Tuesday, January 08, 2008

Year-end Net Worth

It was a squeaker, but I made it!
I was so depressed the other night when I was looking at my net worth in Quicken and seeing a figure of about $349,300. I knew all my salary and credit card transactions had been entered for the year, and the interest on my main bank accounts. I was bummed out that my net worth was below my $350,000 goal, and nowhere near my $370,000 revised goal that I set mid-year. When I got to work the next day, I remembered to check Paypal and another bank account, and sure enough, I had a little more interest but not enough to save the day. My last hope was that my investment accounts would be showing some pretty nice dividends in December, and sure enough, they managed to save the day! Here's how things ended up:

ASSETS:

Cash and Bank Accounts

  • Cash $119
  • Chase CD 6 mo. $3,054
  • Chase Checking $179
  • Chase Savings $5,018
  • E*Trade 2-Yr CD $5,972
  • E*Trade Money Market $5,021
  • E*Trade Savings $12
  • FNBO Direct Savings $11,104
  • Laundry Quarters $6
  • PayPal $152
  • Misc foreign currency $30

Retirement
  • 401k $195,613
  • E*Trade Roth IRA $23,453
  • Chase Roth IRA CD $3,037
  • Chase Roth IRA CD $2,639

Investment
  • E*Trade $17,255
  • Treasury Direct & Bonds $4,583

Other Assets
  • Condo equity $84,620


LIABILITIES:

Credit Cards
  • Visa $1,859


Net Worth as of 12/31/07: $360,008
+$7,331 (up 2%) in December
+$47,237 (up 15%) for the year.



A few notes:
As usual, I am showing the equity I have in my condo, rather than breaking out its value and the balance owed on my mortgage. I haven't adjusted the value of my condo up or down since I initially determined the number last year after I moved in. Despite the rocky real estate market, I think my valuation is probably slightly conservative, but I'm going to sit tight until I see more condos similar to mine being sold in this area. The rest of the accounts are pretty self-explanatory, I think.

Overall, I feel okay about my result at the end of this year, but now that more and more of my net worth resides in assets other than cash, it's hard to use net worth alone as a goal. If I wanted to, I could reasonably assume that my condo is worth $10,000 more and say I'd met my goal of $370,000 net worth. Or I could look at the peak prices of my stocks and mutual funds this year and say that if they hadn't fallen from there, I "would have" made my goal. Neither of these things would change how much money I managed to save or spend or earn this year, which is more important.
I can't just compare the total for my "cash and bank accounts" group to try to break out the investment fluctuations, since I moved some money between that group and the retirement and investment groups. So where did the gain in my net worth come from? Here's a few factors:

  • My 401k statement says my rate of return was 6.8% for the year.
  • My main E*Trade account was up 8.4%, and my Roth IRA at E*Trade was down 9.5% for the year. (The S&P 500 was up about 3.5% for the year.) I think have to make some changes in that Roth IRA portfolio-- it's never done all that well, but this is ridiculous.
  • I had a little more than $20,000 of interest and investment income from all accounts for the year. This includes dividends and capital gain distributions which were reinvested. I was kind of amazed at this number, and it really shows you how important it is to build up capital! It's not like I'm anywhere near the point where I could live off my investment income, but it's encouraging to feel like I'll get there someday! And to put this in perspective, it was only 16 years ago that my gross salary was less than $20,000...
  • I had about $5,500 in "other income" this year, which is mainly 401k matching contributions from my employer.
  • My "savings," as defined as salary and bonus earnings minus my expenses, not counting what went into equity on my condo, was about $18,500. (Of that, $15,500 was from payroll deductions for my 401k.) 2007 may mark the first time I ever made more from investments than I saved in cash!

Looking at all the factors that contributed to my net worth increase has been helpful-- it's made it easier for me to start thinking about goals for 2008 in terms of things that I can actually control as well as outside factors like market performance. But that is a topic for another post! Until then, onward and upward!

12 comments:

Bama Babe said...

Congrats for such great work!

RacerX said...

Never be satisfied, but take a moment and congratulate yourself!

You increased your net worth by about 50% of what you make in a year...Fantastic. On top of that you are well on your way to financial security if you keep working your plan.

Trully an inspiration!

Thanks!

Escape Brooklyn said...

You made such great progress! Thanks for sharing the details.

Rich Minx said...

Wow, that's very inspiring! I'm especially interested in the 401k - nearly $200K! When did you start?

Madame X said...

Hi Rich Minx,
I have always been aggressive in contributing to a 401k, starting with my first job. However, in the first few years of my career, I wasn't always eligible to start participating right away, and I changed jobs a couple of times, so I lost some ground. I don't have good records going all the way back, but I think I have contributed the full maximum amount for at least the past 6 or 7 years, and at least 10% of my salary in a few years before that.

Anonymous said...

Out of curiosity, how much do you pay attention to the tax implication and efficiency of your accounts? Any updates you could provide us on that front?

Anonymous said...

How come you don't pay off your credit card balance like you advise others to do? Not a criticism, just curious.

-new reader

Madame X said...

Anon 7:04: I really don't pay any attention at all to the tax implications of my accounts. I have some bonds and mutual funds that invest in bonds that I think have tax advantages, but I'm not really sure. Of course I know I'm reducing my taxable income by investing in a 401k, but otherwise, I just don't know enough about the issue to even have a strategy!

Anon 9:26-- I do pay off my credit card in full every month, but since I am charging things throughout the month, the balance on the card is never zero, and has to be counted as a liability for whatever amount is outstanding on the day I calculate my net worth.

mOOm said...

Seems you're coming to the same conclusion as I did about setting net worth goals.

Chief Family Officer said...

Congratulations, Madame X! I was depressed too, looking at the value of my smaller accounts after the first of the year. But I'm glad you met your goal! And I do understand what you're saying about the non-cash values. I'm not really sure what to do with the value of my house in our net worth statement. I might just take it out completely ...

SandyVoice said...

Go, Madame X, go!

I just started an IRA in December, so it's not like there's a lot in it (okay I put in $100 so far, and the market has dropped substantially since then), but remember that the general trend of the market is upward by an average of 10% a year. As long as you're diversified, you buy to hold for a while, and you don't sell when the market is down, you'll come out ahead. Eventually, but you will.

Anonymous said...

Just a random comment: Aren't you especially happy to realize that you don't have to spend money on kids when you're calculating your net worth? I often wonder how those families with kids, esp. the ones who don't earn that much, deal with the seemingly endless expenditures (and it's not an entirely rhetorical questio, either). After all taking care of oneself is really hard enough already~~~