Jason Moran
Tuesday, May 13, 2008
Adventures In Wealth Building
The goal is to be able to retire someday without caring whether social security pays me a dime.
You get there basically by increasing your net worth to the point that you can support your lifestyle via stuff you've saved. Net worth is basically this: Take everything you owe anybody (debt) as a negative. Next take everything you have (cash, 401K, IRA, house, cars, giant bars of gold, etc) as a positive (asset). Put those together and you'll have your net worth.
It's very common for a recent college graduate to have a large negative net worth. To increase it, you have to keep paying off debt while trying to gain less new debt while adding to your assets. I signed up at Net Worth IQ to help me track it over time.
I'm happy to say that I made the switch from negative net worth to the positive side in early 2008. I still have $25K of the $36K of college debt left, and I have a huge amount of mortgage debt - which sucks because I owe more on my house than it is even worth now that homes dropped in value. However, I've been stashing money in a Roth IRA, regular IRA, and a 401K. Plus, I just paid off all of my credit cards and I paid off both of my cars as of last month (I used that tax rebate everybody got to make the final payment!).
I just made it into the positive - so I have a long way to go. I hope to be on track by the time my early 30s hit. Check out this formula to see if you are on track:
AGE: Your current age (you can use decimals to be more exact)
$$: Your annual spending. This is not what you make, this also should not include most of your debt (like student loans). This is today's dollar amount that you spend on living or want to spend (food, travel, clothing, property taxes, car payments). Basically the things you'll be paying when you're an old geezer.
Target NET WORTH = (AGE/166 - 0.15) * AGE * $$
That is what your net worth should be today...based on this semi-common premise: "You will need 20 times what you annually spend to retire at 72".
I'm way behind...where are you at?
You get there basically by increasing your net worth to the point that you can support your lifestyle via stuff you've saved. Net worth is basically this: Take everything you owe anybody (debt) as a negative. Next take everything you have (cash, 401K, IRA, house, cars, giant bars of gold, etc) as a positive (asset). Put those together and you'll have your net worth.
It's very common for a recent college graduate to have a large negative net worth. To increase it, you have to keep paying off debt while trying to gain less new debt while adding to your assets. I signed up at Net Worth IQ to help me track it over time.
I'm happy to say that I made the switch from negative net worth to the positive side in early 2008. I still have $25K of the $36K of college debt left, and I have a huge amount of mortgage debt - which sucks because I owe more on my house than it is even worth now that homes dropped in value. However, I've been stashing money in a Roth IRA, regular IRA, and a 401K. Plus, I just paid off all of my credit cards and I paid off both of my cars as of last month (I used that tax rebate everybody got to make the final payment!).
I just made it into the positive - so I have a long way to go. I hope to be on track by the time my early 30s hit. Check out this formula to see if you are on track:
AGE: Your current age (you can use decimals to be more exact)
$$: Your annual spending. This is not what you make, this also should not include most of your debt (like student loans). This is today's dollar amount that you spend on living or want to spend (food, travel, clothing, property taxes, car payments). Basically the things you'll be paying when you're an old geezer.
Target NET WORTH = (AGE/166 - 0.15) * AGE * $$
That is what your net worth should be today...based on this semi-common premise: "You will need 20 times what you annually spend to retire at 72".
I'm way behind...where are you at?
Labels: debt, money, net worth, retirement
¶ 1:33 PM 1 Comments
Friday, January 11, 2008
Cutting Out The Excess
So, I don't understand why we have less money every month than the month before. A year ago I had $10K in the bank, 5 months ago I had $3K in the bank, this month I have $17.00 in the bank. If this trend continues I will have a lot of debt collectors bugging me starting next month.
I figured it out.
I create a real budget-- using actual bank / credit card statements to determine what we really spend month to month. Now it all makes sense, here is why we are losing out money:
We spend more per month than we make.
It doesn't feel like we are living lavishly, and we used to have money -- so what changed? My wife stopped working, but we kept on living at the exact same lifestyle.
A cup of Starbucks here and there or a night out for dinner and drinks a few times a week had been adding up to a considerable amount of money. Somehow, without buying cars, HDTVs, or really anything we have found a way to spend more than I earn.
Now it's a big game of cutting out the excess in our lives, making everything efficient, staying home more, going out for coffee less, and figuring out how not to go into debt. Where's Dave Ramsey when you need him?
FUN FUN FUN. ¶ 3:16 PM 7 Comments
I figured it out.
I create a real budget-- using actual bank / credit card statements to determine what we really spend month to month. Now it all makes sense, here is why we are losing out money:
We spend more per month than we make.
It doesn't feel like we are living lavishly, and we used to have money -- so what changed? My wife stopped working, but we kept on living at the exact same lifestyle.
A cup of Starbucks here and there or a night out for dinner and drinks a few times a week had been adding up to a considerable amount of money. Somehow, without buying cars, HDTVs, or really anything we have found a way to spend more than I earn.
Now it's a big game of cutting out the excess in our lives, making everything efficient, staying home more, going out for coffee less, and figuring out how not to go into debt. Where's Dave Ramsey when you need him?
FUN FUN FUN. ¶ 3:16 PM 7 Comments