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December 2008 - Net Worth Update and Personal Finance Status

Published 12/19/08 (Modified 3/8/11)
By MoneyBlueBook

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

Assets Balance $ Change % Change
Cash $277,322 $71,336 34.63 %
Stocks $17,369 -$95 -0.54 %
Bonds $0 $0 -
Retirement (401K, Roth, IRA) $8,719 $160 1.87 %
Car and Vehicle Value $9,420 $0 -
Real Estate and Home Value $0 $0 -
Other Real Estate $0 $0 -
Total Assets: $312,830 $71,401 29.57 %
Debt and Liabilities Balance $ Change % Change
Credit Cards $4,302 $430 11.11 %
Car Loans $0 $0 -
Home Mortgage $0 $0 -
Student Loans $27,724 -$148 -0.53 %
Tax Liability $15,000 $15,000 -
Total Debt $47,026 $15,282 48.14 %
Total Net Worth
$265,804 $56,119 26.76 %

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.

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13 Responses to “December 2008 - Net Worth Update and Personal Finance Status” 

  1. Impressed says:

    I remain very impressed by your cash flow. Whenever you are ready to talk about your various ventures, and online websites - I will be reading keenly... Even a high level breakdown without giving away any details would be insightful (I own a ... fast food franchise, drop ship website ... whatever).

    Your tax liability seems very low compared to your income. If I were to assume your monthly cash increase approximates your gross income you are only accruing at a ~20% tax rate. At that income range, shouldn't you be accruing more like 30% or $22k for fed taxes plus another $5k for FICA, medicare plus some more for fun state taxes?

  2. Raymond says:

    Impressed,

    My tax situation is rather unscientific at the moment. I have already paid out a sizeable chunk through quarterly estimated tax payments already. Currently, I am only just starting out the process of tracking my monthly estimated income tax payables in its own liability category. Because my income is quite variable, my income tax estimated payments have fluctuated quite a bit, making it a bit difficult to track properly.

    Hopefully I'll be more scientific in how I track these things in the future....which was the original purpose of net worth updating to begin with. But you're right, I will probably need to adjust my tax liability estimation higher in the next update....yes it's a work in progress but hopefully my numbers will get more accurate as I go along.

    One of these days I will dwell into my cash flow approach and income generation in greater depth.

  3. elizabeth says:

    I am about to buy my first home for the very same reasons as you. I am seriously considering making an offer next week on a house I think I really want. Can you explain how one knows when it is an "exceedingly great discount"? At what risk does one wait in the event the dream house gets snagged by another while waiting for the exceedingly great discount?

  4. Raymond says:

    Elizabeth,

    The thing about real estate and housing is that it's very much localized. While national factors like interest rates, economy, and overall sentiment may and will sway prices, oftentimes, housing prices are driven by local regional factors like job availability and location. Thus it's hard for me to describe what exactly I mean by "exceedingly great discount"...but something much lower than the asking price sounds about right. After all, I believe national consumer real estate prices will continue to plummet through 2009 and likely 2010. Commercial real estate prices are just beginning their downturn as well.

    Honestly...I doubt your dream house will be snagged away anytime soon. We are in the midst of a massive buyer's market and the housing inventory continues to grow as some stubborn sellers refuse to drop their asking prices. I have many friends who currently are homeowners who have given up their momentary wish to sell their homes. They want to wait at least until the summer or sometime in 2009 or 2010 to sell. Unfortunately for them, many stubborn sellers are in similar predicaments and when they all try to sell again, they will find that the huge housing supply glut, and strong economic recessionary forces as well as unemployment rates will keep prices high and potential buyers away.

    Eventually, sellers will need to drop their prices substantially. Although prices have already plummeted, I'm personally waiting for another 20-30% drop in my area of Washington DC/Maryland and Virginia. That's extremely bearish, but I don't mind waiting. Even a 10-20% further drop with huge concessions may be acceptable.

    Thus as buyers, we must remember that sellers are desperate and essentially begging for our bids. As partakers of this capitalist system, we must allow these desperate forces to compel them to drop prices to the absolute bottom before jumping in. There are so many housing opportunities available...don't feel like you need to settle. I encourage as much price gouging as possible....ask for concessions, better appliances, and demand compensated closing costs. If the seller refuses, simply move on. They need you much more than you need them in this market.

  5. Jim777 says:

    I'm not being a jerk but you are CRAZY to post your financial info on the internet like that. You are making yourself a target for Identity Theft and other scams. Not to mention, the IRS is watching as well.

    You should immediately take that info off this site. No kidding.

  6. Raymond says:

    Jim777,

    Can you clarify on how I am setting myself up for identity theft or identity fraud? It's not like I'm providing my credit card numbers or social security number information online for all to see.

    I don't mind if the IRS is watching. I report all taxable income and pay my taxes. I engage in legal tax avoidance (by taking steps to reduce my taxable income in a legal way) but I refrain from actions that may be construed as illegal tax evasion.

  7. elizabeth says:

    Raymond,

    Thank you for your response. The localized aspect is what I'm grappling with now, so I especially appreciate your comments regarding that consideration. The asking price on the house I'm considering seems to be overly inflated. Do you find websites like Zillow and Trulia to be useful?

  8. Raymond says:

    Elizabeth,

    I think websites like Zillow and Trulia are great reference points to get a general feel of how local housing markets are doing. However, remember, they are just generalized valuations and not a true reflection of what people are actually willing to pay for those homes. They simply do not take into consideration selling desperation factors or the huge housing inventory supply that currently exists into account. I suspect true valuations are substantially lower.

    After scanning those sites, one thing is clear - housing prices are dropping and continue to plummet. Even depressed housing markets, especially in places like LA, Miami, and Las Vegas remain grossly overinflated and overvalued despite their price drops of 30% or more. Housing pessimists are predicting that it will take 2-4 years for additional prices to recover and that housing values will continue to go down in the meantime. Optimists (most notably the National Association of Realtors, or NAR) have been droning on about how housing prices will recover for the last 2 years, despite continued facts to the contrary. Even as I write, NAR is still touting how a housing recovery is near.

    In my opinion, housing optimists have no credibility in their projections so I'm inclined to head the warnings of bearish real estate pundits. More likely than not, the housing list prices you'll encounter at the moment remain over priced.

  9. FortuneCat says:

    I read your site once in a while and it looks like you've come a long way. As for your housing question, skip the condo and buy a family home that you LOVE in a great location. You can rent out rooms when you're still single while your income is still low. When you get married your income will be higher and your spouse maybe able to help out also. Buy the home you love and you don't have to loose money on the sales cost because you have to upgrade later. Finally don't think of your house as an investment that's secondary. It's a home. Pay it off early and it'll act like an interest free bond that you pay to yourself. Additionally, you don't have to worry about it going down in value 20 years from now. Buy a great home.

  10. elizabeth says:

    Here's my update, Raymond. I made an offer 20% lower than the asking price which the seller accepted. Maybe I should have held out and got a steal, but I didn't want to risk it. What FortuneCat said is important to me, "Buy a great home....in a great location....buy the home you LOVE." And I did exactly that.

    Here's another perspective that influenced my decision:

    The "Red Shoes" Experience

    Women will relate to this. Say, you need a new pair of red shoes. You go to the mall. At the first shoe store, you find a fabulous pair of red shoes. You try them on. They fit perfectly. They are glamorous. Priced right, too. Do you buy them? Of course not! You go to every other store in the mall trying on red shoes until you are ready to drop from exhaustion. Then you return to the first store and buy those red shoes. Do not shop for a home this way. When you find the perfect home, buy it. -- By Elizabeth Weintraub, About.com (Tips for first-time home buyers.)

    I also got a great rate from my lender, just under 5%. Will mortgage rates dip lower? Maybe, but a 30 year loan at 4.7 isn't anything to sneeze at.

    I look forward to hearing about your update when you find your home and decide to buy! After this experience, maybe I will have some advice for you. : )

    New year; new house! Here's to 2009!

  11. Raymond says:

    Elizabeth,

    I think the new collective phrase in 2009 for home buyers like ourselves is "price gouge".

    Whatever the home seller is asking for his or her house/condo- demand much, much less. 20% lower sounds good, but you're right, you very well may have been able to demand a lower home selling price and still elicited an agreement.

    I personally don't believe in the perfect "I simply must have this or I'll die" home, particularly in this market. There are plenty of dream homes out there and the flexible buyer will be able to snag a great steal in this housing market.

    I'll definitely share my home buying experience as it unfolds in the coming year or two. But looking at prices these days...I'm still very wary.

    Sort of debating whether I should hold off on the house for another year or two and buy a nice 52 inch plasma TV as a consolation instead. heh...

  12. How to Improve Financial Situation says:

    Hello perhaps you can lend me some assistance. I have been out of work for 7 months, I have gone through all of my savings and my credit had plummetted due to late payments? I have a few positive prospects for a job and I may have one by March 2. In any event once I begin working again I need to seriously put money back into my savings. I want to purchase a condo by 2011, b/c as I know it those late payments will no longer count.

    What kind of account do you recommend I save into? I do not want access too it only when I reach the goal of what I am saving for. Any advice is appreciated.

  13. FortuneCat says:

    Hello How to Improve Financial Situation:

    When it comes to bad experiences, it's a waste of a lesson and you may have to repeat it if you don't take steps to address it. You were out of work for only 7 months and it resulted in bad credit. Before you buy the condo, plan for being out of work for 1.50 year with savings in bond, CDs, and savings. So the next time you're out of work, you take 3 months to go on vacation right away. After that come back refreshed and ready to do work you really love.

    Money for a home should be saved the same way as money for days without work. Checkout Vanguard.com for a mixture of different risk level bonds, look around for CDs, and put your savings in GeInterestPlus.com and other bank savings account. Spread your money around and track it with Yodlee.com.

    - FortuneCat

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