The following is a staff writer post from MikeS. He is a married father of 2. So, with the cat, he ranks number 5 in the house. He loves numbers and helping people. Please leave any questions or comments below for either Mike or Crystal.
There is one number that I am diligent about tracking at year-end, my net worth. I use it as my scorecard to see how I did financially during the previous year – here's mine for 2014.
As I have said before, I was in a pretty deep financial hole. I am not sure exactly how deep it was, but my net worth was probably in the negative $30K range. This past year was not my best year in terms of dollar or percentage increase, but it was solid. My net worth increased about 22% over last year and about $23K overall. I am pretty happy with that increase. I’ll discuss where the biggest changes occurred and where I think I might end this year.
The biggest change, by far, was in my 401k. That represented almost all of the gains in my net worth. Between my contributions, my company’s contributions and market gains, my account was up $20K for the year. I contributed just over $8K for the year. That was 7% of my gross earnings, with 6% going to a traditional 401K and 1% going to a Roth 401k. My company contributed just over $9K. There is a matching contribution, dollar for dollar, up to 6% and then a flat 2% contribution. The 2% contribution is in lieu of a pension plan. The remaining amount came from market gains. I managed to earn just over $3K having my 401k invested in the stock market. I have a relatively aggressive allocation, with about 90% invested in a few stock funds and about 10% invested in a bond fund. Since I probably have about 30 years before I retire, I feel this is appropriate. According to my statement, my return for the year was an even 7%. Naturally, I would prefer more, but I will take 7%.
The next change was debt reduction. I did not take on any additional debt during the year, I just paid down my existing loans. Between my mortgage and car loan, I reduced my obligations almost $10K. I did not prepay either loan. I plan on adjusting that philosophy if I am able to refinance my mortgage and eliminate the private mortgage insurance. In that case, I will add an additional $200 or so every month to reduce the mortgage, as well as using a portion of my bonus to pay down the mortgage.
The final change was actually a reduction in my assets that offset some of the gains I had in the 401k and debt reduction. A good portion of the savings reduction was due to planned purchases. We had budgeted and saved for a snow blower, which we purchased early last year. I also took advantage and pre-bought my heating oil. The combination of the two lowered my savings amount by over $4K. The other thing that lowered my assets was the depreciation of my two cars. My wife’s car is a 2012 and mine is a 2001. I checked on what the values would be for the cars given the current mileage of each.
I obviously can’t forecast what the stock market will do this year, but I can control how much money I save and how much of my debt I payoff. My 401k contributions will remain the same in 2015. I will contribute 7% of my salary and the company will contribute 8%. That will mean at least another $14K going into the 401k. If I am lucky enough to get a raise or a bonus, that number will only go up.
I also plan on continuing my savings in my Vanguard brokerage account. I am setting aside $85 a month or about $1,000 for the year. I’m comfortable with that number right now. If the raise happens to be a significant one, I would likely increase that amount. The car loan will be reduced on the normal schedule, which means a principal reduction of about $3,600. If my mortgage refinance is successful, my plan is to use some of the savings from the reduce payment towards the mortgage. I have estimated that I might be able to reduce the principal by about $8,400. All in, it looks like I should be able to increase my net worth by about $20,000. Some of my gains will be offset by the depreciation on the cars, but I also hope to see some market gains as well. Fingers are crossed.
How was your year-end financial check?