How often do you look at your net worth?

Growing Dollar Tree Photo
KJ: How often do you look at your net worth? Weekly, monthly, quarterly, yearly, never? Why or why not?

I track our net worth on a monthly basis, and we review it together during our quarterly presentations. Yep, you read that right. For those of you who do not know us, we actually have a presentation that we review each quarter with information on investment performance, net worth changes, and other financial highlights for the quarter. We used to do a comprehensive cash flow each quarter, but since I’ve fallen behind on tracking it in Quicken, the numbers aren’t as reliable. Sure has a lot (or mostly all) of the information, but since we stay on top of our net cash flow each month, the quarterly figures aren’t as useful. It’s fun (and shocking) to look at periodically even if you know what you spend each week or month. There’s something about seeing some of the figures on a quarterly or annual basis that makes you wonder, “we spent how much at [insert retailer or restaurant]!?”

AJ: I know we’ve talked about our quarterly presentations before but looking at our net worth on a quarterly basis helps me understand where we are without getting too caught up in the tiny details that occur month to month. Ensuring we’re on track monthly helps keep us from having to catch up later, but I leave the monthly net worth review to Kirby so I don’t go crazy :).

Why track monthly?
So, why do I track our net worth monthly? Short and simple: to see if we’re on trend with our goals. It helps keep front of mind when we have a lot of goals that are very long-term in nature. Otherwise, it’s easy to let them slip by the wayside and lose sight of what the end goals may be.

Tracking it on a daily or weekly basis would probably make you go insane, but tracking it on a monthly basis still gives you the regular updates you need in order to stay on track. Plus, if you start tracking it regularly when you are younger, you’ll begin to learn how much investment performance and the whims of markets can impact an account in the short-term – a valuable lesson to learn sooner rather than later!

What do we track?
Well, everything we can think of to track that represents an asset we own except household valuables and furnishings. We include our house, cars, cash value life insurance, investment and retirement accounts, savings, etc.

What don’t we track?
For administrative simplicity, we don’t track jewelry, silver, furniture, furnishings, etc. in our overall picture. One-off expensive jewelry, art, wine, etc. could be included if you felt it were meaningful, but in most instances, it’s not something you would look to sell to raise cash anyways.

We also don’t track checking accounts or credit cards on our net worth. Since we keep relatively minimal amounts in our checking account from time-to-time other than to meet cash flow obligations, it’s not useful to show in our net worth figures. Same goes for credit cards, since we pay them in full each month, it doesn’t do any good to show the value. Technically, we could show the difference of the checking accounts and credit cards to come up with the net figure each month, but for simplicity, we do not. However, if you do have any type of credit card or loan balance that is carried over from month to month, then you would want to make sure it is properly included (i.e. reducing your net worth).

How do we get values?
Some items are easy to value like your 401(k) or investment accounts that have regular daily values. These most often come from online account summaries or statements that are easy to access. Try to use the same date for valuations, otherwise you might be double-dipping! If you have a deposit or transfer in transit, you could be including it in the value of the receiving account, yet it still hasn’t been deducted from the sending account, so make sure you’re not overstating a value.

Other items like a home and cars are a little less easy to value.

I try not to make any adjustments to the value of the house unless a meaningful event has happened (mostly a significant decline in prices in the neighborhood like 2008 and 2009 showed most of us), but I seldom increase the value of our home. In fact, I even take off 6% of the estimated value to show the true, net estimated costs of selling with all the realtors fees and transaction costs involved if we were to sell it.

For the cars, probably about once or twice per year I’ll head on over to Kelly Blue to check out the current values of our cars. They don’t change a whole lot, but it’s good to be realistic (and conservative) about the values we’re showing them at, so I usually round down.

If we had business interests, we would include that, but we don’t at this point in time. That part of your net worth may be the most tricky to value, and it is likely to be infrequently valued (probably at most once per year).

Do we use after-tax figures in our net worth?
The short answer is no, but if you really think about it, shouldn’t you show the after-tax value of your retirement accounts? Seeing as how we’ve tried to put as much as we can in Roth accounts, they’re essentially after-tax funds anyways, so we don’t make any adjustments. However, Angela has a 401(k) that is pre-tax that we could consider reducing by our tax rate. Maybe this will be a change we make going forward, but this has just added one more step in complexity to tracking it, so I haven’t taken the plunge to make the adjustment to show our after-tax net worth specifically. It’s really not difficult to do, and I would highly encourage you to make the adjustment particularly if it’s a very significant part of your net worth.

Take the value of your account and multiply it by (1-Tax Rate). So, if you’re in the 25% tax rate, and your account is $10,000, then you would take $10,000 (1 – 0.25) to get a result of $7,500 to show on your balance sheet. A pretty meaningful adjustment though when you think of the impact on a large pre-tax account!

    How often do you look at your net worth?
    Do you exclude the value of anything from your net worth?
    Do you look at the after-tax figures?

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The simple secret to building long-term wealth

KJ: So, here goes. The simple secret to building long-term wealth. A strategy so simple, how can it possibly be true? Is it a genius idea, is it working 70+ hours per week, eliminating your weekends from your personal life, is it abandoning all fun in your life? Nope. The simple truth is that you only need two very important, but very basic things: time and discipline. While that super genius invention that everyone in the world will need to use combined with your expert business savvy could be factors that get you there; chances are that isn’t likely the path for you (or most everyone in the world out there).

We’ve written about this before, but time is one of the greatest assets available when you’re saving for your goals – especially very long-term goals like retirement. Really, the compounding effect of interest over time is amazing. It’s all about putting your savings to work for you over time, and the longer it’s at work, the more and more beneficial it is for you. Don’t believe it…just look at the chart below on how time can work in your favor.

JP Morgan Investing Early and Compounding Interest Over Time

It’s never too late to start though, so stop putting off your goals and savings until a time when you will have fewer expenses. Don’t delay, and start today!

Now that you’ve got step one of two down on this list to building long-term wealth, it’s time to work on your discipline. And, one of the easiest ways to build savings discipline in your family’s budget is to make it both automatic and calculated, so you don’t even have to think about it.

Have your savings (retirement, travel, emergency fund, etc.) siphoned off each month at predictable times. That way, you make savings part of the rule and not the exception. Your net worth will thank you over time by making your savings systematic. When you don’t have it at your disposal to spend each day, week, or month, you’ll be amazed what you and your family can live on (or without!).

Live below your means. We don’t spend as much time talking about this as we do actually living it, but getting a raise doesn’t equate to increasing your budget. It equates to retiring earlier. Find a comfortable financial station that you and your family can reasonably live with and stay there even as you build your earning potential well beyond that point. I won’t judge your 15 year old car if you won’t judge me for retiring at 45.

Set specific financial goals. Think about what your savings needs are to achieve your goals – whether it’s a house down payment, vacation travel fund, or an emergency fund – and figure out how long you have to accomplish them. Some goals may vary on the exact timing, but that shouldn’t stop you from estimating when you think you may need those funds. Just do a few simple calculations, and see if your timing and goals are realistic. If you need $10,000 for a goal one year from now, but you only have $100 per month to save toward that goal, chances are it’s not going to happen in your original timeline! So, be specific on what you need to save.

    What strategies have worked for you to build you and your family’s net worth over time?
    What are you doing to get time on your side?
    What disciplined savings habits work for you?

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Some of the links in the post above may be affiliate links. This means if you click on the link and purchase the item, we will receive an affiliate commission. We feel strongly about only recommending products or services we use personally and/or believe will add value to you, our readers. Read more about our commitment to providing quality product recommendations.

Why you need an emergency fund

Emergency fund 101KJ: So we had a bit of a real-life experience this past week on the importance of funding your emergency fund. Not only do you never know when you will need to dip into it, but you don’t know how quickly you may need access to it either. Plus, money is the last thing you need to be stressed about when dealing with an emergency. So, how then do you make sure you have enough money in your emergency fund for when you really need it? We’ve written about it quite a bit over the last couple years of our blogs, but this past week really hit home on the WHY we save like we do. Not only was our recent dip into the emergency fund stressful and woefully unexpected, matters would have made the situation worse had we not been prepared financially when it came time to pay the piper. Hey, just because you’ve built up your emergency fund doesn’t mean it’s any less painful to spend it when the time comes! Let’s start with some information on what an emergency fund is, what it isn’t, and what you should do to protect you and your family in an emergency situation.

What is an emergency fund?
Any good emergency fund should have the following characteristics:
It should be highly accessible. Don’t plan on equity in your home to serve as your emergency fund. That’s a terrible idea as people saw firsthand in the 2008-2009 real estate bubble bursting. But, your emergency fund should be invested in highly accessible cash, be it a money market account or a savings account. Once you’ve built up your various buckets, for the first $5,000 of your core-emergency fund, don’t bother trying to do anything fancy with Certificates of Deposit (CDs) or any investment product at a brokerage firm with today’s low interest rates. You NEED it to be highly accessible and penalty free when you’re in a bind, so having the flexibility in just a regular savings account is often preferable.
It should have a minimum of $1,000 quickly. It should be filled with at least $1,000 to get started right away, but it should be built up with enough funds to cover your home, health, and auto deductibles should something crop up unexpectedly (not quite as rare as you may think!). Then, look to build it to that magical 3-6 months of your living expenses, so it can serve that additional purpose in the event of a job loss.
It should be reserved for emergencies ONLY. This one is plain and simple. Don’t use this for when that TV of yours breaks, upgrading appliances, or taking a trip. Hold strong and use it for its intended purpose!
It should protect you and your family. Any good emergency fund should be able to provide your family with the cash you need, so you don’t have to rely on high interest credit cards or lines of credit. Those just add fuel to the fire and make your emergency situation just that much more difficult to dig out of.
It should provide peace-of-mind. Once you’ve saved the proper amount, your emergency fund helps take the added financial stress out of the situation. The last thing you need to stress about when dealing with a health, home, or auto emergency is the financial aftermath, so why make the situation worse. It’s easy to get behind, so dig your heels in and get ahead before it’s too late.
A way to ensure you won’t be a burden to your family. This is particularly important to us in an emergency, as what you need most from family is emotional support and not financial support. An emergency fund protects both you and your loved ones.

What an emergency fund is NOT.
It is not to be used for regular living expenses. As in the above writing, don’t use it for everyday needs. Oh, my checking account is low, or, I need a better pair of shoes. NO! If you find yourself wanting to dip into the account for these purposes, then head on over to our earlier post on finding a surprisingly free (and simple) budgeting tool to give your budget a quick start, so you can quick-stop your reliance on your emergency fund for every day use.
It is not illiquid. Don’t rely on real estate, rental real estate income, or investments to be your core emergency fund. Sure, over a VERY long period of time, you could come out on top if you could eek out a little extra return, but the lack of flexibility when you need the funds most can be a huge issue.
It is not pushed aside and never looked at again. Just because you have built up your emergency fund one year, doesn’t mean it will forever be the same amount your family needs. Periodically check to see if there may be more you need to save up. Maybe your expenses are higher or your risk factors for health issues have increased, meaning you need a higher balance in your emergency fund. Again, start with $1,000, then build to $5,000, then build to 3-6 months of living expenses.
It isn’t a planned expense. An emergency fund is for just that: an emergency. Don’t use it to fund a known expense coming up for a roof replacement, new fence, etc.

So, how then do you plan on using your emergency fund?
Have quick, direct access to your account to transfer funds to a checking account. If it takes multiple days for cash to be available and is at another institution than your checking account, that can be troublesome at times.
Know how and where to go. Don’t bottle this up and keep information from your significant other. Make sure both of you know how and where to go to raise funds as needed. It doesn’t help to have saved the money and have it available if you don’t both know what to do. Think of it as a little at-home cross-training.
Lean on your everyday credit card. This one carries a big caveat, but if you have properly built up your emergency fund, then simply putting the expense on your credit card, and then subsequently transferring cash to your checking account to payoff the bill ASAP can be an a-okay solution. We wouldn’t have been able to do this recently had we just graduated from college, but as we’ve continued to build our credit, we’ve increased our access to credit too (actually quite scary what the credit card companies think is OKAY to have access to!! But, we’re responsible, so we’re not racking up ANY credit card debt in the process that isn’t paid off in full each month).

    Do you have a fully-funded emergency fund?
    What amount do you need for your emergency fund?
    Don’t delay, and start an emergency fund today!

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Smart money saving essentials all young savers should know - Dear debt, We need to talk. It's not me. It's you. Oh, and I met Roth. She's pretty sweet.
KJ: Saving money is all about working through things for the long-term. So what then can young savers do to maximize their savings and pack a punch for their long-term goals? We’ve pulled together a list of eleven smart money saving tips all young investors should have on their to-do list. Help spread the word with other savers, and let’s work together to build a better, brighter, and savier (surely that’s a word!) future. I’ve included a *few* references to some of our older posts if you feel so inclined for some further learning.

(1) Setup a Roth
Whether it’s a Roth IRA or a Roth feature of your 401(k)/403(b), if you’re young, you should be taking advantage of the feature! A Roth IRA is after-tax money (meaning you pay income taxes on the money in the year you earn it and you don’t get to deduct contributions TO the account), and it grows tax-free. No more taxes on that money for retirement regardless of the growth…think of the possibilities! These are EXTRA great tools for people who are in a low tax bracket AND who are young. Chances are if you’re young, you aren’t at your peak earning point in your life, so win-win!

(2) Learn about the HUGE benefit of compound interest
Starting to save early means you can take advantage of the compounding effect of interest and growth over time – i.e. the whole make your interest earn you interest concept. Having time on your side means the sky is the limit!

(3) Pay down student loans
With student debt surpassing country-wide credit card debt in recent years, chances are as a young saver, you have student loan debt yourself. So, work up yourself a payment plan and find ways to cut your expenses to be able to pay down the debt and get rid of it. Most loans are for 20 years, and I can assure you your 20-year-older self will be glad you paid it down quickly!

(4) Pay off any credit cards quickly
You’re young, you have nothing but time on your side, and you’re going to get a killer job out of college with the awesomeness that is your college degree. Then, reality sets in, and you realize how much more of a challenge it is to pay off those expenses you didn’t think twice about. Well, now’s your time to shine and pay down your *extra bad* debt quickly. Whether you choose the snowball method OR highest interest method, you can’t go wrong. With the snowball method, you basically pay the lowest BALANCE card first with as much extra income as you can, minimum payments on other cards, then once the lowest card is paid in full, you apply that payment to the next highest card until it’s paid off, and so-on-and-so-forth. For the highest interest method, focus instead on the highest interest rate card(s), then next highest, etc. Sometimes the snowball method provides that “instant gratification” as you knock your debt in the teeth and eliminate the number of cards with balances quicker.

(5) Setup – and fund – an emergency fund
First out of college and starting your first career? Build good savings habits today and setup an emergency fund. Try a money market account, Certificates of Deposit (CDs) at a local (or online) bank, or a good-old regular savings account. Build it as quickly to $1,000 as you can, and then work on paying down debt, saving for retirement, and building your emergency fund until it’s 3-6 months of your living expenses. Use Quicken or to track your expenses, so you know what 3-6 months of your living expenses REALLY look like.

(6) Set some goals (financial, professional, and personal)
Put pen to paper and start setting some goals for yourself. Be specific and S.M.A.R.T. (Specific, Measurable, Attainable, Relevant, Time-Bound) about all of your goals. Sounds fancy, but it’s quite simple. Read more here. What’s the point of saving if you don’t know what, where, or why you’re saving?

(7) Create a budget
If you don’t currently have a system you use – or are in the market for a new system that works better for you – start with the following options: Quicken or, Yodlee!, Personal Capital, or just a handy-dandy, pen & paper Moleskine Ruled Journal. Start building a budget by creating a list of all of your expenses. Be specific, and honest about your expenses!

(8) Live on less and see how long you can keep it going
Chances are you could stand to live on a little less. Try it out for a month by cutting one area of your budget whether that’s shopping (that was Angela’s personal choice at the beginning of last year!), less eating out, or less Starbucks. Maybe it will spark you to find ways to trim other areas of your budget…it’s amazing how this mentality and behavior can feed on itself.

(9) Spend less, save more
Basic, huh? Well, actually there are profound impacts on how much better off you will be if you just learn to live beneath your means. Not only will you be able to save more, but you will need to actually save less for your long-range goals by nature of having fewer expenses to cover at a later age.

(10) Save for your child’s college
Learn about tax-advantaged ways to save for your child’s future college expenses, and consider utilizing a 529 plan to get more bang for your buck.

(11) Read about account types
From taxable accounts to retirement accounts to health savings accounts, start doing some research and learn about different account options. There’s a lot out there, but all the more opportunity to learn more and master the savings game!

    Is there anything you would add to this list?
    If you’re at or near retirement, what do you wish you had known that you could tell your younger version of yourself?

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