June 2016 Net Worth Update
This is the first month that I am writing about my net worth. I have been closely tracking my net worth since March 2015 but I hope that putting my thoughts on paper will help to keep me accountable and improve my decision-making. Since this is my first monthly net worth update, I am going to provide more background in this initial write-up than I will going forward.
I utilize two methods for tracking my net worth. The first method is by using Personal Capital. This software is an incredible, free financial tool that combines all of your accounts in one place. Personal Capital provides insight into your cash flow, investment portfolio, and other methods to grow your net worth. Use the affiliate links above if you interested in Personal Capital and like the content on this blog. I know it has helped me get a better handle on my finances and grow my net worth.
The second method is through a custom Excel spreadsheet that I have created and modified over the years. It is nothing special and I have to update it manually which I enjoy doing. Now onto the nuts and bolts of my net worth.
Following the June 2016 Net Worth Overview there is a breakdown of the individual categories of our net worth.
In general it was a relatively flat month in terms of net worth gain. Investment gains were negative or flat at best and checking account was down significantly due to timing of direct deposits. The usual progress was made on all loan payments with the exception of Car #2 which we refinanced this month. See below for more details on each of the categories.
The one of the most basic and important parts of your finances – your emergency fund. If you don’t have some cash set aside for a true emergency (job loss, unexpected medical bill or vehicle expense), you are in a dangerous position.
We have focused on setting aside $100 per month to keep building up this fund. We currently have $14,100 in our emergency fund. We are earning less than 1% interest on this account which is clearly not a good return, but is necessary when you need to keep money readily available. However, earning a return is not the purpose of this fund. The purpose is making sure you don’t fall into credit card debt when unexpected expenses occur.
The checking account typically hovers around $5,000, but has peaks and valleys each month depending on when we have our direct deposits and various withdrawals hit the account. We earn no interest on this account. This month we are down but this is mainly due to one of the direct deposits falling on July 1st. We aren’t worried about this decrease.
We purchased our home in June 2012 for $186,000. Based on comparable sales and an appraisal when we refinanced, I am estimating the market value of our home at $225,000. The home loan is a 15 year fixed term loan at 3.25%.
This month the home value remained unchanged at $225,000. The gain came from making our standard monthly payment which reduces the principle of the loan by $780. We likely won’t live in this home long enough to pay off the balance and with the interest rate being so low I am not focused on aggressively paying it off. Current pay off date – November 2030.
My Retirement Plan
401k – Retirement Account
My current employer offers a 401k plan with a 50% match up to 8%. What does this mean? If I contribute 8% of my pay, the company will match 4%. If I contribute 6% of my pay, the company will match 3%.
I contribute enough to get the full match and then some. My contributions are currently $485 per pay ($970 per month). I have $34,330 in my employer’s 401k.
This month I made my usual contributions but the recent declines in the market (thanks Brexit fears) reduced my overall expected increase. Each month I contribute approximately $1,000 so to see an increase of only $586 means that I lost some of the principle that I contributed. This is part of long-term investing, some times your investments perform negatively. Oh well, keep paying into this each month.
Pension Plan #1
My current employer offers a pension plan where the employer annually contributes 3% of my salary into a fund. The employer funds this 3% quarterly. For example, say the 3% equals $1,000. The employer will contribute $250 every three months into the account for a total of $1,000 on the year. I am not eligible to receive contributions to this account until I have been with the company for six months (six month mark is mid-July).
Roth IRA – Retirement Account
My previous employer offered a Roth 401(k) plan which I contributed to. When I changed jobs, I could not roll my Roth funds into the new employer’s plan since they did not have a Roth 401(k) plan. I rolled the Roth funds into a robo-advisor account. I am currently not contributing funds to this account so any change in value is only related to investment returns.
Wife’s Retirement Plan
403(b) – Retirement Account
My wife has a 403(b) account through her employer. My wife is currently on short-term disability so there are no contributions to the account this month. When we contribute, the employer matches 50% of the contributions up to 6% for a total of 9%.
My wife’s employer offers a pension plan where the employer annually contributes 2.5% of her salary into a fund. The employer funds this 2.5% annually. For example, say the 2.5% equals $1,000. The employer will contribute $1,000 at the end of the calendar year. The plan also provides a very low return that is similar to the rates you would receive in a money market or savings account, approximately 0.5% annually. This return is credited to your account on a quarterly basis which comes out to 0.125% per quarter.
We own my vehicle outright so there is no monthly payment. A few months ago, I valued the vehicle on Kelly Blue Book (KBB) at $12,000. I have been assuming the value of the car decreases by approximately 1% per month (or 12% per year). The value of the car is now $11,181.
For Car #2 we have a 60 month auto loan for $18,774 at 2.8%. We recently refinanced this vehicle from a 4.8% 66 month loan. This past month, I valued the vehicle on Kelly Blue Book (KBB) at $20,000. I have been assuming the value of the car decreases by approximately 1% per month (or 12% per year). We currently have a negative equity position in the vehicle. This is another great example why cars are awful investments and should be purchased in all cash if possible.
Student Loan #1
This student loan is from my time in business school. I refinanced this loan at 3% and plan to pay it off over the course of the next five years. I was fortunate enough to have my undergraduate education paid for by my parents so there is no loan balance from that time.
Student Loan #2
This student loan is for my wife’s undergraduate education. These are a series of loans that average out to 3.5%. We are focusing any extra money that we have in our budget toward paying down this loan. The monthly minimum is $280 and we routinely pay an additional $300 to $700. The goal is to have this loan paid off in the December 2016 or January 2017 timeframe.
My wife and I use one credit card to handle the majority of our purchases. It provides 1% cash-back on everything and 5% on certain, rotating categories.
We roughly charge $2,500 per month on this credit card. We pay the balance in full every month.
Please comment below with your thoughts on our financial situation and the progress we have made with our net worth in our June 2016 update.