Evaluate your Finances Like a Financial Analyst

As you travel along your journey to financial independence, it is enticing to only focus on your net worth and reaching some goal you’ve set for yourself in the future. However, to really assess the health of your finances and ensuring the best odds of hitting your financial goals, there are other metrics as well that you should at least be monitoring. To get an idea of what metrics to look at, we head to the headquarters of assessing the financial health of organizations: Wall Street.

Financial Analysts make livings on finding the companies that are going to increase their value (also known as Net Worth) in the shortest, most stable way possible. I’m not arguing that Wall Street is any good what they do (see: Index Funds: The Gold Standard of Stock Market Investing), but we can still find the things about Wall Street that do work well and use them to our advantage. One body of research we can use is around metric. There are several basic metrics that the Financial Analysis use to assess the health and future potential of a company. By adopting those metrics slightly, we can apply them to our own finances and paint a picture of how we’re going. read more

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The Baby Box: Our First Baby Purchase

What is a baby box?

The baby box dates back to 1930’s Finland, which at the time was a relatively poor country with a high infant mortality rate of 65 per 1,000 births. To reduce the mortality rate, the Finnish government began providing new expectant mothers with a starter-kit of baby essentials, designed to give all children, regardless of their situation, an equal start in life. Included in the box were clothes, sheets, toys, and a bed in the form of the box itself. Fast forward ~80 years and Finland has one of the lowest infant mortality rates in the world (2.3 infants per 1,000 births versus 6.5 in the US).

The baby box concept is beginning to expand in the US, particularly as a way to reduce infant mortality and SIDS. In the last few years, Alabama, Ohio and New Jersey have started provided new mothers with a baby box after they watch online videos about safe sleep habits and SIDS, and complete a short quiz. The box itself acts as a place for the baby to sleep as an alternative to bed-sharing, a primary risk factor in SIDS. Additionally, the contents typically provide all the basics you need for a new baby, a huge value particularly for low-income parents. read more

What Risk and Return Should I Expect From My S&P 500 Index Fund

“The stock market, on average, returns 8% per year”. You’ve heard that statement probably a thousand times before. If you’ve been reading this blog, you’ve heard it here as well. But there is a lot of data and questions buried by that 8% figure. Should I expect that return every year? What is the worst I can expect? Does investing for longer periods of time increase my changes of earning 8% on my investments? I want to do some statistical analysis to show you the relationship between time, reduced risk, and reasonable expectations of your investment returns.

In the below graph, I show historically how the stock market has performed over a 1-30 year period going back to January, 1950 (the earliest data I had available). By that I mean, from January 1, 1950 to January 1, 1951, what was the return. Then what was the return from February 1, 1950 to February 1, 1951, etc. up through August 2017. Then I looked at the 2-year returns (January 1, 1950 to January 1, 1952) and so on until the 30 year horizon. Plotting the maximum return, the minimum return and the average return presents some very interesting information to show you what you can expect while investing and why investing for long periods of time is so important for mitigating risk. read more

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Managing Our Finances with Mint

A guide to using Mint – Our Approach

Knowing how much you make and what you spend your money on is Personal Finance 101. This is the fundamental building blocks of wealth building. If you income is greater than your spending, your net worth will go up. If income is less than spending, your net worth will go down. It is that simple.

Before you dive into new and exciting ways to grow your income, reduce your spending, and find ways to grow your savings, it is important to know where you’re starting from. Only one you know where you are can you know the best way to get to where you want to go (in our case, financial independence and early retirement!). read more

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Is it Better to be a Rockstar Saver or a Rockstar Investor

I want to present you with a simple question. If you could cut your spending in half and have no impact on your life and happiness, or if you could find a way to double your investment returns for the next 20 years, which option would you choose? Which option would get you to financial independence and early retirement faster?

Sally the Saver and Ivan the Investor read more

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The Power of Small Wins and Financial Independence

A couple of weeks ago, I was talking with a coworker of mine who is training for the Marine Corps Marathon that happens in Washington, DC every year. Our conversation went a little something like this:

Me: “How do you stay focused for so long? The reason I don’t run long distances is because I find training really boring. I would never be able to build up to that kind of distance.” read more

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Index Funds: The Gold Standard of Stock Market Investing

In 2008, Warren Buffet, the most successful investor in history, made a bet with Protégé Partners LLC, a hedge fund, that pitted the world of active and passive investing against each other. It was a simple bet; both parties would invest and whoever had the most money after 10 years, net of fees, won. (The winner got to choose the charity that the combined $1M+ would go to.) Protégé Partners LLC invested the money in their own hedge fund. Contrary to what most people thought Buffet would do, he didn’t invest in his own Berkshire Hathaway. Instead, he invested in an Index Fund, specifically Vanguard’s S&P 500 Admiral fund (VFIAX).

What is an Index Fund? read more

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Net Worth Tracker: July 2017

On the last day of every month, I take an assessment of all of my financial accounts and calculate my net worth. It allows me to get a detailed look of how my savings accounts are growing, my investment accounts are changing, and how much longer I have until I hit each of my financial goals.

July 2017 was a great month for the New Father Finance family. Our net worth increased by 10% this month, growing by $39,467! A large part of this is owing to my wife’s grandmother, who generously contributed $25,000 for NFF Jr.’s college education. However, even without the gift, we still were able to grow our net worth by over $14,000, putting July as one of our best month’s ever. Here is a breakdown of he we did in each savings category. read more

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