Thursday, December 08, 2005

More net worth analysis

I noticed that Brian at Personal Finance for the New Age had some really impressive increases in his net worth from month to month, not only in terms of dollars, but by having double-digit percentage increases from month to month!
I hadn't looked at my own net worth changes this way so I decided to try it.
Here's a chart showing the monthly percentage change.

The most my net worth ever increased in one month was $9,479, or 4.3%, from May to June. This actually seems really weird to me-- I didn't have any big inflows of cash other than some moderate expense reimbursements, and I thought I had spent a lot of money during the summer, but perhaps the stock market was really strong that month. My bonus and tax refunds hit in March and April, so I would have expected those months to be the highest.
From Jan. 1 to Dec. 1, the overall change in my net worth was $45,995, or 22.3%. I tried to figure out how much of this was due to investment returns, and how much due to savings. After backing out contributions and withdrawals from my investment accounts, my return on those seems to have been 12.7%. My cash savings on hand also increased by 15%, factoring out transfers to and from my investment accounts, but including interest earned. Factoring out the interest earned, it seems that I added $8,775 to my cash savings. Backing out tax refunds and bonus, this would mean that I saved only 6.6% of my take-home pay each month, not counting 401k deductions.
This is a bit alarming, as I had been thinking my monthly cash flow was better than that. I am going to have to check all these numbers again before I do my budgeting for next year, as my housing costs are going to be going up and I don't want to find myself in the red! When you live by the spreadsheet, you can also die by the spreadsheet-- all it takes is one typo!


ncnblog said...

I seem to have trouble with my "net worth" estimates, b/c I don't really know how much the stuff I own is worth. In other words, how much someone would give me for it. I just track how much I have in retiremtne and savings, vs. debt...

Brian said...

Thank you for the kind're right, the market moved upward during most of May and June. July and November have been stellar months. We hope to put something together as you have done at the end of the year.

ncnblog - your networth calculation should be faily simple - programs like Quicken and Money make it a snap. You don't want to include things like TVs, furniture, etc. if that is what you're implying. Some don't even include their home or vehicles in the calculation for various reasons.

Madame X said...

I don't include any personal property in my net worth. I don't have a car, and I don't think I'd get enough for selling my computer or furniture to make it worth adding. I will include the value of my home and outstanding mortgage once that becomes applicable.

Canadian Capitalist said...

I agree with Brian and Madame X. I include our house and vehicles in our net worth. I depreciate the vehicle and record any house price appreciation every year. I don't include the value of any other things.

22% increase is very impressive! Congratulations!

Flexo said...

I use Quicken Inventory to keep track of some of my more expensive items (car, musical instruments, computers, etc.) but I don't include those in my net worth.. except the car, actually.

Anonymous said...

This is useful, but keep in mind that big % increases from one month to the next could be due to three things:

1. Impressive savings rate
2. Strong investment performance
3. Low starting net worth

You have to take all three into account when comparing your % increase or decrease to someone else's!