December 2008 - Net Worth Update and Personal Finance Status
Published 12/19/08 (Modified 3/8/11)
Honestly, I'm starting to regret posting my financial numbers online for all to see. It's one thing for anonymous strangers or random online readers to be intimately aware of my current financial net worth, but it's another mild hassle altogether when friends or family know where I stand financially at all times. It just injects a bit of awkwardness into my personal and social relationships I feel.
Just a few days ago my brother asked me to contribute to his law school tuition fund. He's currently working full time and juggling evening law school classes. His federal government office pays for the majority of his law school tuition expenses, but there is still a little bit leftover that he needs to cover out of pocket. I'm sure his awareness of my current financial state via my personal finance blog at Money Blue Book makes it easier for him to feel comfortable approaching me for money knowing that I probably have the means to provide some measure of financial support. I doubt he would have felt as comfortable asking me for a handout or a loan if he were not acutely aware of the specifics of my monthly cash flow or personal balance sheet.
Offering Loans To Family and Friends Is A Bad Idea - Don't Give Money To Others That You Wouldn't Feel Comfortable Giving Outright For Free
I have an unwritten rule for myself that I will never loan money to family or friends, even if it's to bail them out of a difficult financial situation such as bankruptcy. I would prefer to provide them the money outright as I deem fit to avoid all the unnecessary and potentially negative relationship issues that may arise from the need to call in contractually obligated loan payments. I am not averse to giving money outright on a charitable basis to help a loved one, but I will never permit someone to borrow money from me due to the potentially foreseeable wedges that the loan and the issue of money may drive in our relationship. In the past I have loaned money to friends before and have experienced the dread and hassle of needing to constantly remind them to pay back the loan, and dealt with the reciprocal resentment of me even asking. Lending money to people who are good for it and guaranteed to pay the amount back on time without question or prompting is a joy and a breeze, but the vast majority of borrowers, particularly those who are friends or family, are less than model borrowers. Besides, oftentimes you are potentially setting a bad example when you bail the friend or family member out financially rather than compel the person to learn and utilize responsible self reliance techniques. As CNBC financial host Suze Orman always recommends - sometimes "you have to say no out of love, than yes out of fear or weakness". It's corny but true.
Thus, in regards to my brother's request for a monetary contribution to his law school fund, I turned him down. The reason he seemed to be cash strapped was not really because of his tuition expenses alone, but attributable to a monetary shortfall caused by increased rental expenditures and higher relationship spending. I recommended to him that he seek out Sallie Mae for a small federally subsidized low interest student loan for education funding, or go apply for a 0% balance transfer credit card if he only needs a little bit of money as a one or two month stop gap measure. That's how I personally stayed financially afloat when I was in law school - through a combination of parental financial support, low interest credit cards, and student loans. By depending on student loans and my own revolving credit, I learned a valuable lesson - the ability to rely on oneself when it comes to money and personal finance. I also told my brother to stop calling me rich whenever the issue of money came up - I got to where I was because I worked hard, made frugal decisions, refrained from lavish expenditures, and seized business and investment opportunities quickly and timely before the perfect moment was lost. I was not born with a self entitled silver spoon in my mouth, but studied hard, worked hard, and made key financial sacrifices along the way.
With that tangent aside and back to the topic of this post, I have provided my financial net worth calculations below for all to examine. I chart my financial journey every month so I can evaluate my progression towards my financial dream of becoming a millionaire and financially independent someday. It's a marathon journey and I'm still a long ways off, but so long as I continue to make money, save money, and invest in income producing assets, someday the dream can and will become a reality.
My Current Net Worth and Financial Status Update Compared To Last Month
Focusing On Defensive Asset Preservation By Saving Money In FDIC Protected High Yield Savings Accounts and CD's
It's difficult not to watch CNBC or Fox Business News and not feel a sense of unease and pessimism emanating from the stock market investment community. While there remains a few bullish pundits who continuously make repeated calls of a market bottom, many of those overly optimistic commentators have already been completely discredited with their wholly inaccurate and off the mark predictions. Much like the nutty National Association of Realtors' perpetually optimistic sales pitch of "it's always a great time to buy a house", bullish financial commentators have lost their credibility in my opinion. In my assessment, the deteriorating credit markets and economic indicators are suggesting a severe and prolonged period of recession, signaling that more corporate layoffs and bankruptcies are yet to come. President elect Barack Obama and his proposed suggestion of an insanely high $1 trillion economic stimulus package may inject some much needed liquidity and money into the economic system, but even that will not be sufficient to jump start the economy for several years. The only way the market will recover is through the passage of time to work itself out, eliminating inefficient banks, striking out failed unionized labor strangleholds, and doing away with unprofitable and redundant corporate entities like at least one of the big 3 American automakers of Ford, GM, or Chrysler. Obviously, I'm staunchly opposed to any form of auto bailout at taxpayers expense. The market must be allowed to recover organically because that is the only way the economy will recover back to efficient equilibrium.
In light of this extremely bearish environment, I've decided to go on a saving spree - scrimping and hoarding away as much savings as I can. In the face of more difficult times ahead for the United States economy, I have essentially gone into a defensive asset preservation turtle shell in terms of my current investment and savings strategy. While I continue to earn a very healthy and steady income stream of $50,000-60,000 a month (through my legal business, various ventures, and online websites), after paying off expenses and setting aside certain amounts for various liabilities, I continue to store the vast bulk of my money away in multiple FDIC insured safe investments like high yield savings accounts and certificate of deposits (CD's), ever mindful of the FDIC insurance limit of $250,000 for each insured account at any one banking entity. I have completely halted my previously active stock investment activity (much to the chagrin of my discount brokers) and will stay on the sidelines until the financial storm and economic recessionary pressures have eased. However, one thing that I am very aware of is that historically, the stock market has always rebounded approximately 6 months before the actual economy. I plan to take this historical statistic into consideration as I chart out my long term investment strategy in the months ahead. While I am adopting a defensive investment strategy right now, I am still mindful of the existence of potential future opportunities out there.
Taking Into Consideration My Future Tax Liability By Keeping Track Of My Estimated Tax Payments
As I am primarily self employed, running my legal, financial, and even online businesses from my home office, I have to contend with quarterly estimated tax payments to the Internal Revenue Service (IRS). Estimated tax is the way self employed people pay tax on income that is not subject to withholding. Since I myself am my own employer, I do not have income tax withholding. Pursuant to IRS regulations, estimated tax payments must be made four times a year on four specific payment due dates for the 3 immediate months prior - on April 15, June 15, September 15, and January 15. Since I have no tax withholding, in my net worth calculation, I need to set aside a portion of my monthly cash flow that will go towards my quarterly tax payments to get a more accurate picture of where I stand in terms of net worth. Thus as you can see on my net worth chart above, I have included a sum of money that will count as a tax liability account payable to be applied against my cash and other assets. Of course, when I actually make my quarterly tax payments, the tax liability account payable will be removed, along with the same denominational amount from the cash category.
Planning To Buy A Home - But Still Debating Between A Condo And A Detached Single Family Home
Despite depressed housing prices and a stagnant real estate market, I'm still set on my goal of buying a home and getting a piece of the long sought after American dream of home ownership. With 30 year and 15 year fixed home mortgage interest rates approaching historical lows of 5 to 6%, now is a great time to buy a home - but only if you can snag a home at an exceedingly great discount. We are currently in a tremendous buyer's market right now and for prospective buyers such as myself, we have a strong tail wind on our side. On a human level, I feel a measure of sympathy for existing home sellers who have witnessed the complete wipe out of their multiple years of built up home equity, but at the same time as a potential buyer, I feel vindicated in my belief and cautious stance back during 2004-2007 when I decided home prices were severely over inflated. Because I was able to refrain from joining the housing lemming pack's run up in the last few years, I saved myself from plunging over the housing market cliff when prices ultimately went splat.
With years of savings in hand, I'm now in a better position to negotiate favorable mortgage rates and take advantage of a favorable buyer's market to secure the ideal home for myself. Currently I'm still debating between buying a 2-3 bedroom condominium or a 3-4 bedroom single detached house. As I am still currently single, I have little actual need for the size or spacial benefits of a large home, but at the same time, I am a bit leery about buying a condo, primarily because I would have to contend with non-tax deductible condo fees in the process. However, detached homes require much more expensive upkeep and care in the form of yard work and expenditures when it comes to household appliances - things I'm not sure I want to deal with at this moment in time. Then again, single detached homes offer a tremendous amount of freedom to customize and personalize, much more so than condominium apartments - luxuries that are the very beneficial essence of purchasing a home to begin with. These issues will likely stay on my mind as I begin the slow process of visiting open houses and browsing online real estate listings. Feel free to share any personal words of home buying advice.