It seems like there is always a lot of talk about budgets-why you need one, how to get on one, and what it should look like.
But the big question is: WHY?
Budgeting is a tool to help you and your family be secure, now and in the future. And that all comes down to what you own and how much you owe. In other words: NET WORTH.
While budgeting every month is how we track down every dollar and decide what is best to spend it on, increasing our net worth is the end goal!
With that in mind, one of the best motivations we have found for sticking to our budget, paying down debt, and investing for the future is through tracking our net worth. Every. Single. Month.
If you have even wondered how to track your family’s net worth, stick around, and I’ll show you how we do it.
December 2020 Net Worth Update
These numbers are taken from December 9, 2020.
(Once in a while we will find we have a little extra money before the month is over, and will pay down some additional debt. That’s why there is sometimes a little discrepancy between our net worth balances and the balances that show up on our monthly budget updates.)
The stock market went up, we contributed money to retirement accounts, real estate went up, and we paid our debt down. If every month gave us this much of a boost to our net worth, we would be on the fast track to early retirement!
I’m watching our retirement accounts compared with our property. I would love to see retirement overtake property for the most valuable, and we are making progress.
Here’s a breakdown of the categories:
Assets (Money and Property)
We keep most of our savings in an American Express Personal Savings account. They consistently pay out one of the highest interest rates for savings accounts. It’s all online, so we transfer money in and out of it from our checking account.
This month, we added quite a bit to savings, including some set aside for the summer when we don’t have a reliable income.
We also keep around $1,000 in our savings linked to our checking account (it pays basically NO interest) for overdraft protection. You know, just in case…
Our brokerage account, which holds high-dividend utility stocks, inched down. This is where we keep our more long-term emergency fund. Yes, it could lose money (and has in the short-term), but we feel comfortable with the risk given our other savings account. I don’t think we ever intended to have so much money in the brokerage account, but it just sits there and keeps increasing in value.
The stock market really helped out this month.
Mrs. C Roth IRA: We invested $1000 into my Roth IRA and are now maxed out for 2020.
Mr. C’s Roth IRA: It’s already maxed out for 2020.
Mr. C 403 (b): He also puts in $1650 to his 403(b) 2 every month during the school year (10 months long).
Mr. C Supplemental Pension: A little interest was earned in Mr. C’s supplemental pension account (which is 100% vested and not really a pension at all). Contributions come from a convoluted formula that dumps money in once a year.
Mr. C Pension: He also contributed over $1,000 to his pension (this balance only includes his contributions that he could theoretically cash out at any time but will most likely turn into a pension when he retires).
Mr. C AK PERS: Mr. C worked for the state of Alaska several years ago, and we left his contributions there just in case he ever went back. It keeps his hire date and union tier locked in.
We got a grand total of $18,713 to show for it all (which is waaaaay better than last month’s $18).
We always take it with a grain of salt. It goes up, then comes down. No panicking here. We are investing for the long haul.
In 2013, we turned our primary residence into an investment property and bought a bigger house for our growing family. At the time real estate was doing pretty poorly and we didn’t feel like selling in such a market. It was, however, a really, really great time to buy!
Real estate is rising slowly in our town, where we have both our primary residence and our investment property.
To include cars, or not, in your net worth, that is the question.
Some people do, some don’t. Ultimately, we make a compromise: we include the car’s initial value and then depreciate it quickly. So, right now, on paper, our cars are worth nothing! Haha.
But, they run (usually) and get us where we need to be (mosly)!
Total Assets
This is our third month over $700,000. I’m starting to think we might stay above that mark.
Liabilities (Debt)
Alright, here is the not-so-happy side of things: DEBT!
But, we paid off over $1,600 compared with last month. That’s not our best month, but it’s consistent.
(I know next month our liabilities will increase as we plan to get a new car-stay tuned!)
We make the minimum payments on the 30-year loan for our primary residence. It has a good interest rate of 3.125%
We have been making some really great progress this year on our rental property’s mortgage. It was sitting just above $40,000 at the beginning of 2020. Let’s hope we can pay it off before the end of 2021! When we pay off our rental, we will reassess and decide our next goal. Maybe our primary residence’s mortgage?
After four graduate degrees between the two of us, we only have a student loan from my husband’s undergraduate degree. We have held onto it for so long because it is at a 0.625% interest rate.
The student loan took FOREVER to finally drop below $10,000! Wahoo! (Who knows, maybe a new president will forgive some student loan debt? Our net worth wouldn’t mind.)
Bonus
This is probably one of my favorite things to do each month: I love to look at the interest we paid on our loans. I hate paying interest, so to see it decrease each month is great motivation!
Nine bucks may not seem like much, but it is progress! Plus, we just broke through the $350 mark last month! I remember when we broke $400. That was just this past June! We are saving over $78 each month compared to the beginning of this year!
Milestones
Alrighty, then! What are our major accomplishments?
We are now above $600,000 in total net worth!
Huge accomplishment here! It’s also worth noting we first hit $500,000 net worth back in May! It only took us 7 months to add an extra $100,000 to our net worth. Incredible! I know people say the first $100,00 is the hardest, and each one after gets easier; we are really starting to see how true that is. For perspective, it took us 18 months to go from $400,000 to $500,000. We also realize that with more and more of our assets being in the stock market, we will start to see larger falls in our net worth when the markets crash-and that’s okay!
Our savings hit $50,000.
Ummmm. Actually, I don’t think this is something to get too excited about. Maybe it’s more an indication that we need to reallocate our money. I like our Vanguard account. Over time it has made SEVERAL thousand dollars. It should continue to bring in money. But, less than a percent earned in interest in our American Express savings means this should be brought down a bit. (We do have over $6,000 sitting in it for a new car, and that should be shifting around after the dust settles.) Look for this amount to decrease next month.
Liabilities are less than $130,000!
Now, this is something to sing about! It’s all about getting that rental mortgage paid off!
Goals
Savings:
We need to decrease our savings and pay off some debt. With nearly $23,000 in long-term savings (and invested, so it makes money) and over $29,000 in short-term savings, we feel like we should put some money toward debt.
Retirement:
We max out both of our Roth IRAs and have for a while.
When Mr. C left grad school, we started contributing to a 403(b). Mr. C is on track to contribute $16,500 to his 403(b) this school year (up from around $14,500 last year). While that’s awesome, it is also $3,000 short of the max. We are hoping to max it out during the next school year.
It would feel great to know we are maxing out all retirement account options!
On top of that, as an educator, Mr. C should have a healthy pension when retirement comes. It’s on track to cover about one half of his regular salary. He plans to retire the year our youngest graduates from high school.
Property:
We don’t have plans to move from our current home, and we don’t have plans to buy or sell any rental properties. Although having an investment property has really helped our financial position over the past several years, it is NOT passive income. We don’t want to take on any more properties.
We plan to sell our rental a few years from retirement on a 1031 exchange and buy a rental somewhere we actually want to retire. Then we can have the option to turn that rental into a primary residence and avoid paying capital gains taxes. That’s a long time off still…
Liabilities:
We have paid over $20,000 towards our rental property’s mortgage just this year. If we keep that up, we can pay it off entirely next year!
Our other debt will take a backseat until that time comes.
Watch for a car loan to pop up next month.
Whew! There it is. Another month come and gone and happily our net worth grew by a healthy amount.
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