Money Blue Book

Goodbye 2008 and Good Riddance - Hello Year 2009!

Happy New Year everyone! As much as I’d like to be forward looking, sometimes it’s hard not to recap the past. I think 2008 will go down as one of the worst years in American history in terms of the economy and national morale. Since the start of last year, there has been this gloomy gray cloud of recession worries and depression fears that has persistently lingered over the heads of all Americans. Despite our attempts to shake its clutches by turning our attentions to more exciting events such as the media circus and hype surrounding the historic presidential election of  Barack Obama, the first African American to be voted into the White House, it appears the ominous clouds will follow us into 2009 and beyond for the foreseeable future.

Who To Blame and Where To Go From Here

Those who want to take the easy way out by blaming the credit crisis and current economic woes on the Bush administration, or on the Democratic Congress, or even on the ongoing wars in Iraq and Afghanistan – have their sights on the wrong culprits. The primary blame should be placed on ourselves – the credit and home hungry American consumer who pushed housing prices to astronomical and unsustainable levels. Weaned on easy credit and driven to consume to great excess over the last few years, our abandonment of the age-old practice of saving and living within our means put us on the road to financial disaster that finally came to fruition during 2008.

While the spigot of credit offers and home mortgage loans flowed freely and easily, the destructive cycle of revolving debt and high risk investing was triggered. When housing prices finally halted its irrational surge and began to plummet, so too did the fates of dependent investment banks and mortgage lenders. The precipitous downfall took with it – former pillars of American financial might – companies like Bear Stearns, AIG, and Fannie Mae. In 2008 we saw the fall of major savings banks like IndyMac and Washington Mutual, and witnessed the catastrophic destruction of shareholder equity in financial giants like Citibank, Bank of America, and JP Morgan Chase. The domino effect of the housing collapse has caused the entire U.S. economy to pull back, leading to a decrease in consumer spending activity, triggering further scale backs in worldwide economic growth. With the ongoing deterioration and lock up of the credit and banking institutions, we are now entering an unstoppable economic recession, as massive in scale as our nation’s ever experienced, with no end in sight.

Certainly the federal government with its regulatory oversight powers have some share of the blame as it was their responsibility to ensure home mortgages were being priced fairly and sold at levels warranted by the underlying risk. The federal government’s overzealous housing agenda and eagerness to ensure that all Americans became homeowners (when a vast segment had no business ever becoming one), resulted in billions to trillions of dollars worth of risky subprime mortgages being offered to individuals totally unqualified for such loans. The Fed (with its infinite number of financial experts) still managed to fall asleep at the wheel and wind up negligently steering the great American ship into an economic iceberg. If it’s one thing that we hopefully have learned from 2008, it’s that even the most savvy and professional of financial experts fail to get it right sometimes – just ask any one of the trusting and savvy investors who invested their life savings with hell-bound scam artist Bernie Madoff and his $50 billion Ponzi scheme.

Without a doubt, 2008 was a terrible year for the economy. Many of my friends, particularly those in the financial and accounting sectors, now find themselves laid off and unemployed for the first time in their lives during what will likely go down in history as the worst economic recession since the Great Depression of 1929. But amidst the financial anger and desperation, I have faith that better times are ahead of us. Unless financial Armageddon is truly looming (and I don’t think it is), there is hope for better days in the years ahead. Until blue skies reign again, we’ll simply have to buckle down and adopt a more defensive financial and savings strategy to weather this economic storm. After all, we are all in this together – each feeling the economic pain in some way or another. We’ll get through the tough times in due time.

One Thing I Learned in 2008 – It’s Impossible To Predict The Direction Of The Economy and World Events With Any Real Precision

At the beginning of 2008, I posted a blog entry about my stock market projections and financial predictions for 2008. The purpose was to compare my plans for the new year with actual reality 12 months after. Well, after examining my predictions for 2008 and comparing my projections with what actually happened, I’ve come to the conclusion that I’m the worst soothsayer in the world. The great majority of my predictions were way off base, but then again, who could have predicted the current events as they ultimately turned out? It just goes to show that despite our best efforts, financial predictions are simply educated guesses at best. Here is how my predictions fared against economic and political reality.

1. In January 2008, I predicted the U.S. economy would be able to stave off a full blown recession during 2008, not realizing just how bad the financial and housing markets were and how much wealth destruction they would ultimately wreck on the overall economy. I was completely way off on this particular prediction. The economy ultimately nose dived into a severe recession and currently we are teetering on the brink of another cataclysmic wave of unemployment increases, surge in credit induced bankruptcies, and further drops in consumer spending. The collapse of the American economic engine due to unsustainable subprime mortgages and plummeting home prices has also managed to bring down down the economies of the rest of the world, as evidenced by staggering stock price wipe outs across the board in most of the U.S. and world stock markets. During the 12 month span of 2008, the Dow Jones Index plummeted 34%, the S&P 500 Index went down 35%, and the NASDAQ dropped 40%. Asian stock markets fared even worse as the Korean KOSPI dropped 41%, Japan’s Nikkei dropped 42%, and China’s FTSE/Xinhua FXI 25 Index plummeted a staggering 50%.
2. Interestingly, I predicted Presidential candidate Hillary Clinton would ultimately win the Democratic nomination and go on to win the U.S. Presidential election as I did not believe the Republicans could produce a sufficiently viable candidate who could sufficiently distance him or herself from President Bush and his administration to compete with the Democrats. A Democratic candidate ultimately did win the national election, but instead of Clinton, it was young Barack Obama who captured the hearts and minds of the American people, inspiring them to vote in the name of change for the nation’s first non-Caucasian president.
3. I’m not sure what to make of my prediction about the direction of oil prices. For 2008, I predicted that crude oil prices would not exceed $100 a barrel and that average fuel pump prices would remain steady at around $3.00. However, after blowing past the $100 mark and reaching highs of $125 during spring 2008, crude oil prices ultimately plummeted in a span of only 9 months due to drastic pullbacks in world wide fuel demand triggered by slowing world economies, eventually causing crude oil prices to plunge below $50 a barrel. Fuel prices now stand at less than $1.50 a gallon at many gas stations across the United States -  absolutely stunning levels we haven’t seen in some time. I suppose that’s one thing we can be thankful for these days – the availability of cheap gas.

In Terms Of the Stock Market, Gas Prices, the Housing Market, and the Economy, Here Are My Financial Predictions For  2009:

1) Doomed U.S. Auto Industry – Despite the vehement protests from a vast majority of American taxpayers, the U.S. President and Congress ultimately chose to ignore the public will and bail out the beleaguered U.S. automobile industry with a series of quick loans and a plan to buy shares in the companies. Unfortunately, I don’t believe the American auto industry as it currently exists today can be saved. Ultimately, I believe the big three car makers of GM, Chrysler, and Ford will need further governmental intervention at the risk of taxpayer expense sometime during 2009 to stay afloat, and will be back for more urgent federal bailout money. As it currently stands, the collective business model of the entire American auto industry is extremely flawed and the biggest crippling factor of the car makers’ ability to become profitable is the United Auto Workers (UAW) union. Unless the U.S. automakers can be freed from the high cost of its union strong-armed pension packages, health plans, and high wages, the U.S. auto makers will never be able to compete with their more financially efficient foreigner competitors like Toyota or Honda.

2) Low Gas Prices – I predict fuel prices will stay low for the entire extent of 2009 due to diminishing fuel demand and persistent economic drag attributed to the current economic recession. The only event that may trigger a significant increase in fuel prices sufficient to counter the recession effects would be some type of significant geo-political event such as an act of significant terrorism similar to that which occurred on 9-11 (which I don’t believe will come to fruition).

3) Continued Bad Economy and Recession – I believe the U.S. economy will get worse before it gets better. The first two economic quarters of 2009 will be absolutely horrendous as unemployment rates will surge and businesses will continue to lay off employees and shut down due to deteriorating conditions. In the latter half of 2009, during 3Q and 4Q, the U.S. economy will continue to suffer, although to a lesser degree than the first half. However, I don’t expect any type of notable economic recovery during 2009. Even if Obama pushes through his rumored $1 trillion economic stimulus plan complete with another round of tax rebate checks, the economy will still need a significant amount of time to work itself out. The banking industry and credit markets have simply suffered too much damage, and a new way of doing business must emerge before the economy will improve. Get ready for tough times ahead – grumpy bears are here to stay, and beat up bulls have left the building. I’m not predicting an outright economic depression, but it’ll be close to one.

4) Worsening Real Estate Market – Housing prices will continue to plummet in 2009 with no stability in sight. Certainly housing prices are ultimately local and regionally based, but nationally, I project average home prices to drop about 15% in 2009 and another 5% in 2010.  The current national glut of homes for sale is simply tremendous and the available housing inventory exceeds a 12 month supply. Furthermore, the rate of home foreclosures continue to increase and the ongoing credit crisis continues to make home mortgage refinancing difficult for most home owners. While mortgage interest rates for prime borrowers have dropped to lows of nearly 4%, the vast majority of prospective home buyers seem content to wait it out, knowing that time is on their side in terms of finding their dream bargain home in the next few years. I would know – I’m one of them. As a prospective single family home buyer myself, I’m in no hurry to buy a home anytime soon. I’m currently waiting for home prices in my area to drop another 20-25% before I step in. Knowing that many home sellers are refusing to sell their homes at present day low prices and are hoping to wait out the housing recession as well, it’s my belief that their collective refusal to sell at today’s low levels are only contributing to the worsening condition of the real estate market. Eventually, sellers will have to face the grim reality that home prices will not be returning to the highly leveraged levels of 2006 or 2007 for decades to come.

5) Gloomy Stock Market – Financial pundits frequently cite the truisms that the stock market is a forward looking beast and that it usually responds about 6 months before the actual economy does. Those two traits certainly may be true, but I don’t think the U.S. or world stock markets will be pricing in any type of economic recovery during 2009. The earliest we will likely see a bounce back will be sometime during 2010, at that’s being optimistic in my opinion. The high stock market prices of years past will not return again for many years. Remember, stock prices from 2002-2007 were buttressed through the power of leverage and debt financing via the unsustainable mechanisms of fancy mortgage backed securities and free flowing loans. With the current housing market destroyed, financial markets ruined, and banking institutions clutching their federal bailout money for life support and afraid to lend it out, it will be some time before we can expect stock prices to recover. Because investment and consumer sentiments are so pessimistic, and leveraged plays have all but disappeared, a quick V-shaped recovery is almost unthinkable. Perhaps it’s time to buy gold or save money in high yield savings accounts with the best banks online. For the majority of 2009, I plan to adopt a defensive turtle strategy and seek out protective investments such as FDIC insured savings accounts or high yield CD’s.

6) End Of Lucrative Credit Card Offers – With the recent passage of the new credit card rules by the federal government that greatly favor credit card consumers, scheduled for effect on July 1, 2010, major credit card issuers like Citibank, Capital One, Bank of America, Discover Card, and American Express will be forced to restructure their existing credit card agreements to respond to the new regulatory demands. During 2009, the major credit card issuers are likely to increase credit card interest rates for all consumers across the board, for both good and bad credit card customers alike. To compensate for the less favorable profitability standards of the new credit card regulations, formerly lucrative 0% balance transfer offers will be gradually be fazed out, with FICO credit score standards increased substantially to weed out those applicants with questionable credit ratings. While the new credit card rules don’t officially take effect until the summer of 2010, the credit card companies are likely to start implementing significant changes over the span of 2009. The era of the App-O-Rama and 0% APR balance transfer credit card deals is coming to an end.

When most people think of ETrade, the popular online discount brokerage firm with the cutesy talking baby commercials probably comes to mind. Since 2000, E-Trade has been well known for its slew of strange, but memorably funny TV commercials, starting with its series of odd-ball Superbowl monkey commercials in 1999 and 2000. Who can forget the grand daddy of them all – the one with a monkey dancing a jig on an upside down bucket for a quarter of a minute with two old fellas on rocking chairs clapping away to some goofy Latin beat – followed by the message “Well we just wasted 2 million bucks. What are you doing with your money?” While the message might have been a bit lost in the commercial’s zaniness, it certainly was good for future brand name recognition.

Since its days as a leader in the do-it-yourself stock investing movement, E-Trade has grown and developed itself into a full service financial holding company with a wide array of banking and trading related services. Eager to shed and change its old image as merely a low cost discount broker, the company has  jumped into the online banking business. Hoping to change the public’s perception, E-Trade has heavily promoted its rapidly growing online savings and checking products in an attempt to leverage its established reputation as one of the best brokers into a similar position in the online banking market. Despite the presence of formidable competing online banks like ING Direct, HSBC Direct, and FNBO Direct, E-Trade seems to have thrived and undergone quite a transformation. Today, it’s not only one of the most popular discount brokers in the market, it’s also one of the best online bank options in terms of interest rate and website features.

The Combined E-Trade Savings Bank and Discount Broker Company Offers One-Stop Shopping For All Of Your Banking and Trading Needs

Today, not only can E-Trade customers buy, sell, and trade stocks, options, and mutual funds via its highly sophisticated electronic trading website, ETrade customers can also take advantage of a wealth of lending and bank deposit products like high interest checking, high yield savings accounts, certificate of deposits (CD’s), and even E-Trade branded reward credit cards. Because of its strong beginnings and expertise in the brokerage business (voted by SmartMoney as 2008’s best discount broker and a top 10 winner according to Barron’s 2008 online broker survey), E-Trade has also been able to successfully integrate its online broker and banking business together into a fairly seamless one stop full service financial platform for its customers – an important feature that is lacking and not always available with other online banks.

After much development, Etrade’s current banking centerpiece is comprised of two primary high interest bearing banking products:

• The high APY rate yielding Max Rate Checking Account
• And the high interest Complete Savings Account

ETrade Bank Offers High Interest Rates, and Fast Electronic Fund Transfers Between Banks, Brokers, and External Accounts

One of the combined E-Trade company’s most attractive key features is its consistently high interest rate offers. While the company does have a few banking and brokerage branches scattered throughout numerous states in the United States, E-Trade has always been primarily an online institution. Because of its website presence and ability to maintain substantially lower overhead costs compared to most traditional banks with regular branches, E-Trade has been able to pass on the cost savings to its customers in the way of consistently high annual percentage yields (APY) on its line up of checking deposits and savings accounts.

E-Trade Bank’s other strong feature is its well known ability to offer fast transfers. ETrade currently features on its online website the Free Quick Transfer service, an improved way for customers to make one click electronic fund transfers from one linked account to another without having to go through numerous pages of clicks. Electronic transfers between Etrade bank and Etrade broker accounts are instantaneous (a great advantage for those that use Etrade for both banking and stock trading). Banking customers also have the ability to link up all of their online financial accounts with their E-Trade platform, and transfer money around quickly as needed via ACH transfers at a comparatively rapid speed.

Opening and Funding An E-Trade Banking Account Is Quick and Easy, and Involves Only A Harmless Soft Credit Check

ETrade Bank offers a quick account opening process with minimal paperwork. Other than the nice welcome package you’ll receive via snail mail after getting your accounts approved, everything is done online. After clicking through the online application for your desired checking or savings account option, you’ll be required to verify your identity through a soft credit pull that is performed on your credit report. Fear not, the credit check is a soft inquiry for ID purposes and has no negative effect on your FICO credit score.

1) E-Trade Max Rate Complete Savings Account

After taking a look the interest rate offers promoted by other banks, I do not doubt E-Trade’s marketing claim that the APY interest rates of its Complete Savings Account has consistently stayed more than 8 times the national average APY for savings accounts. Its interest rate levels have indeed consistently remained one of the best deals out there for those seeking the best rate of return for their conservative assets. It is also interesting to note that the E-Trade Complete Savings Account has no account fees, no maintenance charges, and no minimum balance requirement to earn interest. The initial deposit requirement is only $1, something I think most of us can easily afford. All savings (and checking) deposits are also fully FDIC insured, up to the current federal coverage limit of $250,000.

2) E-Trade Max Rate Checking Account

As E-trade aptly puts it, the online bank’s Max Rate Checking Account is checking on steroids – due to its overabundance of account benefits. You can apply for the standard checking option, but if you want the most bang for your checking buck, you should select the Max Rate Checking offer when applying. Not only does its checking account offer a notable interest rate on checking deposits (something almost unheard of among most traditional brick and mortar banks like Bank of America or Citibank), its Max Rate Checking APY is more than 10 times the national average according to Etrade sources.

Its checking account perks include no ATM fees at any machine, at any bank, or anywhere nationwide, via (get this) unlimited ATM fee refunds. Max Rate Checking customers also receive unlimited check writing privileges, online check deposit images (so you don’t have to fumble with canceled paper checks), payment alerts, and free online bill pay reporting services. Free quick one click electronic transfers among verified and linked external financial accounts are offered as well.

While all checking deposits will earn the standard interest rate regardless of how much you have deposited, to receive the highest interest rate level requires a minimum balance of $5,000. A minimum checking balance of $5,000 is required to bypass the monthly $15 fee, but there are many ways to have this minimum balance requirement waived. By signing up for direct deposit of at least $200 a month, linking up your ETrade discount broker account with your bank accounts to maintain at least a totalof $50,000, or executing at least 30 stock trades per quarter, you can avoid the hassles of checking account minimums (which is how I personally have my monthly fee automatically waived every month with E-Trade).

Extra Information and Resource:

• ETrade ABA/Routing Number for direct deposits and ACH transfers: 256072691

Recently, I made the decision to start tracking my personal net worth and financial status in a very public and revealing way – by posting my financial numbers online for all to see. The point of doing this was not to boast, demonstrate some fanciful financial bravado, or unnecessarily parade my personal finance publicly to satisfy the whims of voyeuristic readers. In actuality, the objective was to have a way to show people the importance of proper statistical tracking when it comes to smart financial planning. The purpose of calculating and tracking your personal financial net worth on a regular basis is not just so you can match yourself against others to see how you’re doing in comparison, but it’s also to help you evaluate the current health of your finances. Like using a gauge to take your blood pressure reading or running blood tests to get a nutritional analysis, the point of net worth tracking is to use snapshots of your financial condition to help you make better decisions in furtherance of your personal financial goals.

I don’t think it’s an over-emphasis to stress that proper money management is a very critical component of responsible living. Other than how you handle your family, friends, personal relationships, or perhaps religious views, how you manage your money probably has the greatest effect on the quality of your daily life. The abundance or the lack thereof of money can determine whether you live an existence of paycheck to paycheck living or determine whether you are able to live a life of complete financial freedom. It can also determine the type of home you can afford and the type of neighborhoods you can afford to move into. With its powerful trickle down effects, the way you handle your money also has far reaching influence on family relationships as well, affecting how your children are raised and possibly even determining their futures. Knowing how to calculate your current financial net worth and knowing how to track it on a regular basis will help you make better saving and investment decisions for yourself and your family. At the very least, it will force you to actively interact and stay abreast of your financial affairs, and stay knowledgeable and motivated about where you are on the road of life.

Calculate Your Personal Net Worth On A Periodic, But Continuous Basis

Your financial net worth is basically a snapshot of your current financial health at a moment in time expressed by a dollar denominated amount. In the world of personal finance, your personal net worth is akin to what corporations and accountants refer to as the balance sheet. Contrast that with something like a cash flow statement, neither your financial net worth statement nor your personal balance sheet contain numerical data like your salary or how much money you are spending on grocery expenses every month. However, such information is indirectly represented by changes in the net worth figures.

Net worth is simply the numerical figure you get when you take all of your assets, and minus all of your liabilities. Assets can be defined as everything you own that has value and can be expressed in terms of price or current market value. Liabilities can be defined as everything that you owe, including debt and payment obligations to another.

To calculate your net worth and determine the status of your current financial condition, you’ll need to add up all of your debt and liabilities into a single numerical number, and then subtract that from the total combined value of all the assets and financial accounts you possess.

1) Assets (Add Up All Of Your Cash Savings, Investments, and Fixed Assets) – The asset category is made up of the total amount you have in your bank accounts like checking and savings, the fund balances stored in your investment brokerage accounts, and the total value of your fixed assets which encompasses the fair market value of properties like real estate and vehicles. In general, your assets are made up of all your personal possessions and financial accounts that can be converted into monetary form in the event of a total liquidation sell off. It’s the total amount of money you could get if you pulled all of your money out of savings and sold off everything including your house and real estate properties for cash. To help you add them up, here is a basic breakdown guide:

• Step 1: Add up the value of your liquid assets (cash and bank accounts). Liquid current assets include cash, bank account deposits, checking accounts, savings accounts, money market accounts, Treasury Bills or T-Bills, and also the cash value of certain life insurance plans. These types of assets generally have the same value as cash as they are readily usable as cash or can be readily converted into usable cash form in a very short period of time. For example, the funds you have saved up in your online savings bank or stashed in your high interest savings account are both considered liquid assets as they are easily converted into usable cash form with a quick trip to the bank or ATM. Also, certain life insurance plans such as whole life and universal life insurance policies are regarded as liquid assets as well due to their convertible cash value, unlike term life insurance policies which have no cash value. Remember, we’re talking about the cash value of your life insurance policy, not the amount that would be paid out if you were to collect on the policy.
• Step 2: Add up the value of your investment assets (stocks and bonds). Investment assets tend to be less convertible into cash upon demand but nevertheless still make up your total asset count as they can be converted into cash within a reasonable period of time. Investment assets include certificate of deposits (CDs), stocks and bonds, mutual funds, and retirement accounts (401K, IRA, Roth IRA).
• Step 3: Add up the value of your fixed assets and personal possessions (real estate and vehicle). Fixed assets include the fair market value of the houses, condominium properties, and vehicles that you own. They also cover the market value of any other significant possessions including valuable artwork, expensive jewelry, or priceless household furniture. The actual decision of incorporating fixed assets into one’s financial net worth calculation is somewhat controversial as opponents argue that such assets are not appraised consistently and are not easily sold upon demand. Detractors to using the fair market value of real estate for example argue that incorporating home values frequently offer up an unrealistic and skewed valuation of true net worth. Particularly during a major real estate slump, homes are not always easily marketable and sold. Supporters obviously argue that incorporating home values into net worth calculations is important because home equity (the difference between the current market value of your home and the current balance of your mortgage) indeed has value as it can be converted into cash upon an earnest home sale and borrowed against during a time of need. For many, the fair market value of their primary residence comprises the bulk of their positive net worth and thus it would seem incomplete to not incorporate it into net worth calculation somehow. While I personally only add real estate and vehicle value into my calculation of net worth, disregarding the market values of other personal possessions like clothing and home electronics, I think the key is just to be consistent in what you include and what you leave out. It’s also particularly important to be very realistic when assessing fair market value, especially when it comes to home pricing. It’s probably best to under-estimate than to over-estimate the value of such fixed assets. You definitely do not want to give yourself the inaccurate illusion of being house rich with no other significant liquid assets to speak of. You’d only be fooling yourself.

2) Liabilities (Add Up All Of Your Personal Liabilities and Debt). Liabilities include any money that you owe from loans, or debt obligations you may have including credit card balances, car loans, home mortgages, home equity loans, lease obligations, student loans, personal debt obligations, and court mandated alimony or child support payments. Liabilities, whether current short term debt obligations like credit card debt, or long term liabilities like home mortgages and auto loans, must be added up and subtracted from the total asset number to come up with the complete net worth figure.

After you have added up the value of your total assets, take that number and subtract away the total value of all your liabilities to come up with your calculated total net worth. This will be the current snapshot status of your financial net worth number at this point in time. Whether you incorporate certain assets and liabilities into the calculation or leave certain factors out like personal possessions is not important. How you go about the details of tracking your financial networth is up to you – just be consistent from month to month. The ability to track your financial progress in a uniform way on a periodic basis is the most important factor.

Track Your Net Worth Using Online Account Aggregation Tools and Net Worth Calculators

For those not certain on how to go about tracking their financial net worth from month to month, I recommend using an online tool like NetworthIQ. While NetworthIQ’s progress charts are quite ugly (for the lack of a better word), the site’s a pretty popular choice among personal finance bloggers and those who want a simple networth tracking tool that is easy and a no-brainer to use. Just go create a NetworthIQ account and start posting monthly net worth asset and liability updates to get started. To keep actual tabs on the many bank, credit, and investment accounts you have in your financial portfolio, I suggest using an online tool like Yodlee. Yodlee is an online account aggregator service that powers the online account consolidation tools of popular financial institutions like Fidelity Investments (Full View), Bank of America (My Portfolio), and HSBC (Easy View). I personally use Yodlee powered tools through my brokerage at Fidelity and my bank account at Bank of America to help me track all of my account balances from one easy to view location.

Despite the disagreements on what ought to be and what ought not to be included into the calculation of net worth, don’t let that discourage you from attempting to track your own financial progress using your own preferred method. Questions such as whether married couples should keep their finances separate or combined for net worth calculation, and controversial issues arising from the inclusion of home equity or the value of one’s small business (like a blog business) into net worth calculation should not dissuade you from learning to track your personal financial progression. While I personally would include the total joint account balances for married couples into net worth, and personally would not include the market valuation of my home business into net worth calculation, to each his own. The key is just to be consistent so you can evaluate and chart your own personal financial growth from month to month. The goal is to give yourself the confidence and motivation to make the right changes and course corrections in your financial walk to help you achieve your long term financial goals.

Compare Your Net Worth To Others In Similar Situations

Net worth valuations may also vary greatly depending on the make up of one’s assets and liabilities. In general, assets comprised solely of liquid accounts and investments such as cash, bank account funds, and stock market investments tend to paint a more standardized and accurate picture of financial net worth. It’s when you get into vehicle and real estate valuations that the calculation of net worth gets a bit personalized and inconsistent for comparison purposes. Home valuation in particular is a tricky art and is not always entirely accurate and is highly dependent on who’s doing the appraising and the standard being used. Furthermore, just because a home is appraised at a certain price does not necessarily mean it can be sold at that high price. In a tough housing market, home buyers frequently demand closing prices well below supposed fair market value. Keep that in mind as you compare your own financial net worth with that of others. Remember that net worth calculations and standards are not always uniformly applied from person to person, and that net worth is highly relative. For example, a net worth of $100,000 for someone living in an expensive area like northern California or downtown New York City may not be as big of a deal as it would be for someone living in a cheaper state like Nebraska or West Virginia.

Other than using Net Worth IQ to track your financial net worth progression, you might also be interested in using the tool to run searches for the publicly available net worth profiles of others. For the sneaky voyeur in all of us, it’s an interesting way to view the financial health of those in similarly situated categories like age, income, occupation, education, country, and state. If you are dying to know – here’s my own publicly available Networth Profile.

Another good net worth comparison source is CNN’s Millionaires In The Making site where CNN regularly profiles singles and couples, documenting their individual stories to become a millionaire. The Millionaires In The Making site not only provides lots of great anecdotal financial planning tips, but it also provides the actual net worth breakdowns of all the individuals and families profiled. You might also want to try out CNN Money’s Net Worth Calculator tool, which ranks you according to how you stack up based on age and income. I’m not sure how accurate the tool really is and suspect the methodology is a bit off. However, it’s still an interesting comparison tool at your disposal. Just use it with a grain of salt.

After two decades at the same coverage limit, the U.S. government has finally stopped dragging its knuckles and raised the FDIC insured limit for bank deposits from the previous FDIC limit of $100,000 – up  to the new limit of $250,000 per depositor, per insured bank. For your average bank customer, this means that he or she will now receive full FDIC insurance coverage up to $250,000 for the total sum of their single accounts (checking, savings, and CD deposits) at each banking institution. Other account category types like joint accounts and trust accounts will also each enjoy separate increased $250,000 limits at each bank. However, retirement accounts held by banks as FDIC insured deposits will remain at the previous $250,000 limit.

For those who don’t know, the FDIC stands for the U.S. Federal Deposit Insurance Corporation, a federally run government organization that protects bank customers from the loss of their deposits in the event of a catastrophic FDIC-insured bank failure. The protection afforded by FDIC insurance is near iron-clad as it is backed by the full faith and credit of the United States government. There is no need for bank depositors to apply for FDIC insurance or even to request it as coverage is automatic. Below are the new and current FDIC insurance coverage limits for deposits at FDIC insured member banks. The new FDIC limits are effective starting October 3, 2008 and tentatively scheduled to expire on December 31, 2009. While the FDIC does not directly cover deposits held in credit union institutions, in response to the new FDIC limits, the National Credit Union Share Insurance Fund, or NCUSIF, has raised credit union insurance limits up to $250,000 through Dec. 31, 2009 as well.

Although the newly enacted FDIC insurance limits are slated to end at the end of 2009, I predict that Congress will more likely than not make the new coverage limits permanent after that time. Frankly, in light of the current financial crisis and deteriorating consumer confidence sentiment regarding the safety and security of our nation’s banks and credit unions, there is no reason the U.S. government should not allow the new FDIC limits to stay permanent.

The New Increase In FDIC Insurance Coverage For All FDIC Insured Deposits Will Help Improve Consumer Confidence In The Banking System

With the passage of the Emergency Economic Stabilization Act of 2008, the U.S. Congress has agreed to increase the previous FDIC insured limit of $100,000 by 150% to $250,000 through the end of next year until the last day of 2009. For those who argue that the new boost in FDIC insurance coverage is unnecessary and too high, keep in mind that after factoring in the effects of inflation since it was last increased in 1980, the current FDIC insured increase is perfectly in line with inflationary reality. Besides, desperate financial times require desperate measures. The U.S. and world economies are faltering and the major banking institutions are struggling to stay afloat during this terrible credit crisis. While the FDIC insured limit increase probably won’t have a direct effect on the credit crunch (I hate this phrase but everyone uses it) as the main problem in the banking sector is that banks are refusing to lend to each other rather than suffering from a direct shortage of bank deposits, having a higher limit will probably go a long way in instilling consumer confidence in the U.S. banking system again. In the long run, this should have a positive and stabilizing ripple effect on the economy at large.

Personally, I’ve been rather active lately in my banking transactions, opening new high yield savings accounts with the top online banks and shifting money around to make sure every single cent of my cash deposits are fully protected under the FDIC limits. As many concerned consumers have been doing, I have been seeking the shelter and safety of bank deposits during this time of financial and economic turmoil. As a small business owner I tend to carry around significant amounts of cash for payroll, accounting, and business investment purposes – much more than the usual consumer account holder. To ensure full FDIC protection for my bank deposits in excess of $100,000, I’ve been spreading cash around among multiple banks to increase my FDIC coverage limits by setting up separate single and joint accounts to take advantage of the separate FDIC coverage for each account category.

The new FDIC limit increase will allow consumers to keep more of their money at the same banking institution without having to scramble around desperately looking for other FDIC insured banking options to spread their funds around. While bank failures remain extremely rare, with the recent collapse of major banking institutions like IndyMac and Washington Mutual, the occurrence and possibility of such a reality has become all too real. The recent decision by the U.S. Congress to raise the FDIC limit on an emergency basis was long overdue and necessary to calm the public’s worry and reduce the number of irrational actions taken by those fearful of losing their money or investments. Ultimately the decision will help put a stop to the massive waves of bank withdraws due to panicky customers pulling their money out of banks in response to irrational concerns. The new FDIC insured limit will help prevent such desperate monetary runs on the banks and allow the banking system to continue operating as normal.

However, The New FDIC Coverage Increase Will Not Result In Higher Interest Yields Or Financially Affect The Vast Majority Of Banking Customers

While the new FDIC limit increase should help boost consumer confidence in banks and credit unions, and help stem some of the panic and fear in the marketplace, most consumers are unlikely to experience much of a difference. It’s mostly the wealthier individuals or small businesses who carry around significant amounts of cash in their checking or savings accounts that are likely to directly appreciate the new FDIC insurance cap. The great majority of average everyday banking customers do not have more than $100,000 in a single bank account anyway.

Furthermore, those who are hoping to see higher interest rates or yields on their high interest savings accounts or certificate of deposits (CD’s) will be sorely disappointed. There is a very real likelihood that as the perceived confidence in our banks goes up, the interest rate expectations may go down. Because the FDIC is financed through premiums paid by FDIC member banks, participating banks are obligated to pay periodic premiums for FDIC insurance coverage. As such, there is a high inevitable possibility that they may eventually have to pay more in the way of FDIC premiums for the new higher insurance coverage limits. With higher FDIC premiums to contend with, banks may ultimately pass on the cost to consumers by offering lower interest rates for their deposits.

In a move that probably will benefit smaller local and community banks more than the mega “too big to fail” banking giants like Citibank, Bank of America, or JP Morgan Chase, the new financial bailout plan also provides for unlimited FDIC insurance coverage for certain accounts. Banking customers of FDIC insured banks will receive unlimited insurance for money deposited into non-interest bearing accounts, a protection that primarily benefits small and mid size businesses that have bank deposits exceeding the new insured maximum of $250,000. This temporary, but extendable unlimited protection was enacted to stabilize business risk, and prevent the type of loss faced by many businesses when a bank or thrift savings institution failed. Under this temporary unlimited FDIC insurance plan for non interest bearing bank accounts, a typical small business will be able to keep $250,000 worth of interest bearing funds in a regular checking, savings, or CD account, and put the remainder in zero interest accounts for unlimited FDIC insurance coverage. Under the bailout plan, for the first 30 days of the program, all FDIC insured banks will enjoy this unlimited FDIC protection for their non-interest bearing bank deposits. After that, member banks must opt-out of the program if they no longer wish to offer this unlimited protection.