Per day one of The Simple Dollar's out with the old, in with the new, I calculated my net worth today. I'm afraid that I'm a bit like Babci when it comes to hard numbers, so I'm not going with exact figures - but although my net worth remains negative, it is about 3% of the negative number I got when I first sat down in 2005 and figured out just how much trouble we were in (answer: a lot). Basically, since then, we have improved our net worth by paying down debt and saving for retirement.
Paying down debt
This is pretty obvious. As the debt goes down, the negative side of the net worth calculation goes down, making the positive side count more.
Additionally, that nasty interest that makes the negative number go up every month, even when you are not adding debt, becomes a smaller and smaller factor. When we started this journey, we had debt on which we were paying 22% variable . Now our highest interest rate is a fixed 1.65%. We got there through a combination of paying down high interest debt and transferring it to places with lower interest.
Saving for retirement
We are a long, long way from retirement, so the smart place for our money to be is in equities. Because we didn't panic, and kept our money in (and kept putting money in) through the 2009 crash, our retirement accounts have actually grown past the value of the money we originally invested in them by about 6%, even though we had 2/3 of our money invested before March 2009. Naturally this number fluctuates every day, but I am comfortable that it will continue to reflect a broad upward trend over the years.
Because most of our net worth is in retirement savings, we also have a big pile of debt remaining. But I am comfortable with my decision to put money into retirement accounts rather than debt repayment for two reasons. First, because the interest rate on our debt is low, so the cost of paying it off over time is low. Second, because Roth IRAs (where all of our retirement money is located) are a very good deal if you believe that income tax rates will be higher for your tax bracket in 35 years, and putting money into Roths is a use-it-or-lose-it deal every year. So I am paying the taxes and interest now for the comfort of knowing that, in retirement, my income tax rate on this money will be 0.
Anyway, it has been a while (at least 6 months) since I calculated our net worth, and I was pleasantly surprised by the result. If we are able to keep up our debt repayment at our current level, we will have a net worth of $0 in 3 months! This will a huge milestone for us; we have had a negative net worth since day one, as I brought a ton of student loan debt into the marriage.
Have you calculated your net worth recently? Was it a surprise or not?
Sunday morning music
8 hours ago
Thanks for linking to Babci. I didn't even notice the pingback but my family's been ralphin all week, so I must've missed it.
ReplyDeleteSaving for retirement has always been a given for me. I'll tell you I can't freakin believe I've been out of college 15 years already. I still feel like a 20 year old (although when I look in the mirror, I get reminded of my real age).
Anyway, small positive decisions that you make now really do add up over time. And time does fly, so before you know it,you'll reach your goals. I was shocked when I woke up one day and I'd been in my house 10 years and it was almost paid off. I mean it wasn't like crazy money I was putting toward it til the very end. It was $50 here, $100 there.
I can't wait for you to reach your goal. It's going to feel well, not that different, but you will feel a little freerer.
Babci is awesome! Moar Babci posts!
ReplyDeleteI'm excited that I'm finally starting to see the rewards of small, positive steps forward. I'm 10 years out of college myself and it's hard to believe that it's taken me that long to have a zero net worth:)