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!

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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.

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One Number Doesn’t Tell The Whole Story

Pretend you had two conversations with people about their net worth.

Person 1 reveals:

“My net worth went down by $200,000 last month.”

Person 2 tells you:

“My net worth went up by 50% last month.”

Chances are, upon first reading that you would think that Person 2 is making all the right moves and that Friend 1 is in trouble.  Big trouble, most likely, considering that most people would see most or all of their net worth disappear with that kind of loss.

Read moreOne Number Doesn’t Tell The Whole Story

A Bittersweet Net Worth Milestone

For the first time in over three years, I estimate that we have full positive equity in our home.

This is a good thing, but it’s bittersweet considering that we put 20% down on our home in 2007. Part of the downside was automatic and would have been in any market (see below) but that’s still a lot of equity lost otherwise.

The calculation

I estimate the top-line value (what a contract would say) of our home using four inputs:

  1. Tax estimates – The city tax bill gives the value of our home, and it’s generally been pretty accurate compared to market estimates
  2. The bank estimate – Our lender has always allowed us to pseduo-begin a re-finance application, at one point where it would give you a ballpark estimate of your home.
  3. Zillow – Even though this changes regularly, we use this as a fraction of the calculation.
  4. The ‘sniff test’ – I look at comparable sells in the neighborhood and will give a manual adjustment based on what I think is realistic based on what’s going around us.

Read moreA Bittersweet Net Worth Milestone

The Afterburn Effect Applied To Personal Finance

One of my favorite episodes of Seinfeld involves a plot where George puts in a furious workout which leaves him still sweating after he gets back to the office.  This leads to him being accused of stealing from his employer, as they figured he was sweating from being nervous.

In reality, this type of sweating is actually a good thing when it comes after working out.  It’s known as the afterburn effect, and basically says that after a rigorous workout, your body will still burn extra calories for several hours following a workout in addition to the calories expended during the workout itself.

I’ve actually applied this to my workouts, trying to work out harder for a slightly shorter amount of time versus a moderate workout.  After the moderate workout, your body basically wraps up, whereas after the rigorous workout, additional calories will continue to be burned.  So, even though the calorie meter might read the same, the net calories could be wildly different based on the type of workout you do.

Did you know that the afterburn effect can apply to personal finances?

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Jumping On The Re-Finance Bandwagon

With interest rates on mortgages falling, I couldn’t help but be intrigued when I saw 3.375% on a 15-year mortgage.

The biggest, problem, I thought, was that we had nowhere near 20% equity in our house, so I wasn’t sure if a re-finance would mean one or more of the following:

  • I’d have to bring a big chunk of money to the table to get to the 20% line
  • I’d have to start paying an escrow fund (we pay our own taxes & insurance and I would prefer to keep it that way)
  • I’d be forced to pay PMI which would probably wipe out some or all of any savings.

Still, 3.375% is 3.375%, especially when you’re currently paying 5.875% on a 30-year note.

My mortgage is with Citi.  I went online, as that’s where I do all of my business with them, and filled in a few fields that would allow for a mortgage rep to contact me.  I figured it would take a few days.

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A Four Year Debt-rospective

I use July as the benchmark for looking at the progress on our overall debt.  This practice started in 2007.  Why July 2007?  Simple.  Because that was the time that our debt was at its absolute highest.


July 2007 

Why was our debt highest in this particular month?  Because that’s the month we assumed the 30-year mortgage on our house.  Happy to say it’s been all downhill from there.

At this point in time we had:

  1. Mortgage – 100% of our mortgage balance remained since we hadn’t paid anything yet
  2. Auto Loan – We had about 30 months left on a 48 month car loan
  3. Student Loan 1 – This loan had the higher balance and the higher interest rate and higher monthly payment
  4. Student Loan 2 – This was the other loan we had.  Both loans were 15 year notes starting in 2005.

Read moreA Four Year Debt-rospective

Homeowners, Are You Treading Water?

It seems that all you read about in the news these days is homeowners who are ‘underwater’ on their mortgage, meaning that they owe more than what the house is worth.

I feel bad for those people, of course, but I think that there’s a large group of people that are not getting attention.

No, I’m not talking about those that I would call, for lack of a better term, treading water.

The definition for treading water would be simple. You have equity in your home, but really you don’t.

How’s that possible, you say?  Glad you asked.

I would look at it very simply.  If you are ‘near’ the line where you have equity (anywhere between 0-8%), chances are you’re treading water.

Read moreHomeowners, Are You Treading Water?

Net Worth Review: June 2009

June was another positive month for our net worth. That’s three months in a row that we’ve seen an increase, which is the first time we’ve seen three consecutive monthly gains since a four month stretch between November 2006 – February 2007!

Property –I use a combination of Zillow and CyberHomes. I make a small adjustment based on what I’m seeing things sell for, and I remove 7.75% for expected selling costs. For the month, the value stabilized, which is a rarity, actually going up a small fraction. I’m not sure how long that will continue, given that Michigan will most likely see further battering with the GM bankruptcy, but we’re not going anywhere, so no big deal here.
Autos – The value of our two cars has held pretty steady the last couple of months as the used car market has heated up. We saw a modest decline, but nothing unexpected.
Investment Accounts – We had a good month, going up slightly above 5%. Still for the last 12 months, our investment account balance is down over 35%. Still, I feel like we’re hopefully in a good re-building mode that can continue the positive strides made.
Cash Accounts – We continued to slightly add to our cash accounts raising another 2.66% for the month.
Retirement Accounts – Our retirement account went up 7.6% for the month. The total value is down roughly 14.5% over the past year. My employer stopped matching, but we’re still contributing 10% of my salary at this time. Unfortunately, we’re not maxing out our retirement, but I still feel like we’re moving in the right direction.
DEBT:
Mortgage – Nothing special, just the monthly payment. Our mortgage is a 30-year loan at 5.875%
Car Loans – We paid off our car 11 months ago and we have no outstanding car loans!
Credit Cards – This is the balance that’s accrued since the last statement. We pay our credit cards off every month. We have a little lower balance than last month but still quite a bit higher than usual (as evidenced by the increase from 12 months ago) simply because of the added costs of our newborn.
Student Loan 1 – This is the loan that had a higher balance and a higher interest rate. After paying the car loan off, we concentrated our debt payment on this loan. We’ve paid 60% of the balance from a year ago, which just thrills me to pieces! We got a decent chunk down this past month as a portion of our federal tax return went to paying it down.
Student Loan 2 – This is the second loan but it is at a very low interest rate. We make the minimum payments on this loan. After Student Loan 1 is paid off, we’ll have to decide whether to snowball the payments toward this loan, or switch to something else (such as the mortgage, investing, or adding even more to our retirement)
Overall, our net worth went up 8.2% for the month, and is down 24.8% from a year ago.
I think it was a good month. I’m still extremely happy with how we’ve transitioned into a single-paycheck household. Our next challenge will be to add the month-to-month costs of a newborn into our budget.
I think we’ve made some great strides and am keeping my fingers crossed that we continue to positive momentum built over the last several months.

Checking Back In With A Net Worth Update

It’s been awhile since I’ve posted and I apologize for the delay. But, I’m happy to report that the project I’ve been working on at work has gone very well. I can’t share too many details because of confidentiality agreemens, but I’ll just leave it that it’s been one of the most gratifying projects I’ve worked on in my career, and I’m proud to have been on such a great project.

Anyways, now that we’re back I’ll share the net worth update for March 2009.

As you remember, February was pretty brutal month in the stock market, and therefore the net worth update was what I had expected: Not good.

Overall, our assets dropped 2.33% in value, but on the plus side, the debt we carry dropped by 0.81%. This was thanks largely in part to an ‘early’ income tax refund that a good portion of which was applied to debt.

What happened was that after I changed my filing status from single to married, I started getting a lot more take home pay. I took that and stuck it in an earmark of our savings account titled ‘2008 Tax Refund’. Now that I’m reasonably sure that our actual tax preperation will give us a refund, I simply took that money and applied it as if we’d gotten a full check from the government.

When we get our real check, we’ll have a bit more to apply to debt as well.

But, anyways, overall our net worth fell 5.0% for the month. Not good but given the free fall that took place in the stock market, I’m not too worried and think we’re headed on the right track, especially given the fact that we’ll soon be losing my wife’s income since tomorrow is her last day!

More on that as we continue to resume regular posting!!!!!