2013 Financial Year In Review

When I first started tracking my budget and net worth, I did monthly updates around the 7th of each month.  This still holds, and what it means is that December 7th is the ‘last’ net worth update for the year.  In order to do year to year comparisons, I’ve always kept the December update as the ‘final’ update.

What this means is that I wrapped up our net worth tracking for the year a couple of weeks ago.  I finally had a chance to look at it compared to our estimates, and determine that it was a pretty good year.

I don’t go into actual dollar amounts, but rather like to keep things in percentages.  I will still try to keep things interesting and in perspective.   I also continue to use accounting principles upon which my budgeting skills were formed, so I will list things according to the simple accounting formula that Assets minus Liabilities equals Equity (or in this case, Net Worth).

ASSETS

Our House

Projected:  +4.1%Actual:  +5.6%

What This Means:  I use a combination of inputs to estimate the value of our house.  Zillow is one component, our property tax records another, comparable sales in our subdivision and surrounding area, and just an overall feel of what’s going on. Even though the ‘actual’ is still an estimate, I am fairly conservative in my estimations, so I can safely say that the value went up more than I had thought.

Our Cars and Camper

Projected:  -13.7%
Actual:  -27.5%

What This Means:  At first glance, this appears to be pretty terrible, but in all honestly, the big gap was by my own choice, and is tied to me being somewhat pessimistic.  I use Kelley Blue Book as the starting point for valuing our cars.  I always lower the estimates about 5%, but knowing that our cars are now each around seven years old and the camper is nearly ten, I purposefully started lowering the value even further.  I figure as the cars get old, there’s an ever increasing chance that a blown engine or transmission could render a vehicle pretty much worthless, so I now write down about 20% of the value, and continue to ‘up’ this as the age goes up.

For a point of comparison here, had I stuck with the 5% point, the actual decline would have been around 15.0%, so I would have been pretty spot on.

Our Investments (Trading Account)

Projected:  +19.2%
Actual:  +28.8%

What This Means:  A darn good stock market for the year helped us along here.  Not much else to say, really, except that I wish I’d started off the year with more to invest!

Our Cash (Bank and Savings Accounts)

Projected:  -11.4%
Actual:  -15.5%

What This Means: I knew that we were going to get a new roof this year, so I was expecting a big hit.  The difference and why it went down was mostly to do with the fact that the roof was more expensive than I had budgeted.

I also didn’t make as much from my side hustles as I did in 2012, though some of this was offset with my wife kicking in through her side hustle.

Overall, not too many complaints.

Our Future (Retirement Accounts)

Projected:  +14.5%
Actual:  +24.1%

What This Means:  Again, a good stock market helped out quite a bit.  I’m actually thinking that a top is coming soon, so I strategically got more conservative going into the fourth quarter. This probably left a couple percentage points on the table, but overall I can’t complain.

LIABILITIES

Our Mortgage

Projected:  -5.7%
Actual:  -5.8%

What This Means:  We paid off what we expected to pay off.  Since we didn’t make any extra payments, this essentially landed us right where we thought we’d be.

Our Education (Student Loans)

Projected:  -12.8%
Actual:  -13.0%

What This Means:  Ditto for student loans.  We only have one remaining, and the payment is less than $100 per month and the interest rate is locked in at 2.25%.

mb-201312coinsNET WORTH

Total Assets

Projected:  +6.0%
Actual: +9.3%

What This Means:  Since liabilities are pretty well fixed, the difference maker in how we do compared to our goals is tied to how well we do with our assets.  Since the overall number came in higher than budgeted, this bodes well for our net worth performance.

Total Liabilities

Projected:  -6.0%
Actual: -6.0%

What This Means:  Since both of our loans came in right where we estimated, it stands to reason that the total liabilities came in right where we thought as well.  It’s nice to note that we did not take on any new liabilities.

Overall Net Worth

Projected:  +16.7%
Actual: +23.1%

What This Means:  2012 saw a ‘record’ year for us, with a 28.4% net worth gain.  I was hoping we’d keep the momentum, and we did, exceeding what I had hoped.  This was our fourth best year since I’ve started tracking (2003 and 2002 were second and third, respectively).  I’d like to see years like this every year, but I also am realistic and know that the amazing performance of the stock market won’t continue unabated. This means that we’ll have to continue to increase our savings, and also to increase the pool upon which the investments are based.

We also keep a long term focus.  We realize that our personal finances are with us for our entire lives, and the goal is to continue to make positive strides both for the near term and the long term.

Hopefully you had a great 2013.  Share your results if you know them, I always love to see how I stack up!

It’s Been Two Years Since Our Refinance

Two years ago we completed the re-finance of our house.  I thought I would go through some of the numbers and things that have happened.

Original Loan: 30 year mortgage, 5.875%, closed July 2007
New Loan: 15 year mortgage, 3.375%, closed November 2011

Increase in monthly payment: $157.69

Reduction in total term: 10 years, 8 months

Principal paid on new loan in the first 24 payments: 10.67%
Principal paid on old loan in prior 24 payments: 4.97%

Amount ‘extra’ paid on new loan over last 24 months: $0Amount ‘extra’ paid on old loan over the prior 24 payments: $4,144

Number of months before euphoria of making double the impact wore off: 2

Number of times I’ve regretted not taking a longer term re-finance so that I could have extra cash each month: ~5Average amount of time (in seconds) for me to completely dismiss that idea as ‘the crazy talking’: 4

Happiness on a scale of 1 to 10 when my tax preparer followed up to make sure that the reduced interest amount for 2012 was correct: 10

My calculated age at end of original 30 year term: 62My calculated age at end of new 15 year term: 52

My kids ages at end of original 30 year term: 28 and 26My kids ages at end of new 15 year term: 17 and 15

So, some things to take away from the above numbers:

  • mb-201311contractIf we stay in our home and don’t make any adjustments to the mortgage, we will have it completely paid off prior to the kids starting college, which has always been a goal of mine.
  • We would also have at least 10 years of being mortgage free while still being in the workforce.  This would definitely help set the table for a more successful retirement.
  • When I was still paying on the old mortgage but working through the details of the re-fi, the numbers were incredible to me.  By paying essentially what I was paying anyways every month, I’d be making almost double the impact.  That was awesome for the first couple of months.  Luckily, I anticipated this.
  • Paying the mortgage off early is not a priority right now.  Any extra money goes toward savings goals such as saving for a new car, home improvements, travel, or retirement.
  • If I were to pay the mortgage early, I would likely do so when I could pay off the entire balance at once.  So, if I made a boatload in the stock market and my trading account balance (after taxes) exceeded my mortgage balance, it would be then that I might consider a payoff.
  • We are nowhere near that possibility in our current state.
  • But I’m OK with that.
  • I think we chose the perfect term length.  It doesn’t crimp our lifestyle and keeps us honest to our savings goals.  The truth is that extra cash flow would be nice, but wouldn’t be worth it at all.

 I know many of you must have taken advantage of the low rates back around the time they hit thier low point.  I’d love to hear from those who have had their re-fi’s and how you’ve fared, emotionally and financially, in the subsequent months.

Great Read Friday: I Jinxed Myself – September 6, 2013

I had a feeling when I posted last month that our net worth had made positive gains for fourteen months that I was probably jinxing myself.  Sure enough, the streak came to an end as our net worth fell for the first time since June 2012.  Largely driven by the stock market taking a breather, our net worth fell by 1.5%.

mb-pennyI guess that can only mean one thing: It’s time to start another streak!

Here are some great posts I’ve read over the past few weeks.  I hope you enjoy them as much as I did.

A buffer of cash in your checking account can help in many ways, as pointed out by How I Save Money.  My favorite positive reason is simple: peace of mind!

All Financial Matters points out one of my pet peeves, that Tropicana raised prices by way of charging you the same as you used to pay but giving you less.  Argh!

KrantCents has a very resourceful list, outlining 25 odd jobs that can make good money.  If you’re looking for some extra cash, and want to do something that’s well worth the time, check this list first.

Keeping with the jobs theme, I always love reading about people’s job histories, and Tight Fisted Miser had a whole slew of entertaining and foundational jobs that provided many good insights into the workforce.

I remember when I moved into my first condo in 1999, a neighbor told me that she had already paid off her condo.  I couldn’t fathom this.  Apparently, I wasn’t the only person who assumed that everybody has debt, as found here at Plunged In Debt.

If you’re transporting your pets by way of automobile, Funny About Money wants to remind you to please carry them properly and safely (for you and the pet)

Fourteen Months And Counting

Hopefully I don’t jinx it, but I recently completed our monthly net worth review and we have had positive net worth gains for fourteen months running!  It truly has been a bull market!

Of course the bull market is a big contributing factor toward our gain.  Between our retirement accounts and investment accounts, we’ve definitely been taking advantage of the gains.  I only wish I had more to invest up front!

The housing market improvement has also helped, as I’ve estimated that our home has gone up about 9% in that time frame, which is based off of estimates from comparable homes that have sold in the neighborhood over the same time.

By The Numbers

Consecutive Months of Net Worth Gain: 14

Percentage Gain In Net Worth Over That Time: 38%

Rank in Net Worth Gains Since I Started Tracking Net Worth (January 2002): 2nd

Highest Number of Months of Net Worth Gain Since I Started Tracking: 17 (March 2004 through July 2005)

Just a few more months to break the record.  What do you think the chances are?

Have a great weekend!

A New Car Is Little More Than A Drag On Your Net Worth

I got a call from our credit union the other day.  I used to do all my banking at this credit union until we got married, when we decided to combine our finances, and this led us to consolidate checking and saving services into a nearby bank, meaning that the credit union accounts largely became dormant.

Still, I kept the account active with a little bit of money because for several reasons:

  • Fees – I knew credit unions would be less likely to charge fees or would normally charge less fees than a traditional bank.  Although our bank has instituted service fees, we’ve avoided them largely by closing accounts or meeting minimum balance requirements.
  • Other services – I knew that credit unions offered a variety of services, typically at a good cost.  Sure enough, when it came time to open a Health Savings Account earlier this year, our credit union was the only instituion I could find that would service our account with no monthly fees.  Other accounts will waive fees but only with a high balance.  Since we’re just starting our HSA contributions, we expect a low balance for the first couple of years, and the credit union turned out to be our only option for a no-cost HSA.
  • Loan rates – If we ever did need a loan, our credit union typically offered the best rate.  I had financed a loan with them several years back, which was one of my last car loans.

Since we reactivated our services with them by way of the HSA account, I guess they took notice.  I got a call the other evening.  I didn’t pick up because it was a number I didn’t recognize, plus it was bath time for the kids, which is a pretty hectic time.  I picked up the voicemail and it was someone from the credit union calling.

I had just made a deposit into our account using the online bill pay service of our bank (who essentially would write a check to the credit union), and it was our first such deposit.  I thought that they were calling to tell me that I had made an error or something, so I called back immediately to find out what they wanted.

It turns out that the deposit was fine, but that they were calling to see if there were any services that they could offer.  They specifically asked if we had any auto loans outstanding or if we planned on taking out any auto loans in the next few months.

I proudly answered ‘No’ on both fronts.  Both of our cars (a 2007 Buick and a 2006 Pontiac) are fully paid for and have been for a number of years now.  We also drive very little, so both cars have under 60,000 miles and we’d like to keep them for a long time.

Still, I did tell her (with complete sincerity) that I was aware that they had great loan rates and that we would likely consider them first and foremost if we ever needed to get an auto loan.

What I Didn’t Tell Her

The part I left out is that, if it were up to me, I wouldn’t use them for any auto loan, because in my dream world I would never take an auto loan again.  The hope is that we can pay for our cars up front.

How We Would Do This

Our goal is to save up enough to fund replacement cars on a regular basis.  We put a portion of money that comes in from our tax refund every year, as well as extra money (like anything I might make from the blog, for example).  The ideal amount would be to capture the average depreciation of our current car as well as the increase in prices of replacement cars.  That would, in theory, allow us to buy a replacement car.  Obviously, anything bigger or better or with additional features would drive that price higher.

We haven’t been as successful in saving for this goal as I would honestly like.  It may sound like an excuse, but most of that has to do with the fact that I haven’t gotten a raise or bonus of any kind from my employer in several years.  Adding two kids and all of the costs associated takes away a good deal of the opportunity for savings compared to what you had in the past, especially when your take home pay is not increasing (and in fact decreases when you consider that health care premiums typically increase).  Still, we’re doing OK, to the point were if one car needed to be replaced, we could likely swing it, but if something happened where we needed to upgrade to newer cars for both, we’d be in a tight spot.

Replacement Is The Word

Notice that nowhere above did I say anything about a ‘new car’ and that’s because a new car isn’t something I have a big interest in at this point.  I’m not going to go as far as to say that I will never buy a brand new car again, but from an overall personal finance strategy, a new car simply doesn’t make sense.  I would look at buying a used car of some sort.  The issue I would have is making sure we bought one that was reliable and somehow free of problems.  Our last used car purchase was great in this regard since we bought it from my parents, so we knew the full history!  We won’t always be so lucky, though, but that’s a bridge we’ll cross when we get to it.

The Net Worth Effect(s)

See, the reason I no longer like the idea of buying a new car is twofold, and both tie to your net worth.

  • Paying Interest On A Depreciating Asset – For people who actually do consider the effect of a car payment, this one is the one that most will consider.  A car payment means cash flow going out the door, and some of that cash flow is interest.  You’re paying the loan provider money, all while the car is falling in value.  At least with a house, the value under normal circumstances is supposed to stay steady or go up, so while you pay money in interest, normal market conditions will protect the principle amount.  With a car payment, there’s no such expectation.  You’re not only ‘out’ the interest you pay, part of your principle is actually eaten away by the depreciation of the car.  So, if you have a $300 car payment, and $75 of that is interest, that leaves $225 in principle.  But, if the car falls in value by $150 that month, you’re essentially retaining $75 of that $300 payment in your net worth.  The biggest reason to avoid a new car is because you’ll see bigger depreciation up front.  With a used car, the value continues to fall but by lower amounts as the car ages.
  • Percentage – If you have a household net worth of $200,000, consider that a new $30,000 car represents 15% of your net worth.  If you are like most households and have two cars, that can double. You can easily have 30% of your household net worth associated with depreciating assets.  The goal is to grow your net worth, so if you have two assets that are dragging your net worth down each and every month, that’s a lot of ground you have to make up just to stay even, let alone actually increase your net worth.  Cheaper cars will represent a smaller percentage of your net worth, making the effects a bit easier to overcome in terms of how a car drags down your net worth.

New cars are great.  Don’t get me wrong.  I love the feeling of getting into a new car.  Everything is clean.  Everything is new.  It feels fantastic to drive.  It’s a definite rush.

But, just like that new car smell, all that fades.

Except the payment.

That one doesn’t go away.  Well, it might, but that ‘new car’ exhilaration has likely long been gone.

So, next time you’re considering a new car, consider the effect that it has on your net worth, and the amount it could be dragging you back.  Consider how a used car will have less depreciation pulling you back, and will also mean a smaller (or no) loan which means you have less interest to pay.

Readers, how many car loans do you have?  Do you look at the effect a car payment has on your net worth, especially when you consider how depreciation makes the effect of a car payment even worse? 

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!