If you already read my financial overview of June, you know that an important financial milestone has been reached: EUR 200k net worth. This has made me think. How did we manage to reach this goal, especially knowing that a few years ago we were not even close to this. I decided to download the 2014 financial summary from the website of the bank. That time I had no car, no house, no investments, so the money on the bank account was really only the net worth I had.
What I saw was quite surprising:
Above you can see my account balance as per the end of 2013. 4,473.70 on the current account, 2,291.41 on the saving account and 1,355.55 credit card debt. All together EUR 5,409.56 net worth. Even though that time I was only in my early 30s, this is not something to be proud of. I could not find any net worth per age statistics for the Netherlands, but in the US this figure is $68,479 for the age group under 35.
So what have happened since the beginning of 2014? How did our net worth increase by almost 37 times within 3.5 years?
I Met the Future Mrs. Roadrunner
I cannot emphasize enough how much impact your partner has on all aspects of your life. These impacts can be both positive and negative, so chose wisely!
She has changed me in a lot of ways on the goods side and I started to be more serious about my future. In addition, in October 2014 we have moved together in her small apartment. Not having to pay EUR 1,600 per month on an expensive rent close to the center of Amsterdam has definitely made a financial difference. Looking back now, it was only money thrown out of the window.
The beginning of my investing career was far from being successful. I was purchasing trendy shares I was reading about (e.g. Stratasys, Solar City) without any knowledge what I am buying into. I would have been much-much better off if I bought only low cost index ETFs. I had a very wrong idea about dividend growth investing at that time so I didn’t focus on it at all.
Nevertheless I have established a routine of regular investing and my failures have forced me to educate myself on what am I doing wrong and how can I improve my results. By the end of 2014 I had an investment balance of EUR 19k.
Bought a House
In 2015 we got engaged, married and by realizing that the small apartment we are living in will not be sufficient for a family, we started to look for a house. Deciding between renting and buying was a no brainer for us considering the conditions in 2015.
Related post: Rent or Buy? – Things to consider
We have bought a fixer upper, renovated it in about 3 months and started to work on reducing our debt to a level below 85% of the value of the house. We are also really lucky that from the time of our purchase the property prices in our area have increased over 20% in 2 years. Only this factor has added over EUR 70k to our net worth.
In addition, this price increase has allowed us to get an investment mortgage with a very favorable rate.
Dividend Growth Investing
I have started to be more serious about dividend growth investing in late 2015, and started to establish my portfolio in January 2016. This strategy is helping me to generate more and more cash flow every month, which I can use against additional investments. See below my dividend income increase only within 1.5 year:
Only from the dividends I will be able to invest one extra month worth of money in 2017, the second year of applying this strategy.
Bought a Second Hand Car
It definitely means quite a few thousand in our net worth that we didn’t buy a new car (especially on a loan). The moment you drive a new car out of the dealer’s garage, it loses about 10% of its value. Here is a fun infographic to demonstrate how a new car depreciates:
Currently we drive a 2009 Honda Civic which is perfect so far to take us from point A to point B.
Avoided Consumer Debt
If you invest, the money works for you. But if you have debt, it works AGAINST you! Our “only” debt is our mortgage. Of course as it is not an interest free debt, it would be much better if we didn’t have it. Nevertheless so far our investment returns are way higher than the mortgage interest rate. In addition, should the situation change, we can always pay money against the mortgage without a penalty.
Needless to say that if you have other forms of debt, like credit card debt, car loan, student loan etc., you shouldn’t even think about investing. The priority should be to get rid off those debts, starting with the ones with the highest interest.
This is more or less linked to the previous point. The fact that we have an emergency fund has ensured that we were not forced to get a personal loan in case of an unexpected expense. I strongly encourage everyone to have an emergency fund, amounting to at least 3-4 months of regular expense.
All of the above points have added their own fair share to our net worth increase. Of course as we are talking about a few years time frame, I cannot avoid mentioning luck as a factor too. You can never know when the next stock market collapse will happen. Also, if the property market was not this hot during the last few years, our net worth would be also less by a few 10k.
However, the main point here is that with a smart attitude towards personal finance, everyone is able to increase their own net worth even within a few years.
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Disclaimer: This post or any other information on the site is not intended to be and does not constitute financial advice or any other advice. I am solely sharing my idea, plan and progress on financial independence and early retirement.