Networth Update– Mid March 2021.. Say Hello to Flamingo FI

By [email protected]
|
March 15, 2021
| 2 Comments

Wow! its mid March and for the very first time in a very long time, I missed out on updating AVI family net worth status on time. In the hind sight the delay in reporting has been worth it!

As of this writing, I am happy to announce that AVI family has achieved their first FI goal (Flamingo FI status) and all 3 metrics that I track are now in the green.

So, without any further ado, lets get into the numbers!

  • Net Worth (as a percent of FI number) (NW): 102.64
  • Liquid Assets/ Debt Ratio (LDR):  3.122
  • Cash balance/ Two Year Living Expense (CLE): 1.26

  • NW >100; wohooo! Time to update tracking metrics towards the next FI milestone. More on it below
  • Checking account saw some big gains in the past month! This is in part the result of the semi-annual performance based cash bonus from Mr AVI’s employer. It never hurts, financially speaking, to be on good terms with your employer and the rewards can speak for themselves.
  • The annual CD term expired and the cash from CD got transferred to savings account. The renewal rates on CD, in this low interest environment, are hardly attractive and I see no point in renewing the CD to another one-year term! I need to find a good home for this extra cash though.. For now, the funds are having a good time basking in the comfort of savings account.
  • The market move towards value play is sure happening and is an indication of healthy double digits gain in all of Mr AVI portfolio’s.
  • Covid push to suburbia and low interest environment has been a big boon to housing market in our neighborhood and over the past year, house prices have gone up 11 % where we live! Have a look at this recently sold house in our neighborhood! The house was last sold in 2017 for $675K, was listed for re-sale on Feb 4th of this year for $865K and in 4 days was off the market, annualized appreciation of ~6.4 %. On a mortgaged asset, the numbers are significant!
  • While the house prices are moving up, AVI family liability on the house is going down! This in part because I am struggling to find opportunities for risk-off investments in the markets. As such, with a healthy cushion of LDR>3, I feel paying down mortgage does not make us house rich cash poor by any means! Should the markets remain frothy, I see myself continuing to aggressively paying down mortgage on AVI family house.

Accessible Net Worth

Now that AVI family has achieved their first FI goal, I want to update our goal post to the next level, which is to reach the status of Accessible Net Worth (ANW) greater than 100%. So what is ANW you may ask? I came across this concept on themakingmillionaire.com website and it made complete sense.

The recent growth in home values has led to NW inflation, especially for home owners. For many folks, a significant portion of their NW is tied to equity in the house. The problem is that these funds are not immediately accessible unless one is willing to sell to downsize or borrow cash on equity, thus diluting equity and increasing the debt burden! This is where the idea of ANW comes in.

To calculate ANW, simply adjust the total asset portion of the NW equation to discount the price of the house. The liability side of the equation remains unchanged. So the equations are:

Net Worth = Total Asset – Total Liability

Accessible Net Worth = Total Asset – House Price – Total Liability

While ANW takes care of the “too much house” problem part of Net Worth, it does not truly reflect the accessible portion of net worth. This is because, yet another big portion of net worth that is inaccessible (for folks not at retirement age) is the retirement portfolio component of the net worth calculation.

For folks such as myself, who aspire to FI before reaching the eligible age for withdrawing funds from retirement portfolio without assuming a hefty penalty, I believe ANW needs an adjustment and hence the metric, Adjusted Accessible Net Worth (AANW), which in addition to discounting house price, also discounts the retirement assets from the net worth calculation. The AANW can be calculated as:

Adjusted Accessible Net Worth = Total Asset – House Price – Retirement Assets- Total Liability

I am adopting the framework of Flamingo FI, as defined by the 4 stages of FI, to classify the various flavors of net worth as follows:

  • Accumulation phase, when Net Worth < FI number
  • Semi-Retirement life-style achievable when Net Worth = FI Number
  • FIRE life-style achievable when Accessible Net Worth = FI Number
  • Traditional Retirement life-style achievable when Adjusted Accessible Net Worth = FI Number

As noted above, as of this writing we have passed the first stage of FI and hence forth the target for AVI family will be to aim for ANW, as percent of FI number, to be 100 %, making it possible to lead a FIRE life-style should we desire.

So where do we stand on the ANW metric? ANW (as percent of FI number): 66.23 %

Fun Activities

Recently I watched a Netflix documentary on Rubik’s cube. I could not but marvel seeing these kids solve the Rubik’s cube puzzle in less than 10 seconds. I would be hard pressed to find any fellow gen-Xer that has not had atleast once in their life time toyed with Rubik’s cube and wondered how the heck does one solve it! The movie invoked a desire in me to get my hands on Rubik’s cube and figure out how to atleast solve it.. not withstanding the impossibility of reaching the level of these expert Rubik’s cube solvers!

After pouring over several you tube videos (see here and here and here), I finally managed to get a handle on solving the cube and with practice, I am proud to say I can now solve the cube in under 5 minutes!!! Going from 5 minutes to under a minute is quite achievable and something I will aspire to in the coming days and months. However going under a minutes and eventually under 10 seconds seems to me an insurmountable task.. But heck, its worth a try!

Video/Book/Article/Audios for this blog post

FIRE, Net Worth, Personal Finance, Value Investing
| Tags: , ,