Monthly Net Worth Update – October 2009
This month marks the seventh month in a row of increased net worth for us. It was not a huge increase, but it was as solid increase and in light of the fact that we paid for our vacation to Disney World during this past month, I’m quite happy that our net worth increased.
Our assets increased almost 2%
This month all of our asset categories increased except for our liquid accounts. Those dropped 3.5% probably due mostly to the vacation we took. Just like last month, there were no huge gains like those seen in previous months; the biggest increase was about 10% in my stock options. The remainder of the accounts produced a steady percent increase in the single digits. Our house value again increased this month and is now quite close to the amount we owe on our mortgage (man, how sad is it that I’m excited just to be getting close to not being upside down on the mortgage?!?)
Our liabilities decreased 0.5%
Another month, another drop of about 0.5% on our liabilities. I have been giving more serious thought to accelerating or refinancing the mortgage (or possibly both). I think if I did refinance it to get a lower interest rate and smaller payment, I would continue making the same payment that I do now in order to accelerate the payoff. We’re still a very long way from paying off the mortgage, but it would feel good to at least be moving in that direction. Alas, I still have not done anything substantive though.
Our net worth increased almost 5%
We hit another new all-time personal net-worth high this month. Another month, another increase – so far I am on plan to increase it every single month. That might not be a very realistic goal, but I’ll continue to do what I can by earning, saving, investing, and staying out of debt.
Financial Peace University Lesson 2 – Relating With Money
Nerds and Free Spirits Unite!
My wife and I did not attend this class with the rest of our mates. Instead we were on vacation in Disney World during the class (don’t worry, except for food and souvenirs, we had already paid for the vacation). We did, however, sit down and listen to the CD together. Though we did not get to engage in the class-wide discussion, we did take part in a little one-on-one discussion.
What you do with your money shows what you really care about
Dave starts off this week’s lesson with the following quote that I find quite apropos:
The flow of money in a family represents the value system under which that family operates.
It is such a true statement. The places that you spend your money are a great indication of what you find important. Are you giving money to help others? Are you saving? Or do you not have enough money to do that because you are buying every fancy electronic gadget that comes out.
Shocking news flash: men and women are different
Sorry, I got a little distracted by that quote, the main point of this lesson is to expose some of the differences between you and your significant other in relation to money issues. To promote understanding between the two of you, Ramsey spends part of the class discussing the differences between men and women.
For instance, here’s one generalization: men view emergency fund savings as “boring and not sophisticated enough” while women view it as “the most important key to our financial plan.” I found this interesting actually as I recalled a conversation I had with a friend in late summer 2008. The topic was about how he felt it was not necessary to keep your emergency fund in liquid savings due to the much better return that could be had in the stock market. A few months later (you remember October of last year?) his wife wore an exasperated look on her face one morning during carpool pickup when she was asking me if I had any insight into what was going on with the stock market and what would happen next.
On top of the gender differences, he also roughly groups people into two camps: nerds and free spirits. Then he spends a few minutes humorously discussing characteristics of the these types. The point, again, is to remind us that people are different; not everyone thinks exactly like you do (thank goodness) and that’s ok. Understanding this fact will make it easier for people to relate to each other and get down to the business of getting their finances on track.
Some marriage specifics
Ramsey then mentioned that the number one cause of divorces in America is money problems. While being at odds about your finances is a terrible source of stress for a family, being on the same page can actually bring an incredible level of unity to a marriage. This is exactly what I am hoping to accomplish with my wife through this class.
His advice for couples is that both of you do the financial decision making. It is not for one person to decide and force the other to comply. Instead, the decisions must be mutual. Of course, the nerdy, number-crunching, spreadsheet-loving one (that’s me in my family…but if you’ve read any of my other posts, you probably already know that) should prepare the budget and other financial documents. But that does not mean you are making the decisions, you are simply preparing the documents. The next, and more important, step is to come together to discuss the budget, make changes until you are both satisfied, and then agree to follow the plan. This can not be over-stated – it is critically important that both partners are involved in the actual decision making.
What about the singles?
Ramsey also suggests that a single person take the time to prepare a budget and follow-through on it. Obviously, that person does not have a spouse to meet with, discuss, and agree to the budget. If that is your situation, Dave strongly recommends developing an accountability relationship with a friend or mentor to help you along the process. This relationship should be with someone who is honest and caring enough to tell you when you are about to do something stupid with your money. You make all the decisions, but it is beneficial to have someone around to bounce ideas off of and to make sure you are following a good path.
Kids should be on commission, not welfare
This session concluded with Ramsey’s views on children and money. He started off this section by reminding parents that it is their responsibility to teach their children about money, not the school’s. He recommends paying the commissions instead of allowance – if they work, they get paid, if not, tough. When they grow up and are out in the workforce, they won’t be given allowance (hopefully not, at least) so they shouldn’t start thinking that is how money works now.
My wife and I have actually gone back and forth on this topic over the years. I do think the commissions idea makes sense and I think we will be instituting some form of it in the near future with our young children.
Wrapup
As I mentioned, we did not participate in the dicussion with our class so I don’t have any awesome insights to share with you. What we decided is that even though she did not think of herself as a “free spirit,” according to Ramsey’s definition, she is (and compared to nerdy me, she certainly is!). In our next post, we’ll be back with our class and will start into the nitty gritty of putting together the budget…check back then!
Weekly Bible Verse – Servant to the Lender?
The rich rule over the poor, and the borrower is servant to the lender. Proverbs 22:7 (NIV)
You’ve probably seen this verse before somewhere (I see it all over the place) but I thought I’d take a moment and focus (again) on the restrictions we place on ourselves when we go into debt.
I saw a discussion take place (that sounds weird to say you “saw” a discussion but the discussion took place through comments on a blog – work with me here) once where a participant railed against the “overuse” of this verse in personal finance blogging. They claimed that the verse was being taken too literally today; that it applied only to Biblical times when you literally could end up a servant to your lender if you were unable to repay your loan.
I personally disagree with this interpretation. Though I do a agree that you won’t actually end up as a literal servant to your bank or whatever, I do feel that this verse is an accurate description of the seriousness of taking on debt.
Debt limits your freedom
Let’s think about it for a moment – say you take out a loan for something (car, boat, house, whatever). You have entered into a legally binding agreement to pay back the money you received (plus interest – don’t forget that). You have now placed a restriction on yourself and are probably no longer able to now follow any course of action that you desire.
For instance, you have just decided that you want to change careers and you need to stop working at your current job so you can focus on going back to school for a time. Oh, and the new job will not pay as much money as the old one. Wait! Don’t forget that you owe $2000 a month on your mortgage. If you can’t afford to continue making that monthly payment while not working and going to school, then that debt is now limiting your potential courses of action.
I could make up a number of examples like this. The point is that when you enter into debt, most likely you do not have full freedom anymore to do as you please (and if you are able to just pay the debt off at anytime and move on with your life, then why did you take out a loan and agree to pay interest in the first place!).
Well, you say, “that’s silly, I could just sell my house (or whatever) and then go to school (or whatever).” Sure, you could, but don’t miss the point of what you’re doing: you’re removing that debt from your life so you can have freedom again. Actually, you probably shouldn’t necessarily count on being able to do that at any time anyway. If you bought your house in an unfortunate location in the US a couple years ago and need to sell it right now to gain more freedom, that might be a difficult thing to do.
Freedom!
So, in summary, remember that, according to Dictionary.com, two of the definitions of the word “freedom” are “exemption from external control, interference, regulation, etc.” and “the power to determine action without restraint.” I argue that whenever you take on debt, you no longer are exempt from external control and no longer truly have the power to determine action without restraint. Therefore, I contend that the statement from Proverbs that the borrower is servant to the lender is applicable to our lives today. That’s something to remember the next time you’re tempted to buy something you can’t yet afford or someone tries to entice you to open a credit card account to save 10% on your purchase.
God bless and have a great week…
The 10 Day Give – Starts Today
Today is the kick off of the 10 Day Give – proposed and spearheaded by Bob of Christianpf.com. I believe this is the 2nd annual version of this event. I didn’t really participate last year but I am going to try hard to take part this time around. I invite you to join in as well!
There are a few posts on Christianpf.com that provide more info about this event – check out the kickoff post or the FAQ to get more details. There is also a sign-up page for it (maybe if you actually sign-up for it, it will keep you motivated to continue throughout the 10 days).
So, I just signed up and I’m going to read more of the info on Bob’s site to get some ideas on how to reach out and give to those around me. Remember, this is not necessarily giving money – it’s just giving (of your time, expertise, whatever). And it’s only 10 days. Again, I urge you to sign up and give and then see what happens for those around you and for you!
Warning – upcoming glimpse into the mind of an engineer – not for the faint of heart
As I mentioned, I just signed up right now but I’ve been thinking about this for a few days and I actually started yesterday in a tiny, tiny way. My parents have been visiting for a few days as a stopover on their way to Florida. Last night I drove with my Dad to fill up the tank with gas for the rest of their trip. And I knew that I had a 10 cents per gallon credit at the gas station so I decided to give it to him as a tiny “give.” Man, I can’t tell you how hard that was to do….I mean, it would have been nothing to give my parents $1.30 or whatever it came out to be, but the engineer inside of me reared his ugly head because their gas tank was half full!! Whenever I use these credits, I only use them on our van and only when it is empty. I know, it’s insane – but I can’t help it! Anyway, I forced myself to do it and was glad that I did something that was (although admittedly stupid) kinda hard for me to do.
I’m sure that’s much more than you ever wanted to know about me, but I’m trying to be honest here. And I suggest that you take the opportunity of the 10 Day Give to try to push yourself out of your comfort zone a little bit. Maybe you’ll end up expanding that comfort zone and making yourself a better person as a result. Good luck!
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