February 2015 Net Worth & Cash Flow Update
/Since 2007, after taking a Personal Finance 101 college course, I've been tracking every dollar I earn, spend, and invest. I do this for a few reasons:
- As an accountant, I understand how important it is for a business to know where it stands financially. I work on corporate financial statements for a living so I am very familiar with Balance Sheets and Income Statements. For individuals, it shouldn't be any different. I am the Chief Financial Officer for my household and need to know the financial information for me to be able to make important decisions. If I didn't have a method for tracking my finances, I would constantly be worrying about if I have enough in my checking account to pay the bills, if I was saving enough, and that would cause a lot of stress for me.
- I like to look at the trends in my finances. Having such a long history of data allows me look at trends in my spending, earning and growth. I love to track my progress of where I started and where I'm at today.
- It's fun for me! It's not a chore for me to track every dollar going in and out of my accounts. I am a numbers guy and I guess you can call this a hobby. I really enjoy using Xero to track my finances and I'm able to produce beautiful reports that help tell the story behind the numbers. Of course, I use Personal Capital and Mint.com as well but that's more for real-time information.
When I discovered the concept of financial independence in mid 2013, I've started making an effort to reduce expenses, increase income, increase savings, and make smart investment choices Let's take a look below at how I did for the month:
Net Worth ($166K, Up 6.6% from Prior Month)
Cash in Banks
I prefer to combine my Cash in the bank and Credit Card balances together to arrive at Cash in Banks. I currently have $8,256 in my checking/savings accounts offset by $2,297 on my various credit cards for a total of $5,959 net cash. I put as many of my expenses as possible on credit cards so I can earn the most rewards possible. Since I pay off my credit cards every month, I don't really consider the balances actual "debt" and therefore just net the end of month balances against cash on hand.
Current Assets
Accounts Receivable: $230
- I started doing some independent tax preparation consulting on the side in February. This account represents the money that is due payable to me for a portion of my work done during the month.
Prepaid Property Taxes: $638
- I like to amortize my property taxes since it is about $160 per month and I don't like to show such a big hit in only a couple months of the year. I had paid the 2nd installment of my property taxes in November when I refinanced, however, it's not due until April 2015.
Restricted Cash: $3,217
- My restricted cash includes: gift card balances, Health Savings Account cash, and other miscellaneous balances.
- I've created an account for my HSA Cash that has $2,000 in it. I include it in restricted because it's "restricted" cash and more like a healthcare emergency fund. I don't plan on using my HSA cash for medical expenses for the time being since I plan on using a rewards earning credit card for my expenses and reimbursing myself later on down the road when and if I may need the cash.
Taxable investments: $4,055
- This investment portfolio consists of my Loyal3 brokerage account where I hold dividend growth stocks in high quality dividend paying companies. Early in February, I sold out of my positions in Apple, Inc. (AAPL) and Intel Corp. (INTC). The reason for doing so was purely to liquidate a portion of my investments to transfer to Cash in Banks. Since these two companies had the biggest life to date gains, I decided that it would be a good time to take advantage of realizing some of the price appreciation.
Car
I purchased my car in April 2014 and paid $8,240 in cash. I am keeping it on the books at purchase price but continue to check Kelly Blue Book value every month or so to see if the value has dropped. I drive less than 5,000 miles a year so I don't expect my car to depreciate significantly from month to month. If I see the value drop more than $500 from my purchase price, I would book an adjustment and hit depreciation. My 2003 sedan currently has 111k miles, of which I only added 526 miles in February. I don't expect to have much depreciation because I keep my car garaged, drive very few miles, and perform regular maintenance. I plan on keeping my car for as long as possible.
House
I own a 3bd/3ba, 1,511 sqft house in Northern CA. I received an appraisal in November 2014 and it came in at $235,000. I purchased the house in Fall 2008 at $183,000, so at this appraised value it represents an increase of 28%. Another option for tracking home values is by using Zillow.com, however, that value is currently lower than my appraised value.
Retirement Accounts
My retirement accounts consist of the following:
401k: $40,379
- I am currently invested in Vanguard 500 Index Fund Admiral Class (VFIAX) that has a low 0.05% expense ratio. My plan provider charges 0.34% on assets. I'm pleased with the low fees, however, when I plan on leaving my job in 2015, I would like to rollover funds to my IRA at Schwab and save even more on fees.
HSA Investments: $7,113
- I am 100% invested in Wells Fargo Advantage Index Fund Administrator Class (WFIOX). It tracks the S&P 500, and has an expense ratio of 0.25%.
Traditional IRA: $22,169
- My IRA is fully invested in the Schwab US Broad Market ETF (SCHB). I like this ETF because of it's low expense ratio (even lower than the comparable Vanguard ETF - VTI). I am looking forward to Schwab Intelligent Portfolios offering in Q1 2015. I most likely will take advantage of that since it will be free.
Profit Sharing: $8,639
- This account is from a former employer. I am fully vested and am unable to take a distribution until age 59.5. No further contributions will hit this account so it will be purely investment gains/losses from here on out. I would love to be able to consolidate with my IRA, however, it just isn't an option for this account.
Total Retirement Accounts: $78,300
Home Loan
I owe $169,321 on my 30-year 4.125% fixed rate mortgage. My mortgage is with Capital One Home Loans and I'm really happy with the service.
Total Equity
Retained earnings represents my net worth at the beginning of the year. I started off the year with $157,874. I've added $8,446 to my Net worth Year to date for a total Net Worth of $166,320.
Cash Flow (Added $10K for month)
Income
Income increased $8,373 from the prior month primarily due to the company bonus I received.
Expenses
It was nice to see my expenses go down from prior month as I had many one-time expenses in January. In February, I had a one time $800 expense for removing a tree in my front yard.
Taxes
The large increase in taxes was due to the bonus I received in February. With mandatory federal and state withholding of 25% and 10.23%, respectively, there's a large portion of taxes taken out of that supplemental income.
Unrealized Gains & Losses
My taxable investments and retirement accounts climbed $4K in February mainly due to the S&P rising 5.11%.
Other Information
Financial Independence Analysis
In order to become financially independent, I aim to have at least 25 times my annual expenses saved up in my accounts. With estimated annual expenses of $25K, I will need about $625K in net worth. Based on my current net worth of $166K, I am about 27% towards financial independence. Why stop there though? I would love to hit the double comma club and reach $1M!
Credit Score
I regularly check my credit score every month just to stay on top of where I'm at and see if it fluctuated very much. I use CreditKarma.com to access my score because it's FREE and it's easy to use. My TransUnion and Equifax scores are just above 800:
The BOTTOM LINE
February was a great month not only for my investments but as well as the company bonus I received causing my net worth to climb 6.6% from the prior month. I also started to earn some 1099 income by working virtually from home and created a second income stream. When I quit my job in May, and enjoy the sweet taste of freedom, I will be financially prepared.
Readers: How was your month with regards to your finances? I'd love to hear!
