Slight Change In Plan

As I posted before, we have begun our 2nd mortgage accelerated payment plan. However, we are deviating from our plan a bit this month by not paying 100% of my extra check ($1859.07) to the 2nd mortgage. Instead, it will be spent as such:

$500.00 to 2nd mortgage
$785.00 to savings account
$100.00 to my Roth IRA
$474.07 to checking

I can rationalize the deviation from our plan because I found out that I will be receiving 3 months with 3 paychecks in 2008, one more than our 2nd mortgage payment plan is based on.

The money is being put to good use. We wanted to increase our savings to ensure we had more than enough to pay for our income taxes. We also wanted to bolster our checking account balance because our February mortgage payment will be due before we receive our 1st paycheck in February. We need a large enough balance to get us by until February 8th.

Net Worth Comparison

Check out this interesting net worth comparison tool based on your age and income: http://cgi.money.cnn.com/tools/networth_ageincome/index.html.

This calculator is set-up for individual comparison; I don’t think it really applies for couples. Nonetheless, I ran a few scenarios just to see how our current $23,873.25 net worth compares. The details are below.

SCENARIO #1
Using my age (32) and annual income ($66,150):

SCENARIO #2
Using my wife’s age (23) and annual income ($40,000):

SCENARIO #3
Using my age (32) and our combined annual income ($106,150):

Based on the results, it seems that we are doing great for our ages. However, we are not don’t as great when comparing our net worth based on our income. We just barely came out ahead in Scenario #2 using my wife’s income and in the other two scenarios, we get badly beaten.

While this calculator was fun to play with, I do not put a lot of weight into its usefulness. One flaw is that it does not take into account how long you have been making your current income. Just a couple of years ago, my salary was considerably less. In real life, this has to play into the equation.

Okay, maybe I’m just a little bitter that we didn’t get better results. Ultimately, I know that what matters is where we are at in achieving our goals, not how we compare to everyone else.

3 Months Of 3 Checks in 2008

I was updating my work calendar for 2008 (holidays, paydays, etc.) and noticed that I will receive 3 months of 3 checks in 2008. This discovery was a nice surprise.

I get paid every two weeks, which usually results in 2 months with 3 checks. But, in 2008 it works out where there will be 3 months with 3 checks (January, July, and December). This “extra” money will go towards paying down our 2nd mortgage.

I call this “extra” money since our budget is based on my wife and I each earning 2 paychecks a month. I thought by chance my wife might also be getting 3 months with 3 checks in 2008, but it turns out she will be getting her standard 2 months with 3 checks.

2nd Mortgage Payment Plan Underway

I am happy to announce that we have begun our 2nd mortgage payment plan. We used $191 from my wife’s commission check this month to make an extra payment to the principle. I know, it might not seem like much, but we have only paid down $637.49 in 2nd mortgage principle since we refinanced a year ago. Taken in that context, this extra $191 payment is the equivalent of 4 months of regular monthly payments.

And it doesn’t stop there. We plan to make another $1700 payment to principle this month using my extra paycheck. This will get our 2nd mortgage payment plan off to an awesome start for 2008.

2007 Net Worth Recap

Below is a table compiling our net worth data for 2007 (click on table to enlarge). Besides our monthly net worth growth, certain things jump out at me:

Reviewing our net worth this way reminds me how different things were for us less than 12 months ago. During that time, our assets grew from $387,420.00 to $398,339.46 and our liabilities decreased from $390,588.85 to $374,466.21.

God willing, 2008 will be as much of a success.

A Look Back At 2007: Digging Out From A Negative Net Worth

2007 has been a great financial turnaround year for us. We went from a negative net worth of -$3,168.85 to a positive net worth of $23,873.25. That’s a $27,042.10 increase in 11 months!

2007 financial highlights include:

  • Paid off all of our credit card debt ($5,064)
  • Fully funded both of our Roth IRA’s ($8,000 total)
  • Restarted my 401(k) contribution in April at 2%, and increased it to 3% in July
  • Increased our savings account balance to almost half of our $10,000 emergency fund goal
  • Paid down 25% of my wife’s student loans
  • Sold one of our vehicles and replaced it with a vehicle that has less mileage, lower monthly payments, and more affordable insurance costs

As I set our net worth goals for the next 20 years back in April 2007, I wasn’t totally sure they were achievable. Sure, I crunched some numbers and kept my assumptions conservative, but I could have been way off. While we still have 19 years left in the plan, it’s comforting to have the first year in the bag and to have surpassed our 2007 goal. We are truly blessed.

Some financial plans for 2008 include:

  • Increase my 401(k) contribution to 4% in January
  • Fully fund both of our Roth IRA’s ($10,000 total)
  • Begin accelerated payments on our 2nd mortgage balance ($52,648.72)
  • Increase our savings account balance to $7,000

I’ve refined our net worth goals table (click on spreadsheet below) to include additional information that I would like to capture each year including household income (not including commissions), % of income invested, and retirement savings. God willing, 2007 is just the beginning to our 20 year journey towards early retirement.

December 2007 Income Statement

We spent more than we earned in December. I was wrong last month when I said that we should not have any large annual expenses hit in December. We prepaid 16 months of my gym membership for $828. With the holiday and birthdays, we also spent $148.09 on gifts. Thankfully we spread our Christmas gift spending over a couple of months so it didn’t all hit in one month. I also bought a couple of pairs of work pants, shoes, and a shirt on sales for $166.03. We purchased our first term insurance policies and had to prepay 2 months ($78.86 total).

January should be a better month since I receive an extra paycheck (3 total), I plan to cash out a few vacation days, and I should receive my annual pay raise. Hopefully we can keep our expenses next month below our income.

December 2007 Net Worth Update (-$3,301.44)

December was the first decrease to our net worth since we began tracking it in February. Our net worth decreased $3,301.44 from last month to $23,873.25 (click on spreadsheet below).

What worked this month?
While December was a roller coaster month in the stock market, thankfully, our investments ended on an up note.

What did not work this month?

December was a bad net worth month because of my poor accounting methods earlier in the year. As I mentioned in a previously post, I have not been depreciating our vehicle values each month, thus, I have been over stating our net worth. Before closing out 2007, I wanted to adjust the vehicle values to give us a more accurate net worth. To reflect the depreciation, you will notice a change of ($2,085) in the asset column for Car 1 and a change of ($2,760) in the asset column for Car 2. It’s no fun taking a $4,845 depreciation hit in one month. So, beginning in January, we will depreciate our vehicles monthly at 1%.

What’s coming next month?
The end of 2007 was rough on our net worth, but thank God we were still able to finish the year 8.51% above our net worth goal of $22,000. I will be posting a review of 2007 within the next couple of weeks.

January should be a strong month and an awesome start to 2008. I receive an extra paycheck (3 total), I plan to cash out a few vacation days, and I should receive my annual pay raise. Most of this extra money will go towards our plan to pay down our 2nd mortgage, but we will also begin contributing to our Roth IRA’s for 2008.

Merry Christmas

Merry Christmas!

My wife and I just returned from spending Christmas with her Mom (yesterday) and her Dad (today). It was a lot of fun, as always. We were talking on the drive home about how lucky we are to have such great families.

On a financial note, we were able to keep our gift shopping within reason this year.

Our path to financial independence and retiring early.