Company
How To Get Started In House Hacking?
Step 1: Become Creditworthy
The most powerful thing in real estate is leveraging other people’s money. Therefore, for a lender to approve you for real estate financing, you need to be as creditworthy as much as you can.
You can become creditworthy by improving your good credit score, having a stable income source, and reducing your debt-to-income ratio.
Step 2: Build a Relationship With a Local Bank
I always recommend new investors to build a relationship with a local bank or a credit union. A banker at a local bank can sometimes have more influence over your loan than a banker at a “big name” bank.
Communicate with your banker what you’re trying to accomplish with house hacking. A creative banker can develop loan suggestions to help you reach your goals, such as an FHA, 203k loan, or HomeStyle Renovation loan.
My banker works with many investors, and I’m fortunate to have built a great relationship with her. Her motto is, “I don’t invest in houses. I invest in people.” We’re at a point in our relationship where she increased our credit line, allowing us to purchase more properties.
Step 3: Study Your Local Real Estate Market
Study your local real estate market and look for areas with good house hack opportunities: research property values, rental income, and the kind of tenants in your market.
I practiced analyzing multiple properties before I made my first offer on an investment property. I calculated various numbers, such as the cash-on-cash return and the return on investment.
By the time I receive a lead, I know off the top of my head if it’s a potential deal or if I should move on.
Step 4: Create a Process to Find Leads
Finding real estate deals is the hardest part of real estate investing. Hence, you need to create a process that leads to potential deals, such as finding absentee owners.
Below is a list of ways you can generate leads:
Driving for dollars
Direct mail campaign
Signs
Online marketing
Reviewing property tax records
Work with a real estate agent.
Step 5: Make an Offer
There are always other investors looking for great deals. So, once you’ve analyzed the property, it’s time to pull the trigger and make an offer!
But, don’t be discouraged if you don’t get your offer accepted. As you make more offers on multiple properties, you’ll grow to see that you can’t win them all. You need one.
One year, I’ve analyzed over 50 properties, visited 12 of them, and made over five offers. Only one of my offers got accepted, and it was a great deal!
How to Grow Your Real Estate Portfolio
Rental property investing is a great way to generate passive income. However, if you’re looking to replace your income or become financially independent, you’ll need to scale your real estate portfolio.
BRRRR Method
BRRRR stands for Buy, Rehab, Rent, Refinance, and Repeat. The BRRRR Method is a real estate strategy that allows investors to recoup their initial investment and put it towards another investment property.
I often use this strategy. In less than two years, I acquired three properties. The method can be challenging to grasp at first. Therefore, it’s easier to explain through an example:
BRRRR Method Example
Joe BUYS a $100,000 property. His down payment is $5,000, while a bank lends him $95,000. For the sake of simplicity, I’ll ignore closing costs.
He spends $10,000 on REHAB costs to increase the after-repair-value and RENTS his property for $1,300 after he made improvements. Therefore, his overall initial investment is $15,000.
After a few months, Joe requests a bank to perform a cash-out REFINANCE. The property appraises for $150,000, and a bank creates a loan 75% of the appraisal valuation. Therefore, the principal balance of the loan is $112,500 ($150,000 x 75%).
The new loan of $112,500 replaces the other loan of $95,000, pays Joe back his down payment of $5,000, and the rehab costs of $10,000.
Refinanced Amount – First Loan Balance – Down Payment – Renovation Costs = $112,500 – $95,000 – $5,000 – $10,000 = $2,500
The rental income of $1,300 pays down the $112,5000 mortgage loan. Joe recouped his $15,000 investment along with an additional $2,500 from the cash-out refinance.
Joe can REPEAT the process and use the $17,500 as a down payment toward a new investment property.
The key to this strategy is purchasing an undervalued property and force appreciation through renovations.
1031 Exchange
A 1031 exchange is an Internal Revenue Service tax code that allows an investor to defer paying capital gains tax on their property’s sale. According to the 1031 exchange rules, an investor needs to exchange their current property with one that has a replacement value greater than or equal to its own.
Regarding house hacking, you’ll need to own the property for at least two years before you can take advantage of this tax code.
For example, Nathan purchased a house hacking duplex for $150,000 and made improvements to the property over time. After a couple of years, the property value became $600,000, and the net proceeds of the sale are $500,000.
Original Purchase Price: $150k
Fair Market Value: $600k
Net proceeds: $500k
Nathan can keep the net proceeds. However, the government will heavily tax him.
He can also scale and put it towards a more significant investment property, such as a 24-unit apartment complex or multiple short term rentals!
Besides paying capital gains tax, Nathan has also increased his ability to generate more monthly cash flow, reduce his maintenance costs, and improve tenants’ quality.
He went from a real estate rookie living rent-free to becoming an experienced real estate mogul!
Common House Hacking Mistakes
Treating Investing as a Hobby
Real estate investing is a business and should be treated as one. A common mistake that new investors make is treating it as a hobby. They don’t give their investing the necessary attention required, which can lead to financial ruin.
Not Following The Law
The city can shut down your business if you ignore any rental laws, such as not following local zoning ordinances.
I visited a property for sale because the owner was attempting to do creative house hacking. He illegally created a duplex from a single-family house, and none of his work was up to code.
Thus, the city shut him down. He had to cut his losses and sell.
Not Property Screening Tenants
Screening your tenants and doing a background check is essential!
You might feel desperate to have anyone rent your property to pay the mortgage. However, unfavorable tenants could lead to damages to your property. Those damages could cost thousands of dollars in repair or even force your property into vacancy.
I had potential tenants applying for one of my properties. Unfortunately, they had two large dogs that I don’t accept as part of my policy. Even though it would be nice to take their application, I still had to weigh the risks and move on.
Not Budgeting For Repairs
Another common mistake is that new investors don’t account for potential repairs or vacancies as part of their analysis. Also, they don’t have sufficient cash reserves to pay for these potential expenses.
I strive to maintain at least three months’ worth of rental income for each of my properties in cash reserves.
Conclusion
I did my first house hack unknowingly. However, if I had a plan when purchasing my first property, I would do a 1031 exchange and scaled my real estate portfolio.
I purchased that house for $135,000 and rented it out for $1,300 before selling it. Zillow says the estimated rental income for that property is now $1,600, and its market value is over $200,000.
These house hacking strategies are a great introduction to anyone interested in getting into real estate. Like any investment, you need to analyze your local market to make sure it’s a great deal! […]

Protection against loss is critical for everything you do, including running your own business or earning money from a side hustle. The primary tool for mitigating business risks, such as those described by Your Money Geek, is property and casualty insurance.
There are many insurance policies within the property and casualty insurance realm, each with its own vocabulary. Understanding the different types of property and casualty insurance can limit the number of many causes of catastrophic financial loss. In particular, you will want to know which ones apply to your business or side hustle.
This post will talk about the most important types of property and casualty insurance for small businesses and side hustles. These coverages include business owners (with key components – auto, liability, and property), professional liability, workers’ compensation, and fidelity and surety bonds. I’ll highlight the coverage provided by each type of business insurance. Also, I’ll touch on some factors to consider as you decide whether to buy them.

Table of Contents

Businessowners Insurance
Some small businesses buy a package policy, called a business owners policy (BOP), to cover their vehicle, liability, and property exposures. It is similar to the combination of personal auto and homeowners insurance policies. Businesses that don’t need all three types of insurance coverage can buy insurance policies separately. The separate policies are commercial auto (covers all vehicle types), general liability, and property. The package policy is usually less expensive than the three separate policies, as long as you need all three coverages.
The limit of liability determines the maximum amount the insurer will pay for a covered liability claim. Also, one or more deductibles determine the insured’s amount before the insurer starts paying for physical damage claims. Separate deductibles can apply to each of the comprehensive and collision portions of vehicle coverage and claims related to physical damage to any buildings and/or contents covered by the policy.
Vehicles
The vehicle coverage is the same whether bought in a BOP or a separate commercial auto policy. It protects against anything for which the business owner becomes legally liable related to vehicles’ operation covered on the policy. That is, if an insured driver is in an accident, liability insurance will usually cover the costs to third parties. These costs can include injuries or damage to their property.
The insured has the option also to purchase physical damage coverage. This insurance can cover damage to the insured’s vehicles either from an accident (collision coverage) or other perils, such as theft and fire (comprehensive coverage). The vehicle coverages for commercial vehicles are very similar to those in a personal auto policy, which I cover in detail here.
If you use your personal vehicle for your side hustle or business, you must buy commercial auto coverage. Personal auto policies generally exclude coverage for:
Employees during the course of employment.
While used as a public or livery conveyance, ownership or operation of a vehicle, such as Uber or Lyft.
The insured, when employed or otherwise engaged in any business.
Almost all claims made against your personal auto insurance will be denied if your vehicle was being used for a side hustle or business.
Premiums for auto insurance vary based on the number and types of vehicles insured; the coverages, limits, and deductibles purchased; characteristics of the drivers; where the vehicle is driven; and the distances driven, among other factors.
Liability
Businesses usually face one or more of four types of liability – vehicle (discussed above), premises and operations, products, and professional. Premises and operations and product liability are parts of both general liability policies and BOPs. Professional liability is a separate policy, so I’ve covered it below.
Premises and Operations
Premises and operations coverage (which I’ll call Prem/Ops) provides insurance for things related to your business location or operations. It covers injuries to third parties (not employees) or damage to their property.
Slips and falls by customers at business locations are the most common types of Prem/Ops claims. For example, if someone is injured at your business location, in your parking lot, or as the result of your operations, your business may be liable for their medical expenses and/or lost wages.
If your customers come to your place of business, you’ll want to consider premises and operations coverage. Most homeowners policies exclude coverage for claims related to a business. As such, it is important to check your homeowner’s policy if you do business out of your home to avoid gaps in coverage.
The premium for Prem/Ops coverage depends on your business’s nature, the number of types of locations, and the limit of liability you purchase, among other factors.
Products Liability
Product liability coverage provides insurance for damages related to your product. These damages include third parties (not employees) who are injured or their property when damaged. For example, medical device manufacturers’ product liability insurance protects the company against claims that their products are defective and cause injury or illness to patients.
On a much smaller scale, burns from McDonald’s coffee that was allegedly too hot are also insured under products liability coverage. If you make a product that could injure someone or damage their property, you’ll want to consider product liability coverage.
Premiums for product liability coverage depend on the type of products sold, the number of sales, and the limit of liability you purchase, among other factors.
Property
Property insurance protects your property, including buildings and their contents. You can also purchase insurance for just the contents if you don’t own the building. Property coverage protects against a long list of perils, including fire, hurricane, tornado, vandalism, and theft. In many places, you must purchase earthquake or flood coverage separately. Any intentional damage or damage from acts of war, arson, and sometimes riot is usually not covered. Read your policy to make sure you understand what is covered and what isn’t.
When you buy property coverage, you estimate the values of your buildings and contents. Insurers can often reduce the amount of any claim recovery, even for partial damage, if you underestimate your property’s value. As such, it is important to determine the value of your buildings and contents fairly.
Property insurance for businesses always includes business interruption coverage. Under this coverage, the insurer pays for lost profits and some overhead expenses when a covered peril has damaged your property. The insurer also covers expenses related to a temporary location where you operate your business while your building is being replaced or repaired.
Business interruption insurance applies only when your business is interrupted due to a peril covered under the buildings and contents coverage. For example, a pandemic is rarely a covered peril for buildings and contents because it doesn’t damage either one. In that case, there is no insurance coverage if your business is shut down from a pandemic.
Premiums for property coverage depend on the values, types, and ages of insured buildings, the value and types of insured contents, where the property is located, and the deductible you have selected, among other factors.
Umbrella
An umbrella policy allows you to increase the limits of liability on all your liability policies at once. An umbrella policy can provide coverage for vehicles, Prem/Ops, and products liability. The limits on the underlying policies must meet certain minimum requirements. An umbrella policy usually protects you against liability claims not covered by the underlying policies, such as libel and slander. The concepts underlying umbrella policies that protect businesses are similar to the concepts that underlie personal umbrella policies.
Umbrella premiums depend on all the characteristics of the underlying policies and the limit and deductible on the umbrella policy.
Professional Liability
Professional liability insurance protects you against claims that you have caused someone an economic loss by making a mistake when providing professional services. For example, if you are providing bookkeeping services, a client might sue you if you prepared tax returns incorrectly, leading to a client’s financial loss. If you are providing legal services, errors could include everything from missing a court deadline to providing incorrect advice. A professional liability policy usually covers all these errors unless intentionally made.
If your business provides advice or professional services to clients, you will usually want to purchase a professional liability policy. Professional liability covers services just as products liability insurance covers things your business manufactures.
Professional liability premiums depend on the type of services provided, annual revenue, and the limit of liability selected.
Workers’ Compensation
Workers’ compensation insurance (often called workers comp) protects you against the cost of injuries and illnesses to employees during their employment. Almost every US state requires you to provide workers comp for employees, as long as you have at least the minimum number of employees. That minimum number of employees is usually around four. Some states, such as California and Colorado, require you to provide coverage even if you have only one employee.
Workers comp reimburses employees for a state-mandated portion of lost wages and medical costs. Employees covered by workers’ comp cannot sue for covered injuries and illnesses except in minimal situations.
Premiums for workers comp depend on the number of employees and their wages, the state in which they work, and the type of work performed by each employee.
Surety & Fidelity Bonds
Some businesses need to buy surety or fidelity bonds as part of their operations. Most surety bonds provide guarantees to third parties (the obligees) that you (the principal) will perform certain actions. By comparison, fidelity bonds protect an employer against the fraudulent or dishonest actions of its employees.
Surety Bonds
One of the most common surety bonds is a construction bond. If your business is a construction company, it might promise to build a structure for a buyer. The buyer will likely pay your business for some of its services in advance. In that case, the buyer wants a guarantee that you will complete the structure.
You can buy a construction bond from an insurer for the buyer’s benefit (the obligee). If you fail to complete the structure, the insurer will either pay the buyer for the cost of completing the structure or will hire a contractor directly to complete it.
Other commercial surety bonds cover signature guarantees for notaries and remediation costs for mining or drilling operations. Surety bond requirements vary widely by state. I found the “What Bond Do I Need?” section of this website quite interesting.
Fidelity Bonds
Most fidelity bonds insure property, money, or securities owned by customers to which employees have access. For example, a fidelity bond usually covers the embezzlement of deposits by an employee for services or products not yet provided. Similarly, a fidelity bond can insure against misappropriation of pension assets or real estate escrow funds. A fidelity bond can also provide protection if an employee takes something while at a client’s business or home.
Bonds
Most side hustles and tiny businesses don’t require fidelity or surety bonds. Nonetheless, they are essential components of a company’s risk management plan if it has any of these types of exposures. The face amount of the bond, the type of coverage provided, and the insured’s history and financial condition determine the cost of surety and fidelity bonds.
Other Types of Property and Casualty Insurance
There are several other types of property and casualty insurance that a small business might need.
Crime Insurance – Property insurance and fidelity bonds don’t cover all theft losses. If you sell a product, you might need to look into purchasing crime insurance.
Cyber Insurance – Cyber insurance can cover your operations if a cyber-attack disrupts them. It also can protect you if your confidential business and/or your customers’ or employees’ personal information is stolen electronically. If your business has any of these exposures, you will want to investigate the various types of cyber coverage.
Directors’ and Officers’ Liability Insurance (D&O) – D&O insurance covers economic losses incurred by third parties that result from significant decisions made by directors or officers. Publicly-traded companies or companies with more than one owner often buy D&O insurance. If you are not the sole owner of your business, you might want to evaluate the need for D&O insurance.
Where to Buy Property and Casualty Insurance
Buying property and casualty insurance for a business are similar to buying it for your personal exposures.
Some insurers, such as Progressive (just an example – in no way do I intend to endorse Progressive as I know nothing about its premium, coverage, or service), allow you to purchase insurance for your business online.
Other insurers, such as Liberty Mutual (again, just an example), are direct writers. You talk directly to an employee of a direct writer when buying insurance.
Insurance brokers and agents provide access to all other insurers. They usually have access to a wide range of insurers. Small businesses, especially those without unique exposures, can work with an agent to acquire insurance. You may need to work with a broker if you have a large business or need unique expertise.
If you are new to buying insurance for your business or your business has unique exposures, I suggest a direct writer, insurance broker, or insurance agent. Purchasing insurance online, especially if you are an informed buyer, can often, but not always, save you money. The lower premium reflects insurers’ lower expenses as it doesn’t have to pay commissions or sales force expenses. […]

Some estimates show that diapers can cost over $1,500 for one child. Luckily, these legit ideas can help you save big money by getting your diapers for free. […]