November 2008 - Net Worth Update and Personal Finance Status
Published 11/21/08 (Modified 3/8/11)
In an effort to encourage readers to learn to calculate net worth and track their personal financial progression, I've begun the process of posting my monthly net worth updates online for all to see and review. While taking the time and effort to record and analyze my investments and liabilities requires a measure of dedication, I think it's an invaluable method to help me better plan and make adaptive financial decisions in my marathon journey to become financially independent.
My Current Net Worth and Financial Status Update Compared To Last Month
Saving My Small Home Business Income To Weather The Economic Recession
While October and November have been extremely difficult months in terms of the significant paper losses I've been seeing in my current stock and mutual fund investments, I continue to see a positive growth trend in my overall income cash flow (currently around $55,000-$60,000 a month). Despite the current economic situation, I continue to enjoy a steady stream of income from my legal practice day job and significant contributions from my side projects. While my small legal practice business has gyrated a bit in terms of leads and overall receivables, most pullbacks have been noticeably buttressed by steady increases in my alternative income streams, which includes profits generated by my online business blogs and my other real world developing ventures. However, as times get tougher, I anticipate monthly variable income drops in the coming months.
In this deteriorating economic climate amidst the ongoing credit crisis backdrop, it's important to take prompt actions to preserve capital. That is why I have made a concerted effort to save as much money as I can to ensure I have enough emergency fund savings to weather any prolonged financial storm. While I currently remain gainfully self employed and have other immediate employment prospects in the way of legal temp jobs should my own legal practice or blogging business suddenly fall flat, I am very mindful of the fact that we are entering precariously unpredictable times. Even the once abundant spigot of 0% APR balance transfer credit card offers that used to be so popular among credit card arbitragers, that I used to rely so heavily upon as a secondary means of emergency fund support during periods of unemployment have slowed to a trickle. While my current savings rate is thankfully quite substantial, I remain perpetually dissatisfied, and remain determined to strive for ever increased levels of reasonable frugality and belt tightening to ensure I can endure the worst financial recession or depression scenario possible. I can't predict what will happen months or years from now, but I can control my actions today and structure them so that I minimize my financial risks down the road.
My Stock Investments and Retirement Accounts Have Been Wiped Out
When I used to have a regular day job outside of the home, I had the luxury (if you can call it that) of not being able to track the market closely until I got home. Unfortunately (depending on how you look at it), I work primary from my home office now and have CNBC and Fox Business News on all day long as back ground noise. As a result, I am extremely in tune to the snowballing financial calamity and constant dire news coming out of Wall Street minute by minute. Every time I think the market surely must have hit a bottom, the bottom of some sector falls out and the entire stock market plummets yet another 5-10% as a whole. If we are not on the brink of a major financial market collapse at this point, we are surely close to it. With complete irrational fear gripping Wall Street and Main Street alike, as much as I hate to say it - I don't think we've truly yet seen the worst - the worst is still yet to come. First it was the banking and insurance sector that felt the stabbing pain and now it's the American auto industry that is on the verge of Chapter 11 bankruptcy. The huge recent plunges of the S&P 500 Index has by and large wiped out the bull market of 2002-2007 after the previous stock market wipe outs of 9-11 in 2001. Like a horrible nightmare of self fulfilling prophecies, it just keeps getting worse and worse, and the stock market bottom keeps getting spanked.
At this point, I've lost such a large percentage of my existing investment and retirement portfolio that I don't even bother checking my account balances anymore. Due to my overly aggressive previous positions in foreign emerging market index funds, my stock portfolio is down more than 60% since their peaks in mid-2007. What was once a thriving stock portfolio worth more than $50,000 has been chopped to less than half. I debated whether to pull out of all my positions, but ultimately decided that I had ridden the stock price roller coaster too far down to bail out at this point. Thus, for the foreseeable future, I intend to ride this stock market coaster of doom as far down as need be. Having already lost more than half of my paper value, the prospect of losing the other half just don't seem to hurt as much anymore. Besides, the sun will rise tomorrow, and tomorrow will arrive yet another day and another chance.
Cash Saving Accounts (Banks and CD's)
Better days are ahead for the SS Money Blue Book Stock Portfolio, but this ship's going to be pounded mercilessly until then. Thankfully (and I thank God for this everyday), my stock portfolio currently only comprises a comparatively small portion of my total combined assets, as I was able to wisely refrain from attempting to catch the falling knife of plummeting stock prices. Until there is more guidance on where this psycho market is headed, I intend to safely sit on the sidelines and continue stashing my cash savings in high interest savings accounts and certificate of deposits (CD) with the best online savings banks I can find. Sorry Warren Buffett, but for the moment, I guess I'm not fiscally strong enough to be greedy when others are fearful. Call it missing out on a juicy investment opportunity when prices are low or simply call it wise capital preservation if you will - in this unpredictable market, I intend to save my money in FDIC insured assets like money market savings accounts. While I might miss out on the potential of future gains by not taking a calculated risk today, at least I'll sleep better at night knowing my money won't suddenly evaporate overnight due to some irrational panic selling in the stock market. I will return to the market soon, but just not right now until there is more guidance.
Vehicle Asset Valuation and Dreams Of A New Car Purchase
Readers may notice that my 2004 Honda Accord EX-L's vehicle asset value suddenly dropped more than 21% from last month. No, I didn't get into a car accident nor did the vehicle end up in a lake. For the last few months I've been rather lazy in updating my car's projected Kelly Blue Book dealer trade in value. While not an exact science, after running Kelly Blue Book's online tool for used vehicle trade-in pricing and being extra conservative in valuation by plugging in my current mileage of 65,000 miles and condition of "good", I came up with a reduced price that I felt accurately reflected its fair market value if I were to sell it today within a very short period of time.
As I currently have the financial means to purchase a new vehicle, I also briefly flirted with the wild idea of buying a new high performance luxury vehicle - contemplating a 2009 BMW M3 Sedan or a Mercedes Benz C63 AMG, both priced at around $55,000 to $60,000. But then I came out of my stupor and realized the irrationality of such a luxury purchase at this point in time. The enjoyment of owning such a high powered vehicle just didn't seem to outweigh the tremendous financial loss of $60,000 worth of lost savings and investment potential. At least for now in my current stage in life, it would seem to be a very foolish financial splurge. Perhaps I ought to wait until I was married first and settled down with a family with a more sizable savings before indulging myself recklessly.
No Rush To Pay Off My Low Fixed Interest Rate Student Loans
Despite the relatively large amount of cash I've been able to save up in the last few years, I'm in no rush to pay off my student loans in full. That's because currently my former subsidized federal student loans from law school remain nicely consolidated at a very low fixed annual interest rate of 2.25%. I consolidated several years ago back when interest rates were extremely low, and was able to further lower my rate over the years by satisfying all Sallie Mae good borrower perks for debtors who consistently made timely repayments. Because this fixed rate's actually lower than what I could get if I stored the loan amount in a high interest savings account, I've decided to take my time paying off the loan principle. By keeping the loan balance in my interest earning bank account, the interest income generated (variable 3.50%-3.75% APY) is actually paying for the interest carrying cost of the loan (fixed 2.25%). Essentially, what I'm doing is engaging in a form of student loan arbitrage much the same way I used to make money from balance transfers.
Taking The First Few Baby Steps Towards Buying A New Home
While my luxury vehicle fantasy is just that - a fantasy, my desire to purchase a home for myself is very real. Currently, I'm renting a brand new one bedroom condominium in a suburb of Washington D.C. for $1,475 a month, but I feel it's time I invested in a home to call my own. Of course, as home prices have plummeted and continue to drop, any major home purchase decisions I might make probably won't happen until the second half of 2009 at the very earliest. I'm in no hurry to purchase a home and would be willing to wait an extra year until 2010 if the housing market conditions continue to stagnate. While potential home buyers such as myself certainly have the clout and means to price gouge home sellers mercilessly and demand unreasonable concessions to our heart's content at this point, I think home prices still have many more months or years of continuous depreciation to go before they reach true fair market value. As evil or heartless as it may sound, when home values finally stop dropping in about 12 months or so, I'll be there waiting, amidst the excess housing inventory, to eagerly select my home of choice and take it off the hands of some former owner who has no choice but to sell it at a desperate discount. Like it or not, it's just efficient capitalism at work.
While I'm heavily leaning towards the purchase of a detached single family home, I'm not adverse to going with a high rise condominium with a view. As a relative newcomer to the realm of home buying, my preliminary research currently consists of watching home buying TV shows and occasionally browsing online real estate listing websites like Yahoo Real Estate, Zillow, and Trulia. I don't even have a real estate agent yet as I'm still in the early preliminary research and scouting phase of home buying, primarily still working on maintaining my FICO credit score to improve my chances of getting an excellent home mortgage loan when the time arrives. I will talk about my search for a house in future posts.