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!!

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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)

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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.

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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.

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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….

• Here is a very interesting interview with someone who has already done what most of us are reading these blogs to do, you know, save, invest, accumulate wealth, live (@ ChristianPF )
• Here is a comprehensive and very detailed look at asset allocation. I’m sure that I’ll be going back to study this further in the future. (@Moolanomy )
• Here is a good rational approach to reduce some of your worrying about money (of course, this is most effective if you actually behave rationally in regards to worrying and money and worrying about money) (@Capital Couples Finance )

Now a double dip….

• Starting with some good tips for remaining debt free once you do all the hard work to get out of debt (@ BibleMoneyMatters )
• Finally, I have been accused of exactly what he describes in this Bible verse of the day post (unfairly of course! ) ….so I’ll bookmark it and try to go back and read it periodically (@ BibleMoneyMatters )

Have a great weekend and God Bless…

photo credit: CTD 2005

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To track how we are doing financially, I monitor our net worth and update it on a monthly basis. I think it is a great way to keep track of how all your planning and hard work is paying off. 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 .

Yikes! A 13.4% drop in our assets!

The hard work does not seem to be paying off (at least not this month!) It was actually a crazy month for us finance-wise. For example, our total assets dropped 13.4% driven by a whopping 65.6% drop in our liquid assets. Of course, since you are all faithful readers, I’m sure you remember that we paid off our final student loan this month and that accounts for the vast majority of the drop.

On top of that, however, it seems to have been a poor month for my mutual funds and company stock. Actually, the value of my company stock holdings dropped more than 7% and the value of my stock options fell off a cliff, dropping almost 50%! My other stock market exposure (in 401ks and mutual funds) also accounted for some of the asset drop, but they were down less than 2% each.

Woohoo! Our liabilities decreased by 17.5%.

Again, the weirdness of the month created quite a large drop in total liabilities. Ahhh, it is so nice to not have to obsess about paying off the student loan anymore. I haven’t really started obsessing about anything in its place yet (like paying off the mortgage, for instance). I’m still waiting for our liquid assets to recover a bit over the next months due to not putting so much cash towards that loan each month. After a trip to IKEA , however, I’m not sure how fast those numbers will rebound.

Our net worth decreased approximately 6.1% in August.

Putting those two large numbers together yields a slightly smaller, but still pretty large, drop in our net worth. Obviously the stock market wasn’t too kind to us this month. Taking into account the fact that a large amount of our cash buffer was used to pay off the student loan, you can see that the stock market exposure will continue to have a large impact on our net worth in the months to come.

This month, however, was much more about getting rid of our last student loan that anything else. I am very happy with our decision to use some of our cash to eliminate it. We are now down to only having the mortgage (and the other contractual obligation to pay back if my wife stops working in the next 15 months). From a net worth point of view, it will probably be bumpy for the foreseeable future as it will depend in large part on stock market performance.

As we go forward, we won’t be looking to replenish our cash reserves to where they were previously. We will keep our emergency fund at its current level of 3 or so months of expenses. We have started some short term savings for vacation, gifts, large home purchases, and yearly expenses. Also, I finally decided on an asset allocation for my rollover IRA and our taxable mutual funds. We will start putting more money into those mutual funds soon and probably increase our kids’ college savings accounts as well.

So, I sum up the month thusly: 6.1% drop: bad . No more student loans: great!

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To track how we are doing financially, I monitor our net worth and update it on a monthly basis. I think it is a great way to keep track of how all your planning and hard work is paying off.

I usually calculate our net worth around the 5th of each month, after our mortgage payment is deducted from our checking account. I feel that doing it the same time each month gives me an accurate picture of what happened the previous month. So, after I see that the mortgage payment is debited, I sit down in front of the computer and go through all of our accounts and update my little spreadsheet.

The overall number is important but I also like to create a number of groupings of various accounts and liabilities to provide a finer-grained view of exactly what is happening with all the components of our net worth. If anyone is interested, I can create a post detailing exactly how I set up the spreadsheet to collect this useful information and how I update it each month. You can even have it create a simple little graph for all you visual people out there.

Our assets increased approximately 0.88% last month

I say "approximately" because I don’t know the current value of my wife’s 401k (since I forgot the password to her online account). Our assets have been dropping for the past two months – so even though we had a gain this month we are still not back to our May level. I’m still quite pleased with this as we did experience some large expenses this month – we went on vacation, our yearly life insurance bills were due for both of us, and we had some other large purchases.

The lions share of our gain was due to the performance of the stock market and specifically my employer’s stock. I have some stock and stock options and when the company stock yo-yos up and down, so does our overall asset value. I periodically check to make sure that the value of our company stock holdings do not get out of whack – right now they comprise 6.2% of our non-retirement savings. The value of my stock options go up and down like crazy also. For instance, it decreased 15.4% last month only to rebound by 19.8% this month. (this is why I have all of this stuff separated out – so I can tell exactly what is doing what) If you take out the volatility of the stock options, the rest of our non-retirement assets increased 0.25% this month. (I guess it’s like the CPI and core CPI)

Our liabilities decreased by 0.60%.

The change in our liabilities is a much more predictable value. Each month we shave off about $300 from our mortgage balance, the student loan debt drops about $800, and my wife’s bonus payback drops about $1300. So, this month, like the last few months, saw our overall liabilities drop.

Our net worth increased approximately 3.7% in July.

If you put that all together, we experienced an overall net worth increase of 3.7% for the month. This seems like a big number to me, but in reality we are still a bit shy of our May net worth level. Our cash savings have been decreasing slightly due to some large bills recently but our liabilities continue to decrease also. This does show me that I might need to investigate further the reasons our cash is not increasing

This tells me that our net worth has a fairly high stock market exposure

Between June and July, our net worth decreased by 4.4% and then increased by 3.7% between July and August. To be more specific about the stock market exposure, I would say the net worth is very dependent on my employer’s stock. Over the same time periods my company’s stock dropped about 3.5% and then rose 4%. These numbers track very closely with our overall net worth changes. This is interesting information, but I’m not sure it will prompt me to do anything in the short term. I must certainly continue to monitor the overall percentage of our net worth tied up in company stock.

Since a huge factor is the stock options which we are going to wait to exercise, it is hard for me to decide exactly how to integrate them into the net worth. If I sold them all today, I would have X more dollars, so I do think that I should take that into account in my planning. Then again, they are not technically worth any money at this point in time. I’ve gone back and forth with including them; for now, they stay in so I have the complete picture of our finances.

Since I have been following my net worth, it has provided some useful information and, more importantly, has given me a sense that we are moving in the right direction . Even though we haven’t moved much (net) over the past few months, I am comfortable with the progress when I view it from a long term perspective. If you don’t already, I would suggest you periodically track your net worth. Even if you don’t like where you are, at least you’ll be able to see where you are going and change that direction to get to where you want to be.

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Where we were when we started to get uncomfortable with debt…

A few years back, my lovely wife and I were just happily (and ignorantly) going along through life doing what everyone does with their finances. We had just moved to a new city and bought a new house and two new cars (one used so just "new to us" but the other was new and leased!). I had some student loans as well and my wife had lots and lots of student loans from her medical school. So, we deferred her loans and paid the minimums on everything else and went on living. We never really were irresponsible with our daily spending though – we paid off the credit card balances each month (although we did routinely jump at "90 day same as cash" deals). We did manage to accelerate and pay off my student loans but then when the lease was up we sold our leased car and bought an even more expensive minivan. By now we had one child and another on the way (hence the minivan) and the expenses that went along with them (like the minivan…and lots of diapers).

photo credit: wrestlingentropy

Shortly thereafter, we moved across the country and got an even bigger mortgage with $0 down (did you know they give houses to doctors without any down payment whatsoever?) and replaced our SUV with a Honda Civic (a more responsible choice but still purchased with a loan, of course) So, here we were with an even bigger mortgage and even bigger student loans thanks to the wonderful concept of deferment and two car payments. At this point, we had roughly the following debts:

• Mortgage: $1500/month
• Student Loans: $1000/month
• Car 1: $500/month (5 year loan)
• Car 2: $300/month

So this is when we really started to feel uncomfortable with all this debt. And can you blame us, we were spending $800 on car payments and another $1000 on student loan payments – talk about a cash flow crunch! Remember (for all of you saying, "so what, his wife is a doctor"), at this point my wife was still in training, so she was not earning a "doctor" salary. This was the point where, while still not being able to imagine ever getting rid of our student loans, I really started to obsess about getting out of debt (we’re talking even thinking about it in the shower kind of obsession).

photo credit: G&P Family

Where we are now…

Since that time, we have moved again to a more expensive area so we bought (wait for it..that’s right) an even more expensive house (maybe not the best step for someone starting to become quite obsessed with debt?) So our mortgage payment has gone up significantly. On the other hand, we have dropped the hammer on the rest of the debt and have paid off both car loans and about $70,000 of the student loan debt over the past few years. Again, remember that my wife works part-time, so her salary only went up 20% or so after she completed her training, not the 200%-300% like for some specialties. We mainly accomplished this by selling stuff like our previous house (remember when the housing market was going up?) and cashing in some expensive universal life insurance policies. Actually, when I look back on it now, it just doesn’t seem like we should have been able to get rid of that much debt – I guess it was one of those times where we started down a path and God blessed it.

Currently, two debts remain: a mortgage and a student loan (with about $70,000 left on it). Well, we sorta have a third because my wife received some bonuses when she started working that we would have to pay back if she stopped working before three years have elapsed – we count that as a debt in our net worth calculations.

Where we want to go…

I want to be out of debt. I have wanted to be out of debt for a few years now…and we are getting close to only having the mortgage left. We are currently paying about double the payment on the student loan each month and also saving into a fund that we will use to pay off the remaining balance (since we only have one loan left, the payment is not the $1000 mentioned above). We currently have enough cash to pay off the remaining loan, but I have been nervous to pull the trigger because it would expose our emergency fund and we would not have enough cash to pay back my wife’s contractual obligations if we needed to do so in the near future. [Check back next week for a post on this very subject] We have been doing retirement savings and a little investing, but the majority of our extra cash goes toward this loan.

What have I learned thus far through this journey?

For one thing, I have learned that this is quite true:

The rich rule over the poor, and the borrower is servant to the lender. Proverbs 22:7

My wife and I have been somewhat limited in the choices that we’ve been able to make due to the amount of debt we’ve had and have. For instance, if she wanted to stop working and be a full-time mom, it would be quite difficult to do right now because of the student loan and sizable payment she would have to make to pay back her bonuses. I really want to go into depth on this verse (don’t worry, not right now!) and am looking forward to doing that in a future post.

Of course, the name of this site comes from the following passage:

The LORD will open the heavens, the storehouse of his bounty, to send rain on your land in season and to bless all the work of your hands. You will lend to many nations but will borrow from none. Deuteronomy 28:12

And put that together with this:

"For my thoughts are not your thoughts, neither are your ways my ways," declares the LORD. Isaiah 55:8

I believe that once we shunned the conventional worldly thinking on debt and got serious about eliminating it and desiring God’s blessing of not having to borrow, He blessed us as we started down that path. We are certainly not there yet (our mortgage balance is many times larger than our remaining student loan), but I feel that we are on the right track.

So there you have it…the brief version

Well, that’s the story…briefly (yeah, I can’t believe it either) … where we were, where we are now, and where we want to be in the near future. I really hope to be able to soon say that we are debt free except for the mortgage. When we make it, maybe I’ll call up Dave Ramsey to yell "WE’RE DEBT FREE." Have you ever listened to one of his shows where callers do that? It is incredibly inspiring! I might wait a bit for that, though, because I don’t think it would sound so good to yell "WE’RE DEBT FREE…EXCEPT FOR THE MORTGAGE AND THE CONTRACTUAL OBLIGATIONS WE MIGHT HAVE TO PAY BACK SO WE COUNT THAT AS A DEBT TOO!"

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