Our 2014 Financial Goals

mb-201312billscoinsLast week I wrote about our household’s financial performance.  Having beat our goal of a 17% net worth gain by a few percentage points, I set our sights on what our goals are for 2014.  I love this time of year as others post their goals, not just to see the goals themselves, but to see the priorities and also the reasoning behind their goals.

As such, here are our goals!

  1. As seamless a transition as possible between my ‘old’ and ‘new’ employer – I will be working at the same job doing the same thing, even sitting at the same desk.  But, our work is being in-sourced as the organization has decided to bring most IT services in house.  My salary is staying the same, but there will be adjustments across the board.  Benefit deductions will change.  We will go from receiving 24 paychecks a year to 26.  The offerings for some things, like life insurance, may need to be supplemented.  Added together, this will present enough changes so that I’ll have to make some changes to how I track things on a detailed level.  I’m hoping I can get through this relatively stress free.
  2. A modest gain in our home value – According to my estimates, our home went up 5.6% in 2013 after a 6% gain in 2012.  I’m thinking that things will start to level off, so I’m hoping for a modest 2% gain in 2014.
  3. A 20% decline in the value of our cars and camper – I think this one speaks for itself.
  4. A 10% gain in our trading account / personal investments – I don’t think that the stock market will continue its rally anywhere near the extent that it has the past several years.  I don’t think we’ll be headed toward a recession, I just think the market will take a breather.
  5. A 5% increase in cash savings – If nothing goes wrong, then we should be able to beat this pretty easily, but as I learned when I got stuck with $2,000 in costs between a new dishwasher and car repair bills last month, it’s best to plan conservatively and anticipate the worst.
  6. A 12.5% gain in the value of our retirement funds – Again, I don’t think the market will give too many gains here (though I hope I’m wrong), so I think this would come primarily from contributions.  My transition in employment will actually result in getting an employer match, something I haven’t had in a few years, something which will definitely help toward this goal.
  7. A 6.6% reduction in debt – If we make the regular payments on our mortgage and student loan payment, this is what I estimate the reduction will be from our current balance.
  8. This would result in a 13.6% net worth gain – If all of these things come out exactly as estimated, our net worth would go up by 13.6%.  This would be a big cut from the 27% and 25% gains we’ve seen the past two years, but I think it’s time to start setting our expectations a little more conservatively.

That’s it.  I’d love to say that we’re going to do something big like ELIMINATE ALL DEBT or MAKE $500,000 IN THE MARKET but things are a little less exciting than that.  In the end, we’re still working hard to increase our assets and reduce our debts as we work slowly toward building stability, financial independence, and wealth.

I’d love to hear your goals.  Share them in the comments below or point me to your site, if you’ve also written a blog post outlining your goals.  I wish success for us all!

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!

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? 

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?