WEALTH FOR TOMORROW

So remember that part in my intro where I said I would be painfully honest with my finances? Well, this is the painful part, sort of. Welcome to my first net worth post.

Let me give you a bit of background. Our net worth is negative. I finished my bachelors a few years ago and my wife finished her masters last year. Not surprisingly, we racked up a bit of debt. Looking back, maybe it is more than we should have allowed ourselves, but it happened.

Once I graduated, got a job, and entered the dreaded repayment phase of my loans, I was faced with a dilemma many people experience: “Should I focus on paying back my loans first or saving for retirement?” “What about an emergency fund?” The short answer is all three. I do not think any of these should be totally neglected, but the priority of each depends on your current situation. For me, I prioritize retirement saving, loans, then emergency fund. I will go into the details of why in a later post.

For those who do not know exactly how to calculate a personal net worth, the most simplistic way of putting it is: assets minus liabilities. And for purposes of this blog, money I have minus money I owe.

Assets include any money you have in a bank account, retirement account, CD, etc. Some people will include a sum of the value of material possessions they own, but with the exception of property, I do not think these belong in the net worth equation. I like to keep it simple and only include what I can consider an investment, which is why only property should be added to your money or money equivalent side of your assets. Also, I would rather underestimate my net worth rather than overestimate, but that’s just me. Liabilities are everything you owe. Student loan debt, credit cards, mortgage, etc. You get the picture.

So without further adieu, the following is my net worth halfway through 2015.

ASSETS

	Retirement savings accounts	Brokerage account	Liquid cash
June 2015	$16,289.80	$3,139.00	$8,535.26

= $27,964.06

 

Liabilities

	Student loans	Credit card
June 2015	$150,953.80	$273.73

= $151,227.52

Net worth:  27,964.06-151,227.52= -$123,263.46

 

The retirement savings accounts include my Roth 401k, Roth IRA, and my wife’s Roth IRA. I opened the brokerage account last year to start getting some experience with stocks. I have been learning a lot and love it. I currently have positions in 4 stocks with a goal of building it up to 10 solid positions in the next few years to hold for the long term. The liquid is obviously what we have ready to go, but also our small emergency fund that we add to every month. We also anticipate a car purchase in the near horizon due to both of us still driving cars from the 90’s. Thank God  for Japanese cars right? Right now we do not keep too much liquid because as we gain more than we might need in the next couple months, I have slowly been increasing our Roth contributions and making extra loan payments.

I also broke down the list of our loans with interest percent. We are using the avalanche method which is paying off the balance with the highest interest rate first. This is the only way that makes sense to me because it is both the cheapest and fastest way to eliminate debt. I listed the credit card because that is our current balance but we pay it off every month. The only reason we have a credit card is to use the rewards.

Loan A: $1,731.42 at 8.2%

Loan B: $16,967.53 at 7.49%

Loan C: $3,177.67 at 6.8%

Loan D: $82,869.30 at 3.4%-6.8%

Loan E: $26,228.10 at 3.15%-6.55%

Loan F: $2,900.00 at 5%

Loan G: $18,639.05 at 3.5%

 

Another “stat” I have been using as motivation to continue paying off our student loans ASAP is keeping track of how much we have put towards our loans already in addition to our remaining balance. It is easy to get discouraged because of how far there is to go, but it is encouraging to see how much we have accomplished so far.

Loan Balance	Paid off
$150,953.80	$49,712.66

I will recalculate our NW on a quarterly basis. There is a lot of change going on in our lives which makes it especially difficult to plan ahead, but my goal is to be debt free by 2021 which gives me a little over 5 years.

Well, now that all that is out in the open, I’m guessing most people would decide that I am no credible source for financial advice, which is fine. I do not have the numbers to back me up. Over time, I am hoping my actions and results will speak for themselves and I am sure that they will. This is the first of what will be many updates on my journey to build wealth and gain financial freedom.

I would love to hear and suggestions, comments, or questions. Thanks for joining me on this journey!