One of my favorite things to do each month is to update our net worth. For two reasons. The first reason is because net worth is the most important metric to track in personal finance.
The other reason — because I’m a huge personal finance nerd 🙂
But seriously, I get excited at the end of every month to update our net worth. After setting a budget, recording every penny earned and spent, and making conscious financial decisions, it’s finally time to find out:
Did I win?
That’s the question you get to answer with a monthly net worth update. And who doesn’t love winning? Plus, winning creates a positive feedback loop so that you continue to make good financial decisions in order to keep winning!
By how much?
That’s the second question a net worth update answers. There are shades of winning and losing. It could be a clear decisive victory or a marginal one. Likewise, there are decisive and marginal defeats… but hopefully those are few and far between.
Let’s look at our numbers for December:
Net Worth Update December 2017
Our savings went down just a tiny bit even though our December earnings were higher due to a nice holiday bonus. A primary reason is that I made TWO mortgage payments in December because my mortgage servicing transferred in November and I was unable to make my Dec. 1st payment before the start of the month. Now that’s back on track. Also, we used a good portion of the extra income to pay down debt.
After a two-month drawdown in my active trading, I made a little profit in December as I look to get back on track. Unfortunately, I’m still underperforming this record-setting market.
How in the world did our retirement accounts GO DOWN?
After writing my November net worth update, something dawned on me:
I am using expected net proceeds to value my rental property and the trade-in value instead of the market value for our vehicle — both ultra-conservative methods to limit downside. But for our retirement balances, I was not taking into consideration vesting.
This means that all of that money isn’t our money… or at least not yet. But some of the money is actually from jobs that we’ve already left — so it will NEVER become our money.
Using vested balances appears to be much more accurate.
When you find a better way to do something, there is no reason to keep using the inferior approach. Of course, what’s better for one person isn’t what’s better for everyone — any of the above calculation methods can be used but there are different implications. The impact of switching to our vested balances was a loss of $2,415.05, which just edged out the gains from contributions and growth.
But now there’s some additional upside from hitting a new vesting tier!
Real Estate Investment (-$708.94)
Just like last month, this is not a loss. This is an orderly wind down of a house flipping fund (with a company I used to work for) that is distributing funds back to the stakeholders. In the next few months, I should receive all these funds back… plus some profit!
Rental Property (No change)
As mentioned above, I am using the estimated sales price minus closing costs to determine my property value. I didn’t see any evidence to change it’s value in December.
This is the first time we’ve ever had a car loan and I must say it’s just painful to watch. The car is depreciating faster than we’re paying it off. Not only that, we owe almost $4k more than it’s worth! Doing this exercise really illuminates how terrible of an “investment” cars actually are. Hopefully, the value will start to stabilize soon in order for the outstanding principal to catch up.
Accounts Receivable (+$359.75)
An increase in Accounts Receivable normally relates to things that are a net wash in terms of net worth. This increase is due to items we purchased but will be reimbursed for (e.g. work related travel).
Two mortgage payments in December caused my mortgage balance to go down more than usual. I plan to allocate more than the minimum amount going forward in order to accelerate the timeline to 78% LTV and terminating PMI since the cost of PMI is effectively higher than paying credit card interest.
Student Loans (-$2,707.47)
Knocking out $2.7K of student loans in a single month is the most we’ve ever done. After getting a $5K holiday bonus, I immediately made an extra $2k payment on the highest interest rate loans, employing the debt avalanche strategy.
Car Loan (-$314.23)
No extra principal being allocated towards the car loan as it’s the lowest interest debt. The principal portion is a couple bucks higher than last month. As noted above, the depreciation of our vehicle was $45 GREATER than the principal we paid down. That counts as a marginal defeat.
Credit Cards (+$710.23)
We pay ALL of our credit cards in full every month so we never pay a penny in interest. The increase here is simply due to higher spending in December. A lot of that was gifts. Also, the items to be reimbursed.
Accounts Payable (-$531.08)
I am commissioner of a fantasy football league and am responsible for holding league funds until the season ends when funds must be disbursed. So yes, I literally have an account in my personal finances spreadsheet called Fantasy Escrow so I don’t count money in our net worth that isn’t really our money. There is only upside for winning!
And don’t worry, I won multiple leagues this year and got a nice little payout 😉
In the month of December, our assets fell by $714.78 (which is purely due to the retirement hit from switching to vested balances) but we decreased our liabilities by $3,828.38, a total net worth increase of $3,113.60. In terms of percent, that is a 3.03% increase in net worth, less than the 4.74% increase in November.
If I hadn’t switched to the vested balance method, our net worth gain would have been over 5%.
Our net worth of $105,914.05 is nearing our all-time highs from 2 years ago.
In case you’re curious what happened, you can read my entire personal net worth story which details the ups and downs. And in case you’re wondering why there’s a little tick down at the right edge of the chart, that’s because I also do a mid-month net worth update.
At the end of 2016, our net worth was $67,476.77, which means we grew it by $38,437.28 in 2017. That’s 57% in a single year!
For 2018, our goal is to hit $200,000 by year end, which is pretty ambitious. To get there we’ll definitely need to increase our income. Now that would be a decisive victory!