PoP Balance Sheet – January 2014

Welcome to our January 2014 Balance Sheet!

We use the structure of a monthly income statement and balance sheet in tandem to make sure we are keeping our expenses low and planting our pennies wisely. If you’re not already tracking your finances using these two methods, go to mint.com and get started today! If you have any questions about how we do this just post a comment and we’ll be sure to help!

Kindof a lot of action on the balance sheet this month. This month was a pretty big win for us.

That in mind… a bit crazy is the fact that we actually just hit the average for household net worth in this country, which was about $673.5K/household as of a few months ago. That’s $77.3 trillion / 114,761,359 households, and illustrates pretty well the difference between AVERAGE and MEDIAN, since the MEDIAN household net worth is just $10.9K according to this NYT piece.  (That seems extraordinarily low, so if someone has another source/number please share!)

For our balance sheet, most of the action was on the assets side, where we had some increases and some decreases…

  • First things first, I totally won the He Said/She Said poll on writing down the cars’ values (in politics it would have been considered a “landslide”), but we still compromised. Mr PoP’s car is now listed at $0 on our list of assets, so this was a decrease of $7.4K.
  • We updated the market value of our rental duplex that I had neglected to do for over a year… that resulted in an increase of $33K.
  • On the stock side, we had an increase of $15.5K on a month when the S&P went down 3.56%. Awesome, right? Well, until you stop and realize that a little over $22K was put into those accounts over the course of the month ($11K to fund our Roth IRAs for 2013, $1K to Mr PoP’s HSA, and another $10K went into our 401Ks this month – thanks to that big paycheck Mr PoP earned). So we were able to counteract those market losses for the month, and we’re still hopeful that the market will sputter some more so we can pick up shares at an even bigger discount as the year goes by. (“As goes January, so goes the year…”? *Fingers crossed* for all of us in the accumulation phase!?!)

But for the month of January:

  • Our total assets went up by $45.9K
  • Our total liabilities went down by $3.6K
  • Net worth rose by $49.5K
  • Total net worth as of the end of December is $673.9K, which represents a 7.9% increase this month.  

We’re also trying out a couple of different ways of looking at the growth of our investments (for us, this excludes our cars and the house we live in) within the context of a possible early retirement scheme. So please scroll below and take a look at them and see if they make sense or if you have any other suggestions about what works best for you!

And for the details…

dyerware.com



Assets

Stock Accounts

  • 401K accounts: $162.8
  • Roth IRA accounts: $134.6
  • HSA account: $5.6
  • Non-Retirement Stock Accounts: $0.6
  • Total Stock Accounts: $304.6

Real Estate (based on current market comparable sales)

  • Primary Residence $215
  • Investment Duplex: $130
  • Investment Residential Land: $80
  • Total Real Estate: $425.0

Cars (values from Kelly Blue Book)

  • Car 1: $0.0 – we compromised and wrote this one down to $0 since it fell below 1% of our total assets… but for the record, I totally won the poll on our He Said She Said
  • Car 2: $9.7
  • Total Cars: $9.7 

Cash Holdings

  • Checking Accounts: $10.0
  • Savings/Money Market Accounts: $23.3 – this is about $12K high right now while we figure out exactly where and what we want to buy in our new taxable investment account…
  • Total Cash Holdings: $33.3

Total Assets: $772.6

Liabilities

Real Estate Loans

  • Primary Mortgage: $98.4
  • HELOC on Investment Duplex: $0.0 (re-advanceable)
  • Personal Loan – Used to Purchase $50K Duplex: $0.0  
  • Total Real Estate Related Loans: $98.4

Revolving Credit

  • Credit Card Balance: $0.3
  • Total Revolving Credit: $0.3 

Total Liabilities: $98.7

Net Worth = Assets – Liabilities

Net Worth = $673.9K up 7.9% from December 

 

Tracking Investable Asset Growth

This first graph shows the growth of our investable assets (net of any liabilities against them), and shows the distribution of the various equity classes we hold. Pretty self explanatory.

dyerware.com


And this second one seeks to answer the question, “How many years worth of spending do we have saved up?” Basically I’ve taken the total of our investable assets for each month and divided it by the expenses (excluding our investment property expenses) for that month. The idea being that this shows how many years we could live off of those assets at that rate and gives us a better idea of what lifestyle inflation (or intentional deflation) can do to the relative value of our savings.

dyerware.com


It fluctuates in a much bigger range, because in high spending months (like last February when we spent almost $7K paying off our car completely), the denominator is so much bigger. Because of that, it’s the overall trend we’re looking for.

 

How was your January? And for those of you who have retired or are seeking to retire or reach financial independence, how do you find it most useful to track your investment growth, particularly compared with spending patterns?

36 comments to PoP Balance Sheet – January 2014

  • That’s crazy that there is such a huge disparity between median and average net worth. The average must be skewed by some of the ultra-rich.
    Holly@ClubThrifty recently posted..The Definition of Insanity: A Comcast RantMy Profile

  • I like that last graph a lot. I’ve never really looked at our money that way but I’ll have to try it out. 10 years is great!
    Matt Becker recently posted..How to Budget Without Actually Sticking to a BudgetMy Profile

  • 49k is amazing!!! How do they do the average and medium, and why is there such a big difference. A lot would depend I think on whether you are single or married, and age as well. I’ll have to do some exploring.
    Tonya@Budget and the Beach recently posted..Do You Need the Struggle?My Profile

    • Average = All household wealth added together / # households
      Median = the 50th percentile, so half of all households have less, and half have more.

      Take the numbers 1,2,3,4,100

      average = (1+2+3+4+100)/5 = 22
      median = middle # when lined up in order = 3

  • Debbie M

    I’ve never noticed the mean net worth figure before. I blow most finance numbers (except income) out of the water somehow, but not this one!

    I agree that your figure for median net worth seems low, but I think it really is only 20 or 30K (it really is crazy low).

    I like to look at my retirement investments in terms of cash flow or how much I could spend each month sustainably. In _Your Money Or Your Life_ (first edition), they say to look up the interest rate on 30-year bonds and apply that percentage to your savings. Most of us are not willing to settle for that low of an amount these days, but I use comparable measures.

    Right now most of my investment money is in various index funds in a Roth IRA, so I calculate that rule-of-thumb 4% for the annual income from that (and then divide by 12 because I prefer looking at monthly income). For me that’s $455/month.

    Then I also have some money in dividend growth stocks, so for that money I look at my average monthly dividends: $22.81

    I also have some I-bonds; last month I earned $6.52.

    So if I quit before I qualify for my pension, I could have $484 to live on. I am not that frugal! An old friend of mine would then actually decide what sort of lifestyle he could achieve on the income he could generate. In the beginning, he achieved goals such as “I could afford to retire in Haiti” or “I can now afford to be homeless in my home town.” I loved that, though I don’t want to go through the trouble to actually figure out such things for myself. I guess you could look up median incomes in different areas fairly easily and see which ones you could exceed.

    My big money is in a pension. Given the amount I have worked so far, I will qualify for a pension of $2088/month or about $1900 after taxes. That alone is more than my expenses, but everything else put together isn’t nearly enough, so I have a great plan and terrible back-up plans (or a terrible third leg on my 3-legged stool).

    Speaking of that three-legged stool, if the rules don’t change, I can also qualify for $854/month from Social Security at age 62 or $1220/month if I wait until I’m 67. So I could make a graph with 3 lines–one for current income, one for total income once I qualify for my pension, and one for total income once I qualify for Social Security. As I save more, the first line would normally increase; as I work more, the other two would increase.

    For rental property, I’d calculate the amount of rent minus the average expenses for that portion. That number would change as your rent, insurance, and property taxes change, plus I’d update the expense estimate each year to keep up with inflation.

    • I think the mean net worth is so skewed by families that own billions and billions (after all it takes a lot of people on the low end to average them out) that it isn’t much talked about. Instead people often confuse the median for the average, and as a math person I’m kindof a stickler for precision when discussing central tendencies. =)

      I like the 3 legged stool graphing idea. I have a spreadsheet that models some possibilities out that uses a similar tactic, but without social security and pension, one of our legs being the net rental income.

  • Congrats on your accumulation of wealth! So exciting.

    For my part, I’m not sure if I’m sad or excited that we surpass the median net worth in our country. We are low on the income side (by conscious life choice, so I shouldn’t complain), but we are high on the saving side. Still, it’s a little victory!

    I must say, the details here are still mind-boggling to me.
    Leah recently posted..Rama-lama-ding-dongMy Profile

    • Thanks, Leah! The details are super easy to accumulate… mint does so much of the heavy lifting that the numbers for this post and our income statement post take about 5 minutes to pull together. What takes a little more effort is figuring out how to interpret it and what to focus on! =)

      “but we are high on the saving side. Still, it’s a little victory!”
      I call it a big victory!

      • Thank you :-) It is still sometimes hard to look at what other people save in a month or two and realize that’s a year’s worth of saving (but a big percent) for us.
        Leah recently posted..Seattle PrideMy Profile

  • What a month! And I agree on the delta between the mean and the median net worth. It’s shocking: illustrative of the impact the ultra-wealthy have on the mean, and scary to think that half of all households have less than $10.5k net worth. Incredible.
    Done by Forty recently posted..There Ain’t No Rest For the WickedMy Profile

    • It boggles the mind even more to think of it this way – even if the mean net worth were $1mm, it would still take 1000 people with a 0 net worth to balance out each billionaire.

      • It makes me wonder why we are so okay with the pay gap in our country. And by okay, I mean that we don’t want to do anything about it but complain. I definitely think people should be awarded based on the work they do, but how many times more income should a CEO make than the lowest paid person? The work of the company wouldn’t go on for very long if every entry-level worker, janitor, and minimum-wage employee quit.
        Leah recently posted..Seattle PrideMy Profile

  • Anne

    What a great month you guys had! My NW dropped a little bit due to the stock market corrections, but I’m down with cheaper stock prices.

    And I agree the difference between mean and median is crazy, but I’d be interested to when you qualify as a “household” (18? No longer a dependant?) and to see the mean/median breakdowns for different age groups. After all I don’t expect a college student to have a 10k NW while they’re paying tuition, but certainly within a few years of graduating it should start to tick up significantly.

    • We’re also down with cheaper stock prices =)

      As for the data…I’m not 100% sure what qualifies as household since I just took the census number of households, I’m sure they define what counts as a household somewhere.

      This page actually has some info on mean/median wealth broken down by various factors (age, income, education), though the data stops in 2007.
      http://en.wikipedia.org/wiki/Wealth_in_the_United_States

      The data on the median actually seems to be pretty bad – that there doesn’t seem to be a very consistent answer. I wonder why that is…

  • I track our investment growth in two ways. One is for dividend/bonds/etc where I get “paid out”, but the principal doesn’t change, and the second for the balances in the accounts (the principal). If the dividend/bonds amount ever exceeds our expenses, we’re retiring the next day. But we’re not focused on that, and are more focused on growth – and measure our balance by the 4% rule. So if either condition happens, we’ll be FI, with some extra. It’s a confusing and strange way to think about it, but it gives us a cushion if we do retire.
    Mom @ Three is Plenty recently posted..10 Minutes to save $15 per monthMy Profile

    • Sounds similar. I think of the second graph as visualizing the 4% rule of sorts. When we’re consistently above 25 on that, we’ll have hit the 4% rule for expenses.

  • Maverick

    Since you asked…
    I have recently reached FI, but I don’t account for / track my house or car(s) values. My argument is, I have to reside somewhere. I don’t track my car(s) current value just like I don’t track my furniture, electronics, and other posession values. What I do track (monthly) on a spreadsheet are my financial instruments (401Ks, stocks, bonds, cash, as well as the expected future pension and Social Security monthly payments). I project my annual budget and expenses by assuming 3% inflation rate and 5% return on investments, or a net return of 2%. I also project that I will not exceed 3% safe withdrawl rate (that’s initially, in later years that is projected to drop below 2%).

    • Thanks, Maverick. I completely agree with the house/car values being omitted when it comes to FI assets – they’re stripped out in the two graphs at the bottom, though for consistency we’ll probably still track our net worth with at least the house value in it forever.

      Those seem like pretty conservative assumptions (net 2% return), I am very impressed!

  • I’m actually not surprised at the median NW. We live in a poor area, and I see that all the time. Sad, but true. Another great month. I really like that colorful graph.
    Kim@Eyesonthedollar recently posted..myRA, What Is It And Can It Work?My Profile

  • Wow – if you look at the average net worth, we’re pretty darn far behind, but if you look at the median net worth, we’re rich! I think we’ll go with the median for now. :-) Seriously, though, you guys are doing SO well on your investments, and I think it’s awesome that you’ve got so many years of living expenses in savings. This is our goal as well. Great job, PoPs!
    Laurie @thefrugalfarmer recently posted..Debt Payoff Recap January 2014My Profile

  • I’m in the same position as Laurie–rich by the median, poor by the average. I was excited that when I worked out net worth for my blog this month, we’d broken $50K for the first time! (We are not in the same league, income-wise, as many other Mustachians).

    I work part-time from home, so my income is partly in my control. January was my best month in a year but it was still pathetic! Goal is to increase it by about a third for February. Wish me luck!
    frugalparagon recently posted..Why the Frugal Paragon Loves Leapforce at HomeMy Profile

  • Pops great January, unfortunately my stocks has punched me in the face and I took a hit. It’s ok as I’m still a buyer for the long term. Crazy to see the net worth gap in this country.
    Charles@Gettingarichlife recently posted..Six Rules On How To Become A MillionaireMy Profile

    • “I’m still a buyer for the long term”

      As are we! Time will tell if we get a larger correction and some more buying opportunities, though.

  • That’s pretty awesome for you guys. I didn’t notice a post on 2013 income, but it looks at a quick glance like you must be pushing up near the Roth IRA limits? I think we’ve only got a couple years left ourselves. I really like that last graph tracking years of savings vs spending, I’ve got to go make one for myself now :) Maybe I’d be able to find this info if I went hunting back in old posts, but how is that staying so consistent around 8-10 years when assets have doubled over the same time frame? Lots of investment property spending or something? Anyhow, congrats on the great net worth, I know it’s a great feeling looking at that first graph.
    LMaS recently posted..Biking to Work – January 2013My Profile

    • As a couple we haven’t yet passed the Roth IRA limits, but we’re close enough to them that we hold back our IRA investing until we have our final income numbers for the year… just in case we need to do a back-door Roth option.

      Actually I think you might be misinterpreting the last two graphs a little. They actually only covers the last 13 months (I was too lazy when I made them to go in and get the data for earlier, but you might have motivated me to do so as it would make the graph more complete!). I think what they show at this point is partly how variable our spending tends to be throughout the year. We’re not one of those couples that somehow spends the exact same amount every month… But we do tend to spend similar amounts in the same month from year to year.

      January 2013, we spent 4,452 on the household and that was 6.85 years.
      January 2014 we spent 4,467 on the household stuff and that was 10.20 years.

      So I think we’ll continue to see variation, but as more months get added, the long term average should be headed upward. At least that’s the hope, right? =)

  • Sounds like a great start to the year. Our January was rocky in terms of unexpected expenses but I was able to max out my IRA which was a small win. :)
    Cat Alford (@BudgetBlonde) recently posted..Is Leasing a Car All That Bad?My Profile

  • Very cool, thank you so much for posting all of this info. Very encouraging.

    Question: Why do you count the value of your cars as part of your net worth? I see cars as a sunk-cost that you will never see again.

    Look forward to your reply.

    My wife and I just started posting our numbers, so, thanks for leading the way and helping us to not feel so much like freaks!

    -Derek
    Derek Olsen recently posted..Net Worth First Quarter 2013My Profile