5 Financial Items To Do With The 5 Weeks Left In The Year

Today is Cyber Monday and by now, everybody is in full holiday mode.  I’m sure lots of people gave up some sleep for Black Friday shopping, and I know internet traffic spikes (and work productivity goes down) as people will be online today trying to hunt down deals.

While this is all good, one thing to keep in mind is that there are just 5 weeks left in the year.

Thus, I thought it would be prudent to discuss 5 things to do with those 5 remaining weeks:

Read more5 Financial Items To Do With The 5 Weeks Left In The Year

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.

Read moreOops! I’ve Been Overestimating Our Net Worth

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

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.

July 2008

During the first twelve months of living in our house, we did pretty good.  We paid off 5.5% of our debt balance, leaving 94.5% of the original debt amount.  My wife and I were both working so we were able to pay a good chunk extra each month.

All loans were paid with their regular amount except for the auto loan, which we reduced by 97%!

July 2009

My wife had quit working in March in anticipation of being a stay-at-home mom.  As such, we knew that the days of applying a lot of extra money each month to debt would be reduced.  This was sad, but on the upside, we eased into the budget so that the last few months she was working, all of her income went to debt, which allowed us to reduce the balances plus have worries about being able to pay the monthly bills once her paycheck went away.

The tiny bit on the auto loan went away, leaving just the two student loans.  All extra went toward the higher balance student loan.

In this twelve month period, we paid another 5.4% of our debt, reducing our original debt amount by 10.9%

July 2010

With my wife not working and raises on my end being scarce (read: non-existant), the only extra payments we were able to make were by applying a portion of our tax refund, as well as a portion of a small inheritance received from my grandmother who passed in late 2009.  All extra amount again went toward the higher interest rate student loan, but the good news was that we had paid off over 90% of the original balance on that loan!

In this twelve month period, we paid 3.9% of our original.  This was a drop-off but we’d actually anticipated it to be a higher drop-off before applying part of the inheritance, which raised it a few fractions of a percentage point.  All told, we had paid off 14.8% of our original debt balance.

July 2011 (Today)

With another year of no raises, we were able to pay off 3.4% of our original balance.  Again, this is another drop-off, but because the previous years had been helped by an extra income and later supplemented by a one-time influx from the inheritance, this was really along the lines of what we’d been expecting in 2010 and 2011.  The good news is that we paid the first student loan balance in full.  The monthly amount that had been going toward the student loan was added to our mortgage payment, meaning we never even saw the money once the loan was paid.  As of now, we’ve paid off 18.2% of our original debt and we’ve paid off two of the original four loans we started with.  Slow but steady progress.

Looking Forward

I’m hoping that raises finally kick in and that we can apply a little extra from there (we’ll see toward the end of the calendar year).  In addition, I’ve started making a little money from the blog, a portion of which gets applied to either the mortgage or the remaining student loan balance.  Plus, every month we make payments without taking new debt, the amount paid to principle increases steadily.  I think we can start trending the line back upward in terms of what we pay off for the year starting a year from now.

Do you track your debt over a long term period?  Does it encourage you or discourage you?

Roughly Two-Thirds Of All Months Are Good (Financial) Months

I track my net worth via a spreadsheet.  The original purpose was to track investment gains and losses (I used to do some day trading back in the day) and quickly became a mechanism by which I track financial progress.  It’s grown and changed over time, but I’m now in my tenth year of having tracked some of the basic elements of my net worth.

One of the things I started tracking, that I thought was rather interesting, was number of months in which net worth goes up.

It’s a simple thing and just a running total, but what I’ve found is that roughly two-thirds of all months (since I started tracking this in the beginning of 2002) have seen positive net worth gains.  The other one-third are obviously months where net worth has gone down.

Here are some interesting year by year history which I found looking at net worth ups and downs:

  • 2002 – Only seven of the twelve months saw net worth gains, but some of the months were pretty strong as total net worth for the year ended up 25% (Positive gains to date: 58%)
  • 2003 – This is the first and only year where every single month saw positive net worth gains.  I don’t remember what was going on here, but I think the housing market was strong so I was adding value to my condo each month.  Net worth for that year ended up 27% (Positive gains to date: 79%)
  • 2004 – Another strong year as eleven months had positive gains, with net worth for the year ending up 17% (Positive gains to date: 83%)
  • 2005 – Total net worth for the year ended up 18%, though nine of twelve months saw gains.  Before the three month stretch of down months  in the middle, I had seen positive net worth in 86% of months.  That was the highest it’s ever been. (Positive gains to date: 81%)
  • 2006 – This also had nine months of positive net worth gains, but overall the year was down.  In reality, this was simply an accounting issue, as my then-fiance’s finances were merged in with mine, and since she was a college grad with student loans, the merger caused net worth to drop. (Positive gains to date: 80%)
  • 2007 – Seven months were positive here, which is the lowest total (since the first year) but net worth did go up 17% for the year (Positive gains to date: 76%)
  • 2008 – This was the year where home values and investments got slammed.  Only three months saw positive gains, and our net worth was wiped out by 35% this year.  Ouch. (Positive gains to date: 69%)
  • 2009 – The road to recovery began here with nine months in the positive and a 22% gain.  (Positive gains to date: 70%)
  • 2010 – Only seven months were positive for us, but the good definitely outweighed the bad as we saw another 18% net worth gain.(Positive gains to date: 69%)
  • 2011 – We’ve only recorded two months so far, but both have been positive, and we have a year to date increase of 3% overall.  Hopefully that trend continues for the year, and even gets more positive!  (Positive gains to date: 69%)

This is pretty interesting and telling.  It has shown that, over time, things have moved up for us, but when they go down, they seem to go down hard.

I’d like to see the number get at least back to 75%.  Hopefully we continue to move back up and not the other direction!