May 11, 2011, 5:00 am

Monthly Net Worth Update +7.5%

by: The Financial Blogger    Category: Assets and Net Worth
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Ahhh… when assets are stronger than liabilities, I love that. Unfortunately, the situation is not always perfect. As I am writing this article about my net worth, I realize how hard it is to understand what I am doing right now; my debts are growing and my assets are “virtual”.

Why do I say that? Because while I now report total assets over half a million dollars; 20% of it is in my online company shares. Going back to our annual meeting, we have decided to increase the value of the company shares from $150,000 to $196,000 (I own 50% and my business partner holds the other half). As my RRSP’s are going down this month (thx to my heavy position in RIM… yeah I know, you told me to short it…), my house and pension plan are stable, the only real increase is coming from my company shares “virtually” going up.

On the other hand, if I had to sell my company as a whole or separately, I know I would sell it for way more than 200K. Therefore, I am comfortable to give it such a conservative value.

I also continue to put roughly $500/month in my employer’s stock… This will be cashed out at one point in time in order to pay off a part of my debt.

Speaking of which, my debt is rising…once again. But this time, it is more substantial. Why am I still spending more than I earn? Because April was a big month:

-          I did some landscaping

-          I paid for a part of my central A/C

-          Part of my municipal taxes were due in April

-          We had several birthdays to celebrate

Once I will be done paying off my A/C, I will add the same value to my house as it will really be a plus if I would be selling it tomorrow. In April and May, I am spending money that I will earn in June-July. I know for a fact that I have a great bonus coming in so this is why I am not too worried. Remember, 30% of my annual income is coming from my bonuses. On top of that, my net income has increased as of my last pay check since I have paid the maximum for Quebec Pension Plan and unemployment insurance.

I also paid off my credit cards with a personal loan. I did this for 2 reasons:

a)      The low interest rate was ending soon

b)      I need to pay this debt down and I wasn’t doing a great job with the credit card

This is why I thought that having a loan with a fixed payment would help. While the second part of the year will be better than the first part in terms of debt reduction, I definitely need to set my finances in order to start paying off my debts ;-).

In May, things won’t get any better as I will probably have to pay the balance of my A/C (which is 4.5K). Then, I’ll be able to breathe ;-).

Here are the tables:

Assets:

ASSETSPREVIOUS
MONTH ($)
CURRENT
MONTH ($)
CHANGE (%)
CHECKING ACCOUNT $1,000 $1,000 0.0%
EMPLOYER STOCK
ACCOUNT
$5,332 $5,774 8.3%
RRSP ACCOUNT $23,685 $22,175 -6.4%
PENSION PLAN $12,000 $12,000 0.0%
HOME $338,640 $338,640 0.0%
COMPANY SHARES $75,000 $98,000 30.7%
MAZDA TRIBUTE $21,700 $21,266 -2.0%
MAZDA RX-8 $9,200 $8,800 -4.3%
TOTAL $486,557 $507,655 4.3%

Liabilities:

DEBTSPREVIOUS
MONTH ($)
CURRENT
MONTH ($)
CHANGE (%)
CREDIT CARD $11,779 $14,870 26.2%
LINE OF CREDIT $19,348 $19,348 0.0%
HELOC $261,214 $264,348 1.2%
CAR LOAN $21,700 $21,266 -2.0%
Personal Loan $9,500 $12,500 31.6%
TOTAL $323,541 $332,332 2.7%

Net Worth: $175,323

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Comments

I think its excellent how you have provided detailed information on how your assets and liabilities are stacking up against each other for people to see. I’m on a similar journey myself and your progress is inspirational. Back to reducing those liabilities!

This site is an inspiration to those of us just starting out , thanks for sharing your information and letting us know that it is possible to be successful.

I also find it interesting as these posts show how bad I am to manage my debts while I am definitely good at increasing my assets. Can’t be perfect, huh?

Guess not, but having debts doesn’t matter at all if your assets are substantial enough to keep them in check! :)

this is exactly what I am looking for ;-)

I guess that one day, I’ll have enough assets that I’ll just clear off my debts in one shot ;-D

Hi Mike – How does one just increase shares and the value of the company? Does one just decided to just issue more new shares at some price? Help me understand as I embark on a similar process.

Also, how do we value the company and determine the internal price per share?

Thx!

Sam

Well since we are only 2 partners and we have 50% of the company each, it’s easier to agree on an increase of our value.

In order to determine the value, we took the past 12 months of income, multiply them by 3 and took off all company debts. This is how we got the 196K. But to be honest, if I had to sell 10% of the company today, I would not sell it for 19K. This value is a conservative model for our own use only.

If you want to issue more shares, you would have to refer to a lawyer, I didn’t get into this process on my side yet!

Good to see that there are people out there who aren’t afraid to leverage up.

You’ve got some serious cajones for having cash assets of $1,000 against debt loads of $300,000. Good for you!

If I was leaving more than $1,000 in my bank account, this money would be wasted on the bench. I rather have all my dollar play somewhere ;-).

In case of an emergency, I always have my employer stocks (5.7K) and I could temporarily take money out of my online company (which always have more liquidity ;-) ).

Hi Mike – Thanks for the info. Aare there any tax implications to raising the value of the company? Or, is increasing the value simply “for fun”? A lot of companies keep what they’ve bought as book value on the balance sheet for example and never revalue upwards.

The annual profit X 3 is also an arbitrary figure right? you can X by 4, 5, 1 etc. It’s whatever you think is the value yeah?

Sam

@Sam,

there are no implication since I’m not selling (it’s like having bought APPL 3 years ago and not selling it ;-) ). Companies are keeping their book value because it might have an influence in their taxes as it is an official document. My personal net worth is not.

I would never sell the company as is below 500K to be honest. The 3 years of income is just a way for us to keep track of our progress and still be conservative.

While I do not intend to sell any of my websites, if I ever do someday, it will worth something. This is why I include them in my net worth. The day I decided to stop pour growth, I can easily drop down the expenses to 2K per month and me and my partner would earn a steady 3K each per month for less than 15 hours per week or work. This sounds fairly reasonable ;-)

do you, at any point, reflect back and question whether the ramp up in debt today is worth tomorrow uncertain promise? you are a solid-gutsy entrepreneur from what i can take away

forgot to ask – do you ever question whether you would be able to turn your company shares loose when needed/wanted? unlike the liquidity in the stock market, unfortunately the online space does not provided that yet in my opinion?

by: The Financial Blogger | June 22nd, 2011 (6:54 am)

Hey Sunil,

I know it’s a strange and unconventional way of dealing with my budget. and it doesn’t make sense for most people. However, I am 100% that my investment and my career will generate enough cash flow later one in the future… I hope I’m right ;-)

Also, that is a very though question indeed!

if I ever have to sell, I will have to sell websites separately I guess!