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.
Summer 2021 Net Worth Update
Okay, if you have seen my summer budget post, you’ll know that we had a crazy summer (in every sense) and that things didn’t go the way our pocketbook would have liked.
And I am cramming our summer months’ net worth into one.
If you look at the difference between August and September, you’ll see some pretty big changes in property and liabilities. The simplified version is this: We loaned a family member $70,000.
In more detail, we signed took out a $70,000 personal loan (sounds super scary!), and are making the payments on this loan until our family member pays us back. We expect to get the full $70,000 plus interest back before the end of 2022. There you have it.
Smart financial decision?
Heck, NO!
But, ultimately, we weighed the pros and cons and did it anyway.
Here’s a breakdown of the categories:
Assets (Money and Property)
Summer is never good for our savings as Mr. C works in education and doesn’t get a regular paycheck in the summer months.
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 (you know, when there was such as thing as interest rates!). It’s all online, so we transfer money in and out of it from our checking account.
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…
The brokerage account with Vanguard 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.
We were glad to make some progress in September after not contributing in July and August.
Mr. C: We invested $1000 into Mr. C’s Roth IRA in September and $1950 into his 403(b). Mr. C also has another employer-sponsored fund that a little money went into.
Mrs. C: As I don’t work (outside the home–seriously, I work darn hard!) I only have access to a Roth IRA that we put $1000 into for Sept.
Mr. C Pension: During the summer the pension fund does some recalculating. This year the fund had taken too much out of Mr. C’s paycheck. We will get the reimbursement later in the year. The pension 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.
July and August were awful, but September started making up for it.
As long as we are contributing to our retirement funds, we always take the balances with a grain of salt. It goes up, then comes down. No panicking here. We are investing for the long haul.
We were really struggling to figure out how to include this family loan thing into our net worth calculations.
We finally decided that the balance we were owed from our family member would be considered property to balance out the extra liability balance.
(Yes, there is a risk when loaning money out. We know…)
We aren’t too concerned with the value of our property. We need a house to live in, the rental brings in cash, and the cars get us from point A to point B.
While real estate has been going crazy in the rest of the country, we have been slower to see appreciation.
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.
After buying a plug-in hybrid (Honda Clarity) that qualified for all kinds of rebates and incentives from federal, state, and local agencies at the end of 2020, we decided to bite the bullet and buy a second car (Chrysler Pacifica) with the same incentives/rebates. The cars qualified for about $17,500 in incentives EACH. While we weren’t excited to have TWO car loans (thankfully we are now down to ONE), we also didn’t know how much longer these rebates would be around. We are planning to keep each for at least 10 years, so we should be done with new cars for a long while!
Total Assets
Maybe we should postpone celebrating our assets increasing to almost a million until this whole family loan thing is cleared up.
Liabilities (Debt)
Alright, here is the not-so-happy side of things: DEBT!
Ugh! I’m not sure we have EVER had so much debt!
Okay, so I just looked up our net worth from years past, and we DID have more debt than this about five years ago. We had a higher mortgage balance, owed more in student loans, had a car loan (hate them!), AND still owed money on our rental.
Thankfully we only have one car loan now. I’m starting to think I really want it gone! We’ll see. We still put a higher priority on maxing out retirement fund options.
We make the minimum payments on the 30-year loan for our primary residence. It has a good interest rate of 3.125%. However, look for us to have this refinanced shortly. Interest rates are so low right now.
The good news is we paid our rental mortgage off completely earlier this year!
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 hate to see this balance go down below that mark. Haha!
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!
We decided to NOT include the interest from the family loan as this is being added to the amount that will be paid back to us in the future.
Ummmm…where’s the progress?
One lousy dollar!?!
At least we are below $300.
After making some awesome progress earlier in the year (we paid $419 in interest back in April), we really need to focus on getting this down again.
We are planning to refinance which will bring this down and start accelerating our mortgage payoff.
Milestones
It’s kind of hard to figure out major accomplishments when both assets and liabilities went up so much.
There is one thing that happened:
Interest is below $300.
Now, that is something to cheer about!
Goals
Savings:
Time to start saving for summer (all over AGAIN).
Retirement:
We max out both of our Roth IRAs and have for a while.
We just starting contributing $1950 each paycheck to Mr. C’s 403(b). He has ten paychecks throughout the year, so that means he will max out his 403(b) next year!
It will 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:
No real plans here. We are going to stay put for a while.
Liabilities:
With a rental property completely paid for, and the big car loan gone, it might be time to look at the smaller car loan (even if it is at 2%).
We plan to refinance our mortgage this month as well. This will not only drop our interest rate but force us to pay it off earlier.
Whew! There it is. Another month come and gone and happily, our net worth is still growing.
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