November 2008 Financial Status / Net Worth Update

Net Worth Chart 2008

Credit Card Debt
If you’re a new reader, let me start out as usual by explaining the credit card debt. I’m actually taking money from 0% APR balance transfer credit cards and instead of spending it, I am placing it in high-yield savings accounts that actually earn 3-4% interest or more, and keeping the difference as profit. I put together a series of step-by-step posts on how I do this. Please check it out first if you have any questions. This is why I have credit card balances – I am not accumulating more consumer debt.

Retirement and Brokerage accounts
Well, it’s time to uncover my eyes and peek at my financial statements. My retirement accounts have lost another $15,000 (14%) over the last month, in addition to the $12,000 from last month. I did not make any further investments besides the $5,000 in early October.

However, I am still planning to max out my 401k salary deferral by the end of the year, and will still be buying stocks according to my previously set asset allocation plan. I still believe that stocks are the best bet for inflation-beating returns in the long run.

Cash Savings and Emergency Funds
I remain a big proponent of emergency funds held in safe cash or cash-equivalent accounts. We now have approximately 7 months of our actual monthly expenses saved up. Increasing this is a lower priority than the 401k contributions, though.

Home Equity
I am testing out a new way of estimating our house’s value. First, I take the average estimates provided by Zillow, Cyberhomes, Coldwell Banker, and Bank of America. Then, I shave off 5% to be conservative and subtract 6% for expected real estate agent commissions (11% total). I use this final number as my estimate for home value.

I know that each of these sites can be inaccurate, but I am primarily looking for overall trends based on recent comparable sales, and this should take care of that with minimal effort. Feedback is welcome. The mortgage amount is taken directly from my loan statement. Which reminds me, I might need to see if I can argue with the tax collector about my property tax appraisal.

We are still socking away about half of our take-home pay each month, but this looks like the worst drop ever in our net worth. Let’s hope it stays the worst! ;)

You can see our previous net worth updates here.

Comments

  1. Hang in there! You will be alright in the long haul!

  2. Have you considered something crazy like dumping all your cash into non-retirement funds for a 40-something cash reserve to switch jobs? You always talk about “something” different when you are in your forties.

    You certainly have no issue saving and the markets are quite low right now…

  3. I’ve tried to refinance twice in the past 16 month and each time the bank’s appraisers come up with valuation that are below my original purchase price YET all of the cyber estimates have my home appreciating 5-8% not sure if I would trust the online estimates for much. IMHO

  4. in Texas we have to pay title policy as well as the 6% in realtor fees so it would be a total of 7%.

  5. $74,528 is a very impressive number given that you are only around 30 years old. That is one huge emergency fund. You are at the top for people around your age.

    I have my Roth Ira with Vanguard also.(VTTHX)..It has been down 32% this year so far but I am sticking with it since I am 25-30 yrs away from retirement.

  6. including your ‘home equity’ as part of your net worth is always a mistake (whether good real estate times or bad).

    include the liability of the mortgage, and ignore the ‘equity’

    It is simpler for those who plan to live in their house for a very long time – the equity is meaningless unless you plan to sell – the liability has a direct impact on your cash flow, while the supposed equity does nothing for you…

    I’m a homeowner, and I simply assume that my current net worth is are my assets, not including any home equity (which may or may not exist anymore!), minus my liabilities. Yes, that makes my net worth negative, but at least it can;t get any worse than that!

  7. Way to go Al. Nice to know some people haven’t fallen off the deep end of investing. Now is the time to buy. This whole thing should blow over in a couple of years (assuming the government doesn’t tax us into a depression).

  8. Check with your tax collector asap about property taxes. I looked into it in September and just missed a deadline to file for reassessment. Now I can’t file until June 8th. This is in Santa Clara County.

  9. We have rental property and know that assessors are just tax collectors really. Cheap paneling, carpet or wood floors, basement that they calculate and living space instead of just garage space is all important.

    When there’s reassessment we protest all assessed values and rarely do we come away with nothing. If I have nothing to lose I schedule for them to walk through so they can see it’s just a plain, no frills apartment house.

    They have a file with comps already on your house. Ask them what comps they’re using…they’ll do that. Be prepared though with “my appraisal shows less square footage”, that has extensive old termite damage and I can’t sell it (making it less valuable), etc. etc.
    So and so company has twice the apartments up the street and their taxes per square foot are so much lower…are those air conditioning units in the front windows just there to pull a low assessment?

    I never lie to an appraiser during these sessions. If they ask to visit you have to sign a waiver to allow them in. They don’t have a automatic right to just show up and see your property–that’s what most people are afraid of. They are knowledgeable of every house and it’s value on your street and in their area. Make sure you do your homework as well.

    Always protest but have a plan to present. Make them hate to see you coming because you always show up with an argument.

  10. Hey,

    You mentioned that you use above mention web real estate web sites to get a value of your house. How do you do that? Do you just look at simillar properties sold in you area? If yes it is very rough estimation. The reason I am asking because I am on a market for a house so I would like to know how to estimate its value before making any offer. any advice is appreciated.

    Thankyou

  11. Thanks for the tips on property tax appraisals. Will report back if I get success.

    Dmitry – Just enter the actual address (i.e. 123 Green Street), and they’ll give you an estimate.

  12. Jonathan,

    Thanks for advice, I think I have tried sending them the address, but they want the property to be mine not on the market, after what I got bombed with sales calls trying to be my real estate agents, did you get any different experience ?

    BTW, I am using 0% APR and balance transfers for over 5 years for me and my wife so i am a little expert too :) However, most of my usage was to cover my school debts, car loans and so on. Now I paid all my debts so it sounds interesting to use it as investment funds. However, lately I have notices that most CC removed the cap from Transfer fee like Bank of America, Chase where before it was convenient and now it makes no sense unless you return on investment is higher then 3%(normal transfer balance rate).

    I am also surprised that many people I know never take advantage and pay 10-20% APR on their cards. But I do realize you have to be diligent and disciplined when you do that kind of things since I have around 12 CC with my wife and have to make sure no late payments and balance is transferred on time before 0% is over.

    I like your blog and learned new tricks from it as well as yesterday applied for one of business cards you recommended. One good note for you to post based on my observation of my and my wife’s credit, if you apply for business CC, it does not show up on your credit history what is a huge advantage because it can be filled up with no negative effect on your credit

    Thanks for all you info and effort

    Dmitry

  13. Jed Camplet says:

    Should you include the PV of the property tax of your home as a liability?

  14. What I’ve started doing for Net Worth is calculating two values:
    * Net Worth (all assets – all liabilities)

    * Liquid Net Worth (Assets excluding Use Assets(Home Value, Car, etc) – Liabilities excluding Mortgage)

    This gives me a fuzzy number of what I might have if I sold everything, and real number of what I do have right now.

  15. Are you 100% self employed? If so, I’m curious what you pay yourself in monthly/yearly wages. Looks like you are doing full 401k contributions and profit sharing… Looking good.

  16. Jonathan – I don’t think your monthly financial statements paint a useful picture of your financial position to anyone including yourself. If you are going to value your house, investments, and retirement accounts at FMV, that’s a majority of your net worth! Most of changes from month to month will be completely out of your hands, so the numbers will be meaningless if you are trying to see how you are doing comparatively. You can still make it work by having 2 gain/loss columns. One for realized (i.e. cash flow) and a 2nd for unrealized (real estate and stock market fluctuations).

    BTW, while I think including stock market fluctuations is okay (you should still have a breakout for realized/unrealized gain/loss for this), I don’t think the unrealized gain of your house does any good except to satisfy your curiosity. Even real estate holding companies generally value their real estate at historical cost on the face of their financial statements, and then include a supplementary schedule with their estimated FMV attached in the back.

  17. You mention a real estate agent commision fee..why not FSBO(for sale by owner). At 6% of 500,000..I’d want them to repair anything in the house that needs repairing for free before watching that deduction take place!

  18. Why don’t you “tax” the retirement accounts in your net worth? Even if you taxed at the lowest level it would be more accurate than not taxing at all. Of course since it’s unlikely that you will pull the money early the best treatment would be simply to tax (not put in the 10% cash equivalent penalty) since all the other balances are post tax too.

  19. John a few questions—

    you keep the 401k and the roth for tax reasons, correct? i’ve been thinking about doing the same… but not sure i like the idea of having to separate accounts two keep track of and wouldn’t i lose on compounding interest?

    also, why do you keep so much cash on hand? long term investment strategy usually would have more equity oriented portfolio. is this a recent move due to the market? or are you keeping the cash on the table for an opportunity?

    Last question- my employer runs it’s 401k through vanguard…would it be wise to open a roth there…or is that not diversified…

  20. This is indeed a difficult time, especially when you’ve saved up and invested your money. I am around the same age as you and I was making a pretty good salary and managed to save up about 1 million mostly invested in stocks. All together my net worth peaked at a little over $1.3 million with a little over $1 million of it completely liquid (stocks mostly) and the rest in retirement accounts and a couple of small private investments (angel money). I have no debt other than an insignificant student loan. Last summer I lost my job as my company went under, I didn’t care though because I had a lot of money saved and I lived very cheaply (value living is a lifestyle for me). The job is not a problem, I have an offer now and another option I’m looking at. But the bigger issue is my portfolio. I should have cashed out but as I sold things I would later on buy other stocks I thought were way “oversold”. My total networth has dropped to a little over $600k – still mostly all liquid but just half of what it was a year ago. My portfolio tends to swing a lot, on a good day when the market is even up just a percent or two my portfolio goes up like 5 or 10%, I’m in very high-beta stocks. But of course when the market goes down even a little I lose a pretty big amount. Today the market fell less than 2% but my portfolio fell about 7%. I am unfortunately in two financials which are the worst performing – Citi and Bank of America. I have what I thought was a low cost basis for both but it doesn’t matter. I bought Citi at $3.50 which I thought was great, it is down over 50% from there. This is an easy market to get wiped out in.

    In a weird way I envy one of my best friends, a guy I grew up with who earns a very low salary and has little to no savings. When I tell him about my losses he always jokes to me that since he “aint got nothing he gots nothing to lose”. This depression in the markets is hard on everyone, if you’re an average person with little savings the big fear is losing your job. If you’re a responsible person with a lot of savings and you are young and had your money invested in the market you have seen it shrink to half the size.

    I am not worried about any liquidity issue. I have close to $100k just in cash and my expenses are very very low. And worst case scenario I can pull the plug on my investments, take the losses, and that would bring another $400k-$500k in cash but given that is half the size the portfolio was a year ago I’m not too eager to do that. You have a healthy savings and its unfortunate about your stock investments/retirement accounts but given that you have enough cash to last you a long time at least you can wait out the market. The market can go lower, even a lot lower, who knows? But you have to assume it will recover at some point otherwise that would mean the end of the American economy.

  21. Just found out about your blog, very interesting. I have a question for y’all. I’m in the military (6yrs), but getting kicked out due to a felony conviction (assault). So with me soon to be unemployed, with a felony conviction during a recession I have 5,000 to play with (ie; invest), because I live with my girl who is also in the military. I put 500 in lending club to see what that does. I curently that $5000 in in a ing direct account (total bal $10,000), but they are constantly lowering their interest rate. I thinking about taking $5000 and investing that into google, johnson and johnson and a few other solid companies. But i’m open to all suggestions. I gotta make something happen, because with this conviction (no prison time, just a conviction), I have a feeling my 6 yrs of service as a avionics tech won’t mean anything to a future employer.

  22. I agree with the first post – the $70k+ is impressive. I would definitely take care of the C/C debt first. It was ruining my credit history and the monthly payments took a good chunk out of the paycheck.

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