Our 2013 Financial Goals

Having just closed the book on our 2012 financial goals, I thought I would share our 2013 financial goals.  These are goals that tie directly to our personal household finances.  I figure that posting them will leave the door open for suggestions as well as give me something to hold myself accountable to.  If you have any suggestions or ideas, I’d be more than happy to hear them.

  1. Health Savings Account – We switched to a High Deductible health insurance plan, and tied to that is a health savings account.  I am currently researching the best place to open this (since our company plan does not include the HSA aspect).  I’d like to have this open and funded in January, setup regular contributions of at least $200 per month, and end the year with at least a $2,000 balance to carry forward into next year.
  2. Home Value Increase of 4% – Our value increased by an estimated 6% last year.  This would be another nice increase.  It would still leave us far below what we paid, but would allow for a continued growth in equity.
  3. Auto / RV values decrease by 13% – We don’t plan any new purchases in terms of cars or our RV.  I’m estimating that depreciation will reduce the value by 13% from the beginning of the year.
  4. Cash savings reduced by 11% – Although I expect to save a little money toward our long term goals, we will be taking a hit this year that I’ve known is coming, as we will have to pay for a new roof.  A high yield savings account can help you earn a favorable interest rate on your cash holdings.
  5. Retirement assets increase by 15% – Regular contributions will hopefully push this number up, and I’m hoping for a modest gain in the markets.  I’m still not happy with our total number in terms of my age and what we have, but slow and steady wins the race.
  6. Investment account increase of 19% – Last year I set an ambitious goal of over 30% and saw this come well short.  This year, I’m still hoping for a gain that would outpace the market.  From what I’m seeing in terms of analyst and sector recommendations, I think this is achievable.
  7. Reduce debt by 6% – The only debt we have is our mortgage payment and a student loan payment.  Just the regular payments would allow us to reach these goals and would reduce our mortgage balance by 5.7% and our student loan balance by nearly 13%. I don’t plan on paying extra as any additional money that I’d normally put to paying off debt will instead go toward savings.
  8. Net gain increase of 17% – If we met every goal, our net worth would increase by 17%.  This is short of what we acehieved in 2012 (which was a 28% gain) but would still be pretty nice growth.  I’d like to see this even higher, but am trying to be a little conservative.  We still have a long ways to go toward making up the losses in our net worth that came about during the Great Recession, so even though our net worth is at ‘record’ levels, it is not where I had envisioned it being as I enter the last year and a half of my 30’s.

I’ll provide some regular updates throughout the year.  As I mentioned above, I’d love to hear about your goals or any suggestions you have that can help us beat our goals.

Thanks and here’s to a great 2013!

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Reviewing Our 2012 Financial Goals

I wanted to take a look back at the financial goals that we had set for 2012 and review how each of the areas that I had targeted actually performed.  The way I handle our financial spreadsheet, the net worth review that we do toward the beginning of the month is how the year is closed out, so even though there’s still some time left in the year, we can give an accurate look at our goals based on how things shaped up with the most recent review.

Here is a summary of each goal as well as how things actually turned out:

  1. Home value increases by 1% – The housing market had begun to show signs of stability at the beginning of the year, but it now looks like an actual recovery is taking place.  The formula which I use to calculate the value of our house takes into account a number of considerations, including Zillow’s reported value, comparable houses sold in our neighborhood and surrounding subdivisions, and a couple of other factors.  I’m happy to report that, based on these calculations, the value of our home went up by 5.7%.  There’s still quite a ways to go before we even reach the point of having it worth what we paid for it, but it’s still a great step in the right direction.  Achieved!
  2. Auto value decrease of 13% – Auto values had been holding relatively steady over the recent years, mostly as a result of an increased demand for cheaper, reliable used cars.  Now that the auto industry is steadily increasing sales and the age of the average car increases, the value of used cars has begun a more rapid decline.  Ours actually went down only by about 8% simply because the decline I forecasted didn’t really start until about mid-year (at least according to Kelley Blue Book, which is my estimating tool for our two cars).  Better than expected!
  3. A 25-30% growth in our investment account – I have a few stocks which I believed were ripe for big gains.  Unfortunately, they didn’t do as well as expected and we only realized about a 6% gain here.  It’s still better than nothing but not what I had hoped for.  Fail!
  4. A 15% increase in our cash holdings – We did OK here, seeing an increase of about 12%.  (Our cash holdings allowed us to pay for items and costs that came up, but if cash is not readily available there are options for quick loans that can get you through in a jam)  I had hoped our side income would be a little higher with various things that we do to earn money on the side, but while it was good, it was slightly less than expected.  Fail! 
  5. A fifteen to twenty percent increase in our retirement balance – This one was right on target and I’m happy to say it was toward the high end, as our retirement account balance increased by 19%.  Achieved!
  6. A five to six percent decrease in our mortgage balance – We did not apply any extra to our mortgage payments this year, but the 15-year 3.375% re-finance we got ourselves into last year helped us pay off 5.3% of the balance.  Achieved!
  7. An eleven to twelve percent decrease in our student loan balance – Again, we made minimum payments (thanks for nothing, employer who still hasn’t given out any raises) but this allowed us to pay off 11.3% of the outstanding balance we have for student loans.  Achieved!
  8. An overall net worth increase of 22% – If I were to have hit on all of the targets above, the end number would have resulted in a 22% net worth increase.  As it was, we hit on five and missed on two.  That’s the bad news.  The good news is that the ones we hit on had a bigger impact than the ones we missed on, namely hitting the high end of our retirement saving goal, and the value of our home going up by a few more percent than I had estimated.  With this we saw a net worth increase of 25%.  Achieved!

Am I happy or sad?

Little Boy Beagle is three and a half, so he’s learning right from wrong, and as such, he knows if we’re ‘happy’ or ‘sad’ and if he can’t read the look on our face, he’ll ask “Are you happy?” or “Are you sad?”.  My guess is that if he looked at my face, he probably wouldn’t be able to read whether I was happy or sad with the numbers.

The bottom line number, overall net worth, is great.  Given that we set a pretty high benchmark and we actually exceeded it, I’m very happy about that.  In fact, since I started tracking net worth, it’s the highest year over year increase since 2003, when I had a 27% increase.

That was the happy part.  But, as to the things that made me sad, well first is the obvious fact that we missed on two of the targets.  Even though we had a big upward surprise on the value of our house, it still doesn’t make up for the fact that we grossly missed on our investment accounts.   Now, granted, some of the people that commented on the original goals post indicated that my expectation was pretty lofty, so maybe I shot a little too high.

Or maybe I don’t have a great handle on the actual investments.

The good news on that front is that the investment accounts make up a small portion of our net worth total, so a miss there isn’t going to have an impact as if we, say, missed on the value of the home.  In other words, if we had to miss, I would rather miss on the investment account than the home.

But, in reality, there’s a part of me that wishes that wasn’t true.  See, the investment account won’t grow to a comparable level of importance as our home if we don’t actually grow the investment account.  If it were to grow at 6-7% a year, many would say that isn’t bad, but I am hoping for better than that.  I want it to grow faster and at some point provide a measurable part of our net worth.

Getting there is the challenge.

Right now, adding a lot to investments isn’t really in our cards.  Most ‘net new’ investment into stocks or mutual funds goes via our retirement accounts.  Outside of that, we’ve been squeezed on several fronts.  I will say up front that these are things we have made conscious choices upon.

  • We are a single income household – We made the decision even before we got married and were years away from starting a family that we wanted to have Mrs. Beagle stay at home.  Her income was in that area where her working wouldn’t have resulted in a big net pay increase after you factor in child care, and when you add the fact that our kids are getting great care, I know this is the right choice.
  • I haven’t gotten a raise in a number of years – Our company was bought out by a venture capital firm several years back.  I knew what that meant and expected that raises and such would be impacted, and they were.  While the company now makes money (they hadn’t before the buyout), apparently it’s not enough to allow for raises to be given out.  This diminishes our spending power as inflation erodes the paycheck.  This is a choice we make for me to stay at the job.  The reason I do?  Mostly the non-paycheck benefits.  I get over five weeks of paid time off.  I work five minutes from home.  I have managers and team members who support each other. I like the job that I do.  At a certain point, these things may not be enough, but at this point, my satisfaction with the job and the complete package is enough (though I do have my moments).
  • We re-financed last year – From a net worth perspective, last year’s re-finance from a 30-year 5.875% mortgage to a 15-year 3.375% mortgage was awesome. Our payment went up $150 per month, but our contribution toward principle went up $500 per month.  That’s a pretty good return on investment.  Still, from a simple cash flow perspective combined with the fact that I refuse to cut our retirement contribution and my employer refuses to give me any more money, it takes money off the table at the end of the month (though to be fair, there’s no way I could get that return in the market).

So, while all of these choices are ones that I have made actively or passively, there’s a part of me that is still frustrated by the slow growth in the area of our investments.  In the long run, I will have to adjust my expectations and continue to focus on the bigger picture.  I know that I am reasonable enough to know that if I were to get a few more years in a row of 25% returns that I would be more than happy.

One can only hope, right?

Readers, how did you do on your 2012 financial goals?

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Oops! I’ve Been Overestimating Our Net Worth

I use a spreadsheet to track all of our financial information, including sheets that I’ve created for tracking income and spending from our checking account, savings accounts, as well as our credit cards, investments, and pretty much everything else financial related.  The spreadsheet serves me well and has evolved over time.

I know there are online options out there but I’ve been using this for so long that I am just so familiar and comfortable with using it, and have no desire to switch over to Mint or anything else.

Maybe some day.

But I did recently happen to see that I’ve been overestimating our net worth, probably for quite some time.

One of the things I track is all of our bank account balances.  In the same section, I also track our outstanding credit card balance.

So for example, I might have:

Bank 1 Checking: $2,000
Bank 1 Saving: $1,000
Money Market 1: $5,000
Online Saving: $5,000
Credit Card Balances: -$1,000

These are all calculated on the day of the month that I do our net worth tracking.  In this case, adding all of the numbers together would yield a ‘balance’ in this area of $12,000.

The problem was, in the ‘total’ section, I was subtracting the credit card balances.  As we’ve all learned from our basic math classes, subtracting a negative number has the net result of adding it in there.  So, in essence for this example I would have been adding $1,000 to the balance, and would have been getting a total of $14,000.

This basically means that for as long as I’ve had the error, I was overstating our net worth by two times the amount of whatever our credit card balance was.

I don’t keep that level of detail on a month to month basis, so I’m not going to go back and correct anything.  In most months, this is a pretty low number, usually between $400 and $700.  It’s not going to throw our numbers off that much.

And, it actually happened to fall on a good month, as our net worth went up by a good chunk from some good action in the stock market.  So, even after correcting the error, our net worth still showed a nice bump over last month, when it was wrong (and probably for at least a couple of years before that).

I should probably go through and look at the rest of my formulas to make sure that everything jives.  I do have quite a few checks and balances that I’ve built in so I’m fairly confident that our numbers are correct, but you never know.

Have you ever caught an error of your own doing?  How much did it throw you off or cost you?

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Home Ownership And The Impact On Net Worth

It’s been a rough few years for the housing market, to say the least.  We moved into our house in mid-2007.  The price we paid was roughly 15% lower from what the previous owners had paid several years prior, so we thought we were getting a steal.  Turns out the market had a lot further to fall.

Even though we put 20% down, we were precariously close to the point of being underwater by the time the bottom hit.  We never quite hit there, but that shows that the total ‘loss’ in value on the house was over a third.  That’s pretty staggering.

With all that, there were many pundits who became steadfast in their belief that renting was advantageous to owning a house.   For the last few years it was hard to argue as they could point out that their payments were not going toward a declining asset, not to mention they were not responsible for the maintenance and upkeep that homeowners had to take to keep their property current.

It was hard to argue, but I still believed in my heart that owning a home was the right choice.  At least for us.  If nothing else, it gave us roots.  It gave us something that was ours, that we could do what we wanted with and call our own.  Yes, the bank owned it but the bank was never going to live there.  We were.   As time went on, I began to learn things about the home and care about things that I likely wouldn’t had I just been renting it.

Through all that, the monetary benefits of owning a home were on hold.  But, lately, finally, they’ve began to show themselves.

And it reminds me that it’s a great time to be a homeowner.

Over the past nine months or so, Zillow has been reporting a positive uptick in the value of our house.   Zillow is just one measure that I use to estimate the value of our house, but it is in line with what I’m seeing.  I track the listings and sales in our neighborhood and surrounding neighborhoods, and the asking and selling prices have both been trending upward, while foreclosures in our immediate area have been cleared out.

Couple this with the fact that we owe less on our house with each mortgage payment, and the house has been the biggest contributor to our net worth increase since the uptick started.

Yes, even better than our 401(k) and investment accounts, which have done remarkably well over the same time.

One thing people often overlook when looking at how expensive a mortgage payment can be is that the portion of your payment that is applied toward principle stays with you in terms of net worth.  This isn’t the case with a rent payment.

If you have a mortgage payment of $1,500 and you are splitting it evenly between principle and interest, then only $750 comes off your net worth each month.  The other $750 stays with you.  It just gets moved from your ‘cash’ assets to your ‘property’ assets.

What happens if you’re making a $1,500 rent payment?  Every dollar is a reduction of your net worth.

When you’re a homeowner, any increase in value also goes into your pocket from  a net worth perspective.  Using the numbers above, say your house increases in value by $3,000 over the course of a year.   That averages out to $250 per month.  Combine that with your $750 ‘net worth’ transfer, and your property is increasing your net worth by roughly $1,000 per month total.

If you’re renting and that property value goes up, guess what you get?

Nothing.

Except another bill.

Now, we’re nowhere close to where we were even with our down payment.  So, there will be those who will point to the tens of thousands of dollars we’re still ‘in the hole’ as justification for having been a renter.

That’s fine.

But, I also know that even with a modest 2% increase in our home value as well as combined with the fact that every month will mean a bigger and bigger net worth transfer (as more of our payment is applied to principle), and I know we’ll catch up eventually.

It might take a few years, maybe even longer.  Maybe more than ten.

But, you know what? That’s fine with me.  If you’re a homeowner that’s doing it right, you’re in it for the long haul.  That’s a commitment that homeowners make.

Besides, as I  noted above, I don’t do it for the money.  I don’t have any inclination of moving over the next few years, so the gain or losses are strictly on paper.

It’s just nice to know that those gains are finally happening in our favor.

Has the real estate crash scared you off or have you seen it as an opportunity to buy a home for your residence or as a rental?

 

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