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Monthly Net Worth Checkpoint: December (yep – lower still)

December 17, 2008 · Filed Under My Finances · 2 Comments 
Cash + Money by Terence Chang
photo credit: Terence Chang

We recently (at least it seems like it was recent) celebrated Thanksgiving and now we’re into the hustle and bustle of the Christmas season.  Christmas shopping, Christmas cards, Christmas programs for the kids (my daughter had one Sunday, another tonight, a play next Friday, and my son has a play next Thursday) and so on and so forth.  It is also time to check all our account balances and update our net worth for the month. Check out this page if you want to see the spreadsheet I use to track it and a video tutorial on how to create and update it .   This post mentions some online tools for tracking your net worth .

Our assets dropped 1.6%

Just like last month, I expected our assets to drop more than they did.  At least for that month, the rate of descent of our assets has slowed.  The biggest mover was my stock options which have dropped another 14.5%.  Since August, they have dropped a total of 85%!  (wow, that’s a lot).  The other accounts, even those with stock market exposure, did not drop a tremendous amount.   Our retirement accounts only dropped 2.3% and our taxable investments dropped less than one half of a percent (How crazy is that losing 2.3% of your retirement account value in one month is not that bad anymore!?!).  In fact, my daughter’s 529b plan actually increased almost 4%!  It was a tepid month for all accounts, I think, as even our liquid accounts, which were increasing over the past few month, only grew by a little over 1%.

Our liabilities decreased by 0.5%

Our liabilities dropped the typical monthly rate of about 0.5%.  I’d love to get rid of that mortgage payment…but the principal balance is so high that I can’t foresee doing anything about it in the near future.  I’m still thinking about it though.  Usually I would say every little bit helps, but when throwing a little extra cash at it each month wouldn’t reduce the length of the loan significantly, is it really worth it?

Our net worth decreased approximately 3.6%.

Well, we’ve experienced another drop in net worth this month (that’s starting to become a habit).  At least the downward rate has decreased again this month (last month it was a 4.5% drop)  Most of this is out of my control still (stock market losses and house valuation declines), so I try to focus on what I can control, which is mainly the liquid savings and liabilities.  So, since our liquid savings were up slightly and our liabilities were down slightly, that’s good news from my perspective.  Of course, Christmas brings with it a lot of extra expenses (gifts, travel, food, etc) so it will be interesting to see how we end up 2008 (of course, if you use a credit card for some expenses, then you don’t really get hit until January)

Merry Christmas!!

Monthly Net Worth Check Point: November (still dropping)

November 10, 2008 · Filed Under My Finances, Net Worth · 2 Comments 
Cash + Money by Terence Chang
photo credit: Terence Chang

Scares!  Shrieks!  Is it Halloween, you ask?  No, it’s time to check all our account balances and update our net worth for the month.  Check out this page if you want to see the spreadsheet I use to track it and a video tutorial on how to create and update it . If you don’t like spreadsheets (who doesn’t like spreadsheets?!), I also have a post on some online tools for tracking your net worth .

Over at One Caveman’s Financial Journey, recently there was a post on why your net worth isn’t the best gauge of financial health .  It’s an interesting post with some valid points.   I agree that the usefulness of your net worth as an indicator of financial health is clouded by external forces such as the stock market.  That is actually the main reason I created my net worth spreadsheet in such a way as to provide a information on different account categories.  For instance, it might not be very illuminating to simply see that our net worth decreased 4.5% this month (OUCH!) but being able to see how our liquid savings did separately from our accounts with stock market exposure is still useful, I believe.

Our assets dropped 2%

Just like last month, I expected our assets to drop more than they did.  Every account with stock market exposure dropped significantly.  For instance,  our taxable investments dropped 12%, our retirement accounts dropped 7.5%, our 529 plan dropped 5.7%, and my stock options dropped a whopping 49.5% in value!  My options have been hammered lately, dropping 48%, 33%, and 49% over the last three months.  That means compared to their value in August, my stock options are down more than 82%! (Luckily, I guess, they weren’t worth that much money to begin with)

All of this was buffeted by the fact that our liquid assets increased 9.9% this month.  So, for the past two months while all of our accounts exposed to the market have been tanking, our liquid assets have balanced this out somewhat as they have grown 25%. So, I feel that looking at our increase or decrease in liquid savings is probably the best measure to see how we’re doing financially in this current environment.

Our liabilities decreased by 0.49%

Another very important financial metric to me is our level of liabilities (seeing that level go down to be specific).  Our mortgage drops a similar amount each month and our lone remaining debt (my wife’s contractual obligation if she stops working) drops a set amount.  As long as this keeps decreasing, I’m happy.  I do not have any plans to accelerate our mortgage repayment in the near future, but it is an idea with which I am toying.

Our net worth decreased approximately 4.5%.

All of this adds up (subtracts up?) to a 4.5% loss in net worth this month.  At least the downward decline is decelerating compared to our 8% drop last month. Again, the most important measures to me are the direction of our liquid savings and our liabilities.  As long as our liquid savings are going up and our debts are going down, then I feel like we’ve been successful for another month.

I am still not overly concerned about the stock market

I am not super excited about the drop in our stock market accounts…well, in a strange way, I am actually somewhat happy about it (in a very selfish way, I admit).  I am in a position that I do not need to draw on my retirement savings for decades and hopefully our emergency fund will prevent us from having to cash out any mutual funds or stock options in the near future.  In that respect, the lower prices for stocks are actually helpful as we continue to purchase more every month.  In fact, I recently increased my 401k contribution 4%.

I know it’s not pretty looking at the current numbers; instead I try to focus on how many more shares I am purchasing each month compared to the number I was buying last year at this time.  If I stay focused and calm and continue to dollar cost average each month, it has the potential to pay off in the long term when the market recovers.  (that assumes, of course, that the new president-elect and democrat controlled congress will attempt to stabilize the economy instead of causing it crash and burn so they can switch us over to socialism)

Monthly Net Worth Check Point: October (down a lot!)

October 13, 2008 · Filed Under My Finances, Net Worth · 2 Comments 
Cash + Money by Terence Chang
photo credit: Terence Chang

Well, it is that time of the month again…time to check our current net worth. Unfortunately, it is not the greatest week to update all those account balances. To track how we are doing financially, I monitor our net worth and update it on a monthly basis. Check out this page if you want to see the spreadsheet I use to track it and a video tutorial on how to create and update it . If you prefer, I also have a post on some online tools for tracking your net worth .

Our assets dropped only 3.3%

I am not sure how our assets only dropped 3.3% when each individual component seemed to be down – some by very large numbers.  Our non-retirement investments were down 13.5%, our retirement accounts were down more than 10%, my daughter’s 529b balance was down  more than 10%, and my stock options decreased in value by a whopping 33.4%.  I’ve already checked the overall number once, let me do it again quick….yeah, it appears to be correct.  Our liquid savings did increase more than 13% due to a gift we were given…but I didn’t realize it would be enough to balance it all out.

Our liabilities decreased by 0.35%

After paying off the last of our student loans last month , our decrease in liabilities will now be much more level (and much smaller) each month.  Basically, we have our mortgage and a decreasing contractual obligation that we track as debt.

Our net worth decreased approximately 8% in August.

With our assets dropping more than 3% and our liabilities only decreasing a little bit, it all adds up to an 8% drop during the month of September.  It would have been worse without the gift we received (over 10% drop).   When I look at these numbers, actually, I have to admit it was not nearly as painful as I expected them to be.  I think this is a product of when I checked the numbers and is quite misleading.  I took all these balances on the evening of October 6th – which was Monday night.  Obviously, a lot happened during the rest of the week.  If I had checked the numbers Friday night, I bet they had been much, much worse (I am NOT going to check them again right now!)  What this does mean, however, is that even if the market stabilizes the rest of the month, my net worth will show a big drop next month.

So will the events of last week change anything?

So, am I freaking out?  No (at least I don’t think so).  I have not considered pulling any money out of the market (too lazy for that frankly – I don’t want to have to pay attention to everything all the time in the futile attempt to time the market).  In fact, I’m planning on buying more mutual funds (hey, it’s kinda like a 40% off sale).  I have quite a few years before retirement and judging from history, the market will recover.  It might not be soon, but then again it might be and I don’t want to miss the recovery.  In the middle of last week, I finally signed up to have Vanguard pull out a few hundred bucks and invest it in some index funds each month.  Tonight after I finish this post, I’m going to decide what to do with some money in a rollover IRA I still have in cash and probably put in a buy order for tomorrow.

Photo Credits: Terence Chang

How I Use My Bank Accounts: A Three-Tiered Approach

September 22, 2008 · Filed Under My Finances · 3 Comments 
Photo by Odalaigh

Previously, I discussed my current method for following through with a budget . In that post, I mentioned that automating as much of my finances as possible is the most effective thing I do to keep on track financially. I’d like to expound on that by detailing our current set of bank accounts and the purpose of each account. In general terms, we use three separate accounts to handle the bulk of our bill paying and saving, a checking account, a large-purchase account, and an emergency fund.

Checking Account

Our checking account is the primary account of this system. It is the gateway for all of our finances. Almost all of our incoming money is dropped into this account and almost all of our outflows are pulled from it. It is an account at a brick and mortar bank with a local branch so that I can withdraw cash, cash checks, and deposit money easily. Both my and my wife’s paychecks get direct deposited into this account. We use the free bill pay feature to pay as many bills as possible (I LOVE not having to mail all those bills out!). We even arrange most of our charitable contributions through bill pay as scheduled payments that are sent out by the bank each month (it’s not quite like using the "automated tithing machine," but it’s close I guess). Our mortgage payment and some others are automatically debited from this account as well. Again, the overriding principle is to automate as much of our inflows and outflows as possible.

Large-purchase Money Market Account

We also have a money market account hosted at same bank as checking account for convenience and same day transfers back to the checking account. This money market account is not the emergency fund (and contains a lot less money than the emergency fund). Rather, it acts as the buffer between the checking account and the emergency fund. The main goal of this fund is to be available when a large purchase is made or a big bill comes in that the checking account can not absorb. In that case, I transfer some money from this account back to the checking account. This allows me to maintain less money in the very low-interest checking account while not using the emergency fund for expenses that are not strictly "emergencies." I then replenish this account back to its targeted level.

Emergency Fund & Subaccounts

Even though the large purchase fund earns more interest than the checking account, it still earns much less than the emergency fund I have at EmigrantDirect.com . The Emigrant account is currently earning 3% which is about what the other popular online accounts are earning. Though I think INGDirect is more popular among personal finance blogs (maybe at least partially because of their generous affiliate program?) (Emigrant has an affiliate program but they won’t let me in it for some reason), I’m very happy with my emigrant account. It offers free transfers to and from the account, a pretty good interest rate, good email and phone support (the affiliate program emails notwithstanding), and a really useful sub-accounts feature.

I have setup a number of sub-accounts for short-term savings goals:

  • Emergency fund – This is our cash reserve we use to try to help weather significant financial storms
  • Vacation fund – This used to be our student loan payoff fund, and we very intentionally changed it to our vacation fund after paying off the last student loan .
  • Yearly expense fund – We put money into this fund for bills like life insurance, household employee taxes, etc that are fairly large and only paid once (or a few times) a year.
  • Home purchases fund – The money in this fund is earmarked furniture purchases, home improvement projects, etc.
  • Charity fund – Though my income is very consistent, I do get bonuses from time to time. To ensure that we give the decided-upon percentage of our income, whenever we receive extra income, I transfer the appropriate percentage into this fund. I feel this is a very easy way to keep track of the money and save it up for big donations as needed.

Again, as I said, I automate as much of this as possible. So, I schedule monthly transfers from my checking account to each of these sub-account funds.

So why so many accounts?

I use these multiple accounts to provide protection now and to plan for the future. The three main accounts of the checking account, large purchase fund, and emergency fund provide a layered system to (hopefully) avoid having to go into debt for major purchase and/or emergencies. And the automated transfers to the other funds help me to plan for the future to be able to pay our big bills and simultaneously enable us to do things like vacations and home improvements, again, without going into debt.

Having all the funds seems a little onerous, but it’s not that bad. Of course, you have to remember that my philosophy is to do everything as simply as possible. That means that I find it very worthwhile to take extra time to set something up if it means that the ongoing maintenance of it will be very simple as a result of the upfront work.

Photo Credits: Odalaigh

This Week in the Blogosphere: Soccer Practice Edition

September 12, 2008 · Filed Under Blog Links, My Finances · 2 Comments 
photo by CTD 2005

Soccer practice started last night. No, it’s not some reliving-my-glory-years thing, I’m the coach of my son’s Upward Soccer team. Our first exposure to team sports was in the spring when he and his sister played soccer together. This fall’s team is mostly 4 year old and I think one or two kids that are five. That’s pretty young. We were in the same age group in the spring but most of those kids were 6 or almost six (except for my son who barely made the minimum age after just turning 4). So this should be an interested experience…especially if all the other teams are stocked with 6-year olds! My son loves playing though and Upward soccer is a great environment in which to play, so we’re looking forward to it.

So what does all of that have to do with finances? Nothing I guess….well, maybe you could look at it as a frugal choice of a sports league – whereas my daughter’s gymnastics program costs more than $350 (though it does last longer), playing Upward soccer only costs $80 (and he gets a really cool uniform!). I definitely recommend checking out Upward for anyone with kids who love sports but want them to start out in a no-pressure and affirmative environment (they have other sports besides soccer as well).

Onto the week that was….

Now a double dip….

Have a great weekend and God Bless…

photo credit: CTD 2005

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