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| Sunday, January 07, 2007 |
| Financial Status Update |
This Boston Globe article: Now's a good time to check your financial stats, lists a series of questions to answer to measure how you are doing. I have listed the questions and my answers:
What is your net worth? - $428,597.62
According to the authors Wealth Scoreboard, I am in the top 10% for my age group. If I can grow my Net Worth by an additional $22,402.38 before I am 39 years old I will be in the top 5% (I would need an additional $1,542,402.38 to reach the top 1%).
How much has your net worth changed? -
$428,597.62 (2006)
-$366,111.12 (2005)
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$62,486.50 (17%)
The article states most people with "some assets" should see a growth rate between 10 - 30 percent. Looks like I am doing ok with this measure.
What is the composition of your assets? -
House - $120,694.70 - 28.16%
Investment RE - $115,201.17 - 26.88%
Retirement accts - $95,896.66 - 22.37%
Cash Accounts - $79,865.31 - 18.63%
Bonds, CDs - $6,878.63 - 1.60%
Household - $5,000.00 - 1.17%
Vehicle - $4,847.00 - 1.13%
Other - $214.15 - 0.05%
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Total - $428,597.62 - 100.00%
How much of your net worth is your home equity? - This is a bit tricky for me. If he means just my primary home, my equity is $120,694.70 or 28.16% of my Net Worth. However, if he means Real Estate equity then I need to add in my investment property and that gives me $235,895.87 or 55%.
It looks like I should have no more than 40% of my Net Worth in home equity. "Top Wealth Holders" have no more than 20% of their Net Worth in home equity. I need to keep an eye on this line item. I am already planning on fully funding my 401(k) this year and hope to do the same with my Roth IRA. Focusing on adding to and growing my financial assets will hopefully balance this out.
Is your debt increasing? - In 2005, my total liabilities (debt) was 46% of my Net Worth. In 2006 it is 42% - a 4% drop! Since I don't have consumer debt (credit cards are paid in full each month, no car loan or student loans) my only debt are my mortgages. So the 4% drop is due to paying my monthly bills - that is very satisfying :)
How much of your income is being spent on consumer interest? - Since I don't carry consumer debt I guess I am excluded from this question. |
| posted by Boston Gal @ 11:52 AM *
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| 7 Comments: |
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It was an interesting article, although I didn't agree with his advice that, in order to be financially well off, you need to get married.
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Hey Boston Gal,
Congratulations on being in the top 10% for your age category. I noticed your comment regarding the real estate equity. If the "Top Wealth Holders" are only showing RE of less than 20%, then that has to be their primary residence. I think investment properties should be considered that, an investment. Home equity is I think their way of showing how much they really own of their house. Just my thoughts.
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Hi Anonymous,
I agree that you don't have to get married (I am single and seem to be doing just fine, thank you very much). However, these articles speak in generalities and in general married people accumulate more wealth than unmarried folks.
Hi Ragamuffin280,
I hope you are right and I can exclude my investment property from this line item. It would mean I am doing very well right now. However, if I have to include the investment property it means I have a LOT of work left to do.
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Home equity means owner occupied property not investment property.
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I think you have a small math error. You said in one paragraph that your home (residence) is 28.16% of your ASSETS. In the next paragraph, you said that the same 28.16 was the percentage of your NET WORTH.
Since your net worth is a smaller number than your asset total, the percentage of your net worth that is your personal residence is higher. I still think you come in under 40%, and I am sure that number will continue to shrink over time - as you reduce your outstanding mortgages and increase your savings.
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What is particularly fascinating about this is that, unless I'm misunderstanding something, the more of your mortgage you pay off, the higher your ratio of home equity to net worth. So maybe it is better to invest any additional cash than pay extra toward your mortgage? (I think the author's main message was to make sure not to have too many eggs in one basket, but the unintended (?) additional message seems contrary to the advice of paying your mortgage off as quickly as possible.)
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Hi Laura K,
You are right - focusing on just your mortgage balance - to the detriment of your retirement savings - could mean you own your home free and clear (paid off mortgage) - which might mean you have an impressive Net Worth number, but when you break down the percentages you would find yourself heavily dependant on your home value for your retirement income.
Don't get me wrong, a goal of mine is to someday be debt free - sans mortgage! But I would never sacrafice saving for retirement now to be mortgage free.
The thing I am learning about investing in the stock market - the longer your money has to grow the larger it will grow. It is really hard to get impressive investment gains over a short period of time.
So buy a home you can comfortably afford now - pay that monthly mortgage interest - and sock as much as you can into your retirement funds. If you can max out your retirement contributions and still have money left over - then you can look at paying your mortgage off early.
At least that is what I am thinking of doing. As always you need to figure out what financial path works best for you.
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It was an interesting article, although I didn't agree with his advice that, in order to be financially well off, you need to get married.