Focus on all four of your net worth factors: increasing your income, increasing your savings, increasing your investment returns, and decreasing your cost of living by simplifying your lifestyle.T. Harv Eker
In my first post, I promised that I would layout a financial road map for you. I also said that I would define my planned path to financial independence. Before I do that, I need to establish a starting point. It’s hard to get where you’re going if you don’t know where you are to begin with. In this post, we’ll be taking a look at what my net worth is as of the beginning of September 2019 to establish a net worth baseline. We’ll exam the way the worth is distributed and how much I’m making from passive income.
Calculating Net Worth
I started by creating a simple spreadsheet. In the spreadsheet, I laid out all the savings in my various accounts, broke them down into hard cash vs retirement accounts, then added them all up to get my total net worth. I gave the accounts easy to read and understand names so I could quickly identify where every dollar was allocated. This will make it easier to make adjustments and to see where to transfer balances if the need arises. I also created a separate table for adding up my passive income. I don’t have much of that right now, so that table currently consists of two entries. I’ll be coping and pasting from that spreadsheet to here below. Let me know if you want a blank copy, and I can make it available.
Mint Users Beware
I’ve been using Mint for years. I think I started using it when I was in college, or shortly after, when I actually had a few dollars to my name. It’s a useful tool, and I enjoy it for the most part. Maybe I’ll do a review on it at some point. However, in putting together this chart, I discovered that two of my retirement accounts were duplicated. I had to log into my actual retirement accounts and verify which numbers were the correct ones to use.
This was a big bummer to find out because I “lost” almost $50,000 in net worth vs the summary that Mint gave. Nothing I can do about that. Maybe it will harden me psychologically for when the next recession hits. In any case, it was a big mental blow, and I just want you to be aware of the potential for discrepancies in case you use Mint. This has me thinking I’ll try some of the other financial tracking sites to see how I like them.
So, without further ado, here are the numbers that you have been waiting for…
September 2019 Net Worth
Now, if you look closely, you’ll see that the total doesn’t add up. That’s because I don’t include the 529 or Home Escrow accounts in that total. Why? The short answer is, I don’t consider it my money once it hits those accounts. The 529 is for my baby girl. It’s hers, and she’s going to college whether she realizes it right now or not. Or she’ll be going somewhere that I can use those 529 funds and still not get taxed like crazy. The home escrow account is mostly for taxes. I consider those dollars to be owned by Uncle Sam.
Let’s take a quick look at what each of these accounts are for.
This is where my paychecks get deposited. All my income goes to this account then gets transferred to the proper accounts as set by my budget. The dollar amount appears a little high here because it was taken at the beginning of the month and money had not yet been transferred. Money shifting is typically completed by middle of the month. So, by mid-September 2019, all of the money should be where it belongs, and it doesn’t effect net worth. I keep this account at a minimum of $3,000 to avoid bank fees and to be able to pay any unexpected bills or things I forgot about.
This is cash we plan on using to invest in the near future (less than 5 years). We are thinking some form of real estate, but haven’t completely decided yet. We are mostly split over trying to flip a house or buy a rental. It is just sitting in a money market account. You will see that this is where most of our income usually goes, if the month goes as planned. Exceptions to this are if it’s time to contribute to our Roth IRAs or if we’re saving up for a big purchase, in which case you’ll see the money go to our Dedicated Savings.
This is cash that is just sitting in a money market account. Its purpose is to be there in case an emergency comes up that we can’t cash flow. It is intended to cover 3 to 6 months of expenses. Our emergency fund is $15,000. Anything over that is interest that we’ve accrued over time.
As mentioned early, this is mostly used to pay taxes. I know the number seems incredibly high. You might be thinking we live in some sort of mansion. Unfortunately, that is not the case. We live in a high property tax state. Taxes here are around 2% of the appraised value. This account also covers HOA fees, which is also a common thing in Texas, if you live in a development. Fortunately, the HOA fees are fairly low.
This money is cash we set aside to save up for specific big-ticket items. Things like buying a car or travel. Okay…those two things are the only two items we have money set aside for right now. The car savings is also used when repairs are needed.
Hopefully the name makes it obvious. These are tax-advantaged retirement accounts. The Roth accounts are what we contribute to yearly, up to the IRS max. The other accounts are various combinations of traditional and Roth, depending on what options my employer had available at the time.
What’s not included
I should also mention things I don’t include in my net worth. The two big items not included in the net worth table are the house and the cars. I have a couple of reasons for not including those.
One, they’re not going to contribute to my retirement income, unless I sell one of them. If I sell one of them, you’ll see the cash go into my accounts. However, I don’t plan on selling these items anytime soon. I typically run my cars until they have little value left. I’m sure you’ll hear about it if I do decide to get rid of one of these items.
Two, it is hard to assess their value. Sure, there are sites like Kelly Blue Book and Zillow that will give you an estimate, but those are just guesses. If you’ve ever tried to sell a car, you know that it’s often hard to get the KBB price. If you’ve ever tried to sell a house, you know that even a 1% change in the offer price is a big difference. Consequently, it’s really hard to know how much income they will produce when sold.
I also mentioned that I tracked passive income. Since this is my baseline, and I haven’t been keeping track, I used the income received in August. As you can see right below, I am telling the truth when I say I don’t have much passive income right now. This is something I will definitely be taking a closer look at. Increasing passive income will offset how much of a retirement nest egg I will need. Therefore, I want this number to be a big as possible. Actually, to be honest, I want both my nest egg and passive income to be big. If I could get them to far exceed my goals, that would be great! We’ll see what the next 11 years brings.
Alright, now that I have my September 2019 net worth baseline figured out, I can start making goals. Stay tuned for that. You can also expect to see my budget fairly soon. Starting next month, I’ll add to my spreadsheet to do monthly comparisons and also to keep track of Year to Date in various categories. FIRE away!