January 21, 2013, 9:13 am

Q1 Net Worth Update

by: The Financial Blogger    Category: Assets and Net Worth
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Believe it or not…., not paying off debts… pays off!

 

My last net worth update is dated as at August 2012. Back then, I was just “surviving” a tough period where I had to pay for over $5,000 in car repairs and $10,000 for my pool. The first expense was unexpected (I usually budget $1,500 in car maintenance per year) and the later was poorly budgeted (I was expecting $5,000 for the pool).

 

At that time, my total liabilities added up to $320,080. I was worried about my balance sheet at that time. The problem wasn’t the amount. It wasn’t even the fact that I was definitely not in line with my objective of going under the mark of $300,000 in debt for 2012. The problem was deeper; for the first time in a while, my consumer debts were growing. If you have been following The Financial Blogger for a while, you know that I have no problem with carrying a large amount of debt and that I’m always willing to borrow money if there is a good investment somewhere. But my blunt attitude towards debt has backed me into a corner; I started to borrow money for the wrong reasons. I think it’s okay to get a mortgage for your home when you are young (I’m only 31!) and it’s a good idea if you borrow money to invest in the stock market or to fund a business (as long as you can afford it!). But it’s definitely stupid to borrow money to put a pool in your backyard, to go on vacation and to buy a new car. This is where I landed; in the world of stupidity!

 

At that time, I stopped producing my net worth update on a monthly basis. There were two reasons for this:

 

  1. There is no point of updating something monthly when you write the same BS over and over again.
  2. I was tired of looking at my debt level each month and being ashamed.

 

So for the sake of my own psychological health, I decided to not pay debts anymore. I completely stopped focusing on my budget and debt level and moved towards what I do best: making money. I took a serious bet; by not looking at my debts for a few months and focusing on growth (of my income) instead of restraining (my budget) I would be able to show a better balance sheet in January. So here we are! It’s time for some accountability!

 

Assets: $563,761 +0.06%

 

ASSETSPREVIOUS
MONTH ($)
CURRENT
MONTH ($)
CHANGE (%)
CHECKING ACCOUNT$1 000$1 0000.0%
EMPLOYER STOCK
ACCOUNT
$2 139$2 50717.2%
RRSP ACCOUNT$29 703$35 57319.8%
RESP$503$2 003298.2%
PENSION PLAN$26 131$26 1310.0%
HOME$351 640$351 6400.0%
COMPANY SHARES$131 521$131 5210.0%
MAZDA TRIBUTE$14 756$12 586-14.7%
MAZDA RX-8$2 800$800-71.4%
TOTAL$560 193$563 7610.6%

 

It’s pretty hard for me to improve my assets at the end of the year and here’s why: each month, I’m losing $834 in asset value as my cars are depreciating. My 2009 Tribute value is following my car loan so the asset is just in my balance sheet to offset the impact of my car loan. As you can see, my RX-8 will be set to nothing in two months as I’m depreciating the value of this car by $400/month. I don’t believe in cars’ value on a balance sheet but it’s still important to use them to offset some debts incurred to buy them. If I was to sell my car tomorrow, I would get between 6K and 7K as I see similar cars for sale at 8K-9K right now. But since this money would be used to buy another car anyways, I would rather put a $0 on it!

 

The other factor that doesn’t contribute to my asset increase at the end of the year is the reassessment of my 2 biggest assets: my house and company shares. I already updated my house value in the middle of 2012 when I added the pool. A similar house to mine has been appraised at $375,000 just two months ago so I’m pretty confident with a value of 351K on my balance sheet. This value will be updated during the summer of 2013 according to inflation (around 2%). I would rather stay conservative.

 

In regards to my company shares, we evaluate them once a year around May during our yearly meeting. 2012 was a “rough” year in a sense that we didn’t see growth similar to previous years. However, I know that my shares will go up again in May because the company is still in better shape than it was a year ago!

 

Finally, I’m quite happy to see my RRSP and RESP going up so fast. I have contributed another 5K to my RRSP and I continue to put $200/month in the RESP for kids. This is a great progression and I hope it will continue year after year!

 

Debts: $315,732 -1.4%

 

DEBTSPREVIOUS
MONTH ($)
CURRENT
MONTH ($)
CHANGE (%)
CREDIT CARD$7 607$6 831-10.2%
LINE OF CREDIT$19 517$19 5970.4%
HELOC$263 279$263 015-0.1%
CAR LOAN$14 756$12 586-14.7%
Personal Loan$9 374$8 333-11.1%
Pool Loan$5 547$5 370-3.2%
TOTAL$320 080$315 732-1.4%

This is a huge win for me! The 1.4% drop is not super impressive but the fact that both my Disney trip and my Christmas shopping has gone through my budget over the past 3 months makes it more substantial!

 

My consumer debts are going down and I’m quite confident that I’ll be able to pay off over $16,000 in debts in 2013 to go under the psychological level of $300,000. Technically, I need to drop my debts by $1,333 per month for 12 months to reach $16,000. I think it’s quite feasible!

 

What will help me this year is that I have no spending projects. Nothing is due on the house, my cars should be in good shape (HOPEFULLY!) and my 2013 vacations are already behind us. So over the months, I should be able to master my budget and keep my pace.

 

I will keep my focus on producing income instead of paying off debts and we will see where it leads me to the next quarter! What do you think? Do you think I’ll be able to reach my goal and pay off $16,000 in debts without even looking at them?

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Comments

I think you are on a winner by focusing on producing income instead of paying off debts because you are managing your debt very responsibly.

Similar to debt, I went through a period recently where I cut out heaps of costs but that can only go so far because you need to eat and pay the mortgage/rent.

At the end of the day worrying about every cent is not fun – making money is fun and has much more upside.

Thanks for sharing both sides of the story!

Quinn

by: The Financial Blogger | January 21st, 2013 (10:16 am)

Hey Quinn,

I must admit I’m quite happy to have win my bet! not focusing on debt felt weird as it is not what “normal” people do ;-)

nonetheless, I’ll continue my strategy since it’s working well!

I do not include my used car in my assets. It is a 2005 that I bought in 2008 and I have never included it and I consider it more a regular expense (insurance, registration, maintenance and gas). I need it to get to work and to haul dog food home and I would never recover my investment if I sold it.

I think it is great that you are focusing on increasing your income but are you also focusing on paying off your consumer debt (pool, credit cards) more rapidly than other debt or saving?

I asked this question because I noticed your RESP increased more than you credit card and pool loan dropped.

Hey Jane,

Good observation!

My RESP contribution is set at $200/month automatically. I consider it as important as a debt as I can always postpone my debt payment but I won’t be able to postpone my kid tuition fees! hahaha!

All my extra earnings will go toward my consumer debts thought. If I get rid of my pool loan, my credit card and a part of my personal loan this year, I’ll go under 300K in debts! then, I can attack my mortgage (I pay only 1.50% on it right now so I’m not in a hurry to pay it back… )

Mike,

You can easily pay off your non-mortgage debt w/ your cash flow from your job and online business right? It’s just a choice not to do so if I’m reading you correctly.

S

BTW, does your latest update mean you increased your NW by around $8,000 over the past 4 months ($240K to $248K?) If so, what is your NW target for 2013?

by: The Financial Blogger | January 22nd, 2013 (5:28 am)

Hey Sam,

I don’t withdraw money from my company as I’m paying corporate debts with our free cash flow coming from the business.

I prioritize my RESP contribution over debt repayment, that is correct. I rather pay myself first than pay my consumer debts.

by: The Financial Blogger | January 22nd, 2013 (5:30 am)

oh… NW objective is only to get under 300K of debt this year, I didn’t think of my assets. In fact, they should not grow that much (inflation for the house, a few more thousands for my company shares and another contribution to my retirement investment account in January 2014). I guess I will hit a 300K net worth by January 2014.

TFB,

You are pretty heavily leveraged. Your home is leveraged and so are your company shares. What percentage of your company’s equity is debt?

For me, I know the psychological wins of shutting down some of those accounts would push me to earn more. If I could shut down the pool account or car loan in 6 weeks by just focusing, I think it would really get me going, but that is just me.

What do the corporate debts look like? Are they basically pass through (not sure corporate structure up north)?

by: The Financial Blogger | January 23rd, 2013 (5:30 am)

@DGI,

to determine our company shares value, we use 3 years of gross revenue and we subtract the amount of debt we have. If you take the classic way of company evaluation, it is about 5 times the net income.

@Evan,

Focusing on debts is easier without kids. I remember when I started working, I could put half of my salary aside to fund my projects. I can’t do that anymore. I’ve realized that I’ve pushed too far with my debts and this is why I’m not borrowing for anything else anymore. I don’t have any project this year and I’ve spent over $20,000 on my house over the past 2 years. By not doing anything this year, I should be able to generate an extra saving of $10,000 :-)

Not sure I understand your question regarding my corporate debt. It’s basically a 5 years loan.

Mike, good goal.

You can always just revalue your company higher to increase your NW too. Easy peasy!

Its awesome you’re willing to share all of this information with your readers because I think its a great way to see some real-life examples of finances and budgeting. Its great that you’re expecting to pay down a lot of your consumer debt in regards to not having any set-in-stone payments to make. Thanks for the examples and information about your plans, good stuff.

by: The Financial Blogger | January 23rd, 2013 (3:19 pm)

Hey Sam,

we have been using the same share value calculation method for the past three years and we are doing 1 update per year so I won’t be playing with my net worth just for the fun of it ;-).

Hey Kelly,

thx :-) I like “real life” examples, I think it is more inspiring! cheers,

Mike.

Well done! So many people have a negative net worth… so being “in the green” by several hundred thousand is pretty darn good!