Friday, February 28, 2014

March 1st 2014 Net Worth Numbers

The net worth number to start the month of March is.... $1,031,715.  The increase for Feb was $24,790, a 2.46% gain, which annualized is about a 33.8% return.  This gets us to just over where we were at the start of the year, $1,030,262,   At one point the number was in the 997K range a week into the month and then the number really started turning around.

I wanted to mention one thing about the net worth number.... as mentioned in the net worth primer, that does include both houses.  I read some discussions in some of last months net worth postings about including houses or not and here is my reason.... I have substantial equity in my houses.  Just consider a couple of examples and see if you do not agree.  Lets say two people have similar net worths when calculated without equity in houses.  Lets put those numbers right around 500K.  Now lets say both of those people have a house and both of those houses have a mortgage of about 375K.  Now what if I told you one of those houses was worth 415K and the other was worth 860K?  Would you say both of those people had the same net worth?  If you said yes, do you realize that the person with the 860K house could sell it and take the proceeds, after expenses and pay cash for a 450K house, own it outright and live with no mortgage expense?  Still think they have the same net worth?

The truth is, I own both of those houses.  My residence is worth about 860 and the rental about 415 and both mortgages are currently in the 375 range.  So I have slightly more than 500K equity in the two houses.  What if I sold both, rented someplace cheap and put the 450K money in the bank or in stocks.  That would be included in my net worth, correct?  So to not include those in my net worth calculations would say that my net worth would be the same even if I did not own those houses or regardless of the amount of equity.  I just do not see the logic in that reasoning.

Now another argument centered around houses as an investment.  While I would argue that a house can be an investment, I would not compare a house to stocks but regardless, my residence has been a great investment..  In less than 4 years for the residence, I took a less than 250K down payment and mortgage payments that have totaled less than 100K and the result has been 500K equity.  That's a return of close to 45% or about 10% annually and most of those mortgage payments should not be included since I would have incurred the same or similar costs paying rent had I not bought the house.  Now do I expect my equity to increase that 10% each year?... maybe.  On the one hand the market is the market and it goes up and down so who knows.  On the other hand I now control an asset worth 860K and the predictions say house prices in this area should increase 7% in 2014.  So if that holds true, I would have another 60K worth of appreciation and even using the down payment and the full mortgage amount extended out another year for my cost, that would still be a 15% return for the year.

So here is my tip for the month about doing well with an investment or any purchase for that matter.  You make your money at the time of the buy so don't put yourself in a position where you have to buy right now.  When I bought the house I did not need to buy but I had done my homework and spent the time looking at enough houses to know that this house was worth way more than what they were asking.  Why was it under priced?.... long story that involves Paris, Microsoft, Iran, cheating spouse and Canada.  The same goes for other purchases.  I buy on eBay occasionally, most of the time shoes and almost all of the time a specific brand.  I know what I want and I know what they are worth.  I check a few times a week and if I find something of interest at an exceptional price, I consider buying.  I have that luxury because I do not need to buy right now.  If I needed to have a pair of shoes right now, I am limited to what is being offered right now and its probably not going to include that one really great deal a month I manage to find.  I am currently watching 2 pairs of shoes.  1 of the pairs I have that exact shoe and I love them but they are starting to show some age.  I just don't love the price they are asking and I highly doubt they will get it.  If they come down, I will be ready.

Be patient, know the market, know when something, a stock, a house, a pair of shoes is being offered at a great price and when you recognize it, pull the trigger.  Chances are you made or saved yourself some money.

Here is my Net Worth Primer in case you want to understand what I calculate and why... plus a few more thoughts.

Friday, February 07, 2014

Net Worth Primer

I have been debating if I should write this post for a while but since now I am part of the J. Money Bloggers Net Worth list at Rockstar Financial, I feel like I really need to. This is a primer on how I do my net worth calculations, what is included and what is not. Some thoughts on my financial philosophy. A few links that may be of use and some do's and don'ts.

What is included in calculating my net worth?
Not everything to be honest.  Bank accounts, investment and retirement accounts.  Equity in the houses, plural, our residence and 1 rental house.  That is it.  I want to make it easy, I want to be able to calculate a number in a few minutes and I want to be very conservative.

What I do not include are those assets that are hard to value, furniture, jewelry, art, yes I have some and if you knew me that would come as a surprise, or those things that have minimal net value, such as the 3 cars, 2 of which are newer, 1 is a 2000 Honda Accord.  I am not including the ownership in a small business that doubles as my employer.  I own 50% and while it does have value, and has the potential for significant value,  I have no idea how much that would be today and I don't really want to guess.  I am also not including a personal loan in the mid 5 figure range made to friends... more on that later but the shorter version is don't.

So the bottom line is this.  If I had to fire sale everything, sell it all tomorrow...I should have no problem getting at least the number I have listed for my net worth and realistically, I would probably end up with a decent amount more.

Why am I doing this?
Why am I putting my finances online for the world to see?  I enjoy finances, specifically stock market investing.  My wife and I are working hard towards building wealth so we can retire with enough to enjoy life.  This is a way to keep me motivated and maybe pass on some of the information of what has worked for me and almost certainly some things you may not want to do.  Have I mentioned not to loan money to friends?

What are some personal finance places on the internet that I frequent?
-My most common finance related internet site is Yahoo Finance.  Not claiming its the best, its just what I have always used.

-I am also a fequent visitor to MFI Diary  MFI, Magic Formula Investing, is a stock picking philosophy by Joel Greenblatt that I find interesting.  The guy that runs the MFI Diary does a good job of looking at stocks to buy and occasionally that leads me to a buy.

-J. Money's Budgets Are Sexy  The reason I am writing this.  I found J's blog when I was looking for personal investing sites, specifically site by people like me who manage their own stocks.  My hope was to find a couple of sites that talked about stocks of interest.  Glad I found BrS but still looking for stock sites.

-Budgets are  Sexy's sister site Rockstar Finance  A nice collection of personal finance related articles that most of the time I agree with.  Which leads me to...

What is my personal finance philosophy?
Spend less than you make and invest as much as you can.  That about sums it up.

I am about 95% on the same page as Dave Ramsey.  They guy really knows his stuff and goes about life the right way.  We have a couple of differences, mainly the whole investing in individual stocks, but for the most part, we agree.

For the record, I would not advise most people to pick their own stocks.  It is something I have always enjoyed and I think I have the personality and some background to allow me to do the appropriate research but for most people, probably not the best choice.

One more piece of advice, not really personal finance related but a little bit.  Be careful who you pick as friends and who you hang out with.  Being around smart successful people who make good decisions goes a long ways in how your life turns out.  Its something that took a long time for me to truly understand and I try to pass it along whenever I get a chance.

Now about loaning people money... my wife, who is the best human I have ever known, has been friends with a couple for many more years than I have known her.  They would not qualify as the best managers of personal finance and got into some debt at a very high rate.  I had recently come into some cash and was trying to figure out where to put it when I found out about their situation.  They mentioned Dave Ramsey, in fact that is where I first heard about Dave.  They talked about how they were all in on his program etc.  So my wife and I decided to loan them a non insignificant amount of money at a reasonable rate that was significantly less than what they were paying.  Well fast forward and they did not end up following the Ramsey plan.  Now they have been paying me back as scheduled and I am not concerned about getting repaid at this point but if you listen to what Dave says about loaning money... there is a lot of truth to it.

You can follow me on twitter but be warned, that is where I let out my sarcastic fiscal conservative, social libertarian angst.  If you are the type that is easily offended....  Consider yourself warned.

Tuesday, February 04, 2014

February Net Worth Numbers

Down about 23K this month. Final number was 1,006,925. As I said before, this includes bank accounts, stocks, houses both residence and rental but not other assets that are hard to value such as vehicles, jewelry, furniture and ownership in my small business. I want my number to be very conservative and easy to calculate.

We did have a change in cars. My old car, an Acura MDX had some issues so we traded it in on a used Subaru. I am now driving the Honda hybrid which was something we were considering doing anyway because of my long commute. Bottom line, I am going to save close to $200 a month just in gas. I loved the MDX but the one knock on it, which I knew about when I purchased was the mileage would be poor, maybe 18 mpg and that was 90% highway driving. I am averaging 47 mpg with the hybrid.

The drop in net worth was a fairly even combination of the houses and stocks. The stock market has been a challenge or late and I just need to remind myself that this opens up buying opportunities. I have talked both online and in person on this subject a number of times over the month that those who do well in the market see downturns as the chance to buy and those who do not see downturns as the time to sell and get out. Then of course when things turn around and the market is going crazy, those who do well tend to sell and those who do not are eager to put in all they have. Now one of these approaches is buy low, sell high and one is not.

Here is my Net Worth Primer with some background about what I do and why I do it.