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.
January 2021 Net Worth Update
These numbers are taken from January 7, 2021.
(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 big change here is we bought a car and financed it. Our property went up because of the car, but our debt also jumped up sharply. The stock market also went up; we contributed money to retirement accounts, and real estate went up a tiny bit. We also paid down our rental mortgage debt. Still, over 16k isn’t too bad!
Any chance our retirement will overtake our property in value by the end of 2021? I highly doubt it (it would take an amazing year for the stock market), but I’m still 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 took money out of savings and paid down some debt.
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, again. 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 (usually).
The stock market didn’t do too much this month, although it did increase a little.
Mrs. C Roth IRA: We invested $500 into my Roth IRA.
Mr. C’s Roth IRA: We also invested $500 here.
Mr. C 403 (b): Mr. C 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 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 over 8k to show for our efforts. It’s not like last month where we got over 18k, but it’s something.
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.
That’s the big news for our personal finance this month: We bought a car! The car is nice, I hate the debt…
The car is a plug-in hybrid (Honda Clarity) that qualifies for all kinds of rebates and incentives from federal, state, and local agencies. So, it was new, expensive, and several thousand should be coming back our way…YES!
Ultimately I NEVER thought I would buy a new car. But this ended up being waaaaay cheaper than used. Go figure! It also has been running us around on pure electricity. LOVE IT!
We placed an initial value of $25,000 on the new car (it cost just over that). That is where most of our increase in property came from.
Total Assets
Considering the car increased our assets by $25,000, we earned just an additional seven thousand. Not great…
Liabilities (Debt)
Alright, here is the not-so-happy side of things: DEBT!
Okay, okay. Deep breaths.
The car loan is new. After working so dang hard to bring our debt down, it’s kind of a blow to bring it back up. But I’m getting ahead of myself. Let’s go in order.
We make the minimum payments on the 30-year loan for our primary residence. It has a good interest rate of 3.125%.
The good news is we paid our rental mortgage down by $7,000. Most of that was from the money we had saved up for a new car. Instead of using it as a down payment (thank you $4,500 grant), we financed the car and paid down the mortgage. This should be paid off COMPLETELY in a few months! WAHOOOOOOOO!!!!!!!
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! Finally! President Biden has floated the idea of paying off up to $10,000 in student loans for each borrower, so we will keep an eye on that.
Back to the car. We used a $4,500 grant for the down payment, and are waiting on more rebates, then the federal tax incentive for clean vehicles. We are also dramatically reducing our fuel costs with this car. And since we have solar panels (completely paid for!) we can plug it in at night at off-peak hours and not pay a cent for most of our driving. Even though insurance and registration are higher, in the long run, it should save us money.
So, as those rebates come in we should see a dramatic reduction in debt.
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!
Unless you just took on more loans and the interest goes up…
Up $29. Not good. It will take a few months before we get that back down to the $338 it was before the car was bought.
It’s not all bad news.
We were over $400 in interest back in May of 2020. So, we are still much better than that!
Milestones
Alrighty, then! What are our major accomplishments?
It’s kind of a weird month with the new car. Liabilities went up. Property went up. Interest went up.
We have over $400,000 in property.
With the exception of the investment property, our property doesn’t actually make us money as our retirement accounts will. Because of this, I’m not that excited when the value of our property goes up. Still, it obviously doesn’t hurt when it does up!
Our rental property mortgage is below $15,000.
Now that IS something to get excited about. It will feel GREAT when it is paid for. Then we will have an asset we own outright that makes us money. That’s how people get rich!
Goals
Savings:
I think we are pretty good here. We were a little high last month, but we pulled some out and paid down the rental mortgage.
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…and a few conversations with a tax professional will have to happen.
No current plans for a new car, although that could change if we find a good deal on a minivan that qualifies for all the clean vehicle rebates that our Clarity did.
Liabilities:
We paid over $20,000 toward our rental mortgage last year. We should pay it off completely by the time summer rolls around!
Then we can turn our attention to the car loan. It is at 1.9%, so interest is not such a big deal on it, but having a car loan is most definitely not something either of us likes.
Whew! There it is. Another month come and gone and happily our net worth is still growing.
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