Back Again

In May of 2008, our net worth totaled $987,376, then the stock market fell apart in the summer and early fall of 2008 and our net worth dropped to $897,080 in October of 2008.

Now in September of 2009, our net worth is back to $987,749. The celebration will be short lived, come November of 2009 I will plug in our Florida real estate values (once we receive final values from the County property appraiser) and I expect our net worth to drop by $200,000-$300,000.

It is easy to get caught up in our NetworthIQ numbers each month, and while I recommend paying attention to the numbers, it is important to remember that the rise and fall of the 401K and the IRA and real estate values are some what illusory. The fact is that there is no profit or loss on the stocks, funds or real estate until we sell same.

Wishful Thinking

One of my spending weaknesses is real Art. I love Art and I don't mind spending money on real Art (no prints for me).

One of my favorite artists is deceased and his work goes up for auction now and again. I keep track of the auction schedule and I was determined to bid on one of his pieces this weekend. I registered for the on-line auction and I set a budget for myself ($5,000.00) the item was listed as worth $3,000.00 - $6,000.00. But this morning I was at work and I realized that I could not download the on-line auction software on my work computer. Cue disappointment. But I told myself, Sam if you cannot bid then take it as Fate or the Gods telling you that this item is out of your price range or that this item is not meant for you, etc.

Well, I went back to my work and checked the auction outcome just recently, the item that I had planned to bid on, went for $18,000.00+. Yikes, who says we are in a recession!

Cash vs. Debit

I am a big fan of my debit card, by switching from credit to debit card back in 2007 I was able to slash my discretionary spending almost in half. Using debit also allows me to keep track of my spending (we use Quicken and download the bank statements into the program) and get a good picture of where the money is going. Also using debit requires me to pay attention to my finances, I only keep a certain amount of money in my checking account (my allowance) so I have to check my on-line balance once a day and I balance my checking account with a check registrar (just like Mom used to use) by writing down each transaction.

But all that tracking and monitoring takes time and effort and I am starting to wonder whether I ought to adjust my habits a bit. This week, a short work week due to Labor Day, I took $60 out of my checking account and I used that money for my day to day spending and I still have $10 left and I did not have any debit card transactions from Tuesday to today. The upside, I did not have to keep such close tabs on my account this week and I generally know where that money went (gas, eating out [lunch and coffee], and picking up a few items at the drug store). The down side, those purchases will not make it into Quicken.

Let's Do the Numbers

(1) Max out 401ks - $33,000
(2) Max out 2009 IRAs - $10,000
(3) House project and furniture - $6,000
(4) Add to baby fund - $5,000
(5) Add to emergency fund - $10,000
Total - $64,000

(1) $22, 586 (68%)
(2) $10,000 (100%) (this goal is completed)
(3) $1017 (17%)
(4) $689 (14%) ($5,689 in our ING baby account)
(5) $1,008 (17%) ($22,889 in our ING e/r account)
Total - $35,300 (55%)

3/50 Program

This past weekend, I spent $53.00 and $57.00, respectively, at two of my local "Mom and Pop" or independent retail shops in my local down town shopping district.

The $57.00 was for dog food (a very large bag) and dog treats for Mr. Snarfle. We normally spend about $100.00 a month for Snarfle, @$40 in dog food and @$60 for the dog walker.

The $53.00 was spent on two birthday gifts.

And on Friday night we went our with friends (again in our local down town area) and spent $40.00 or so on drinks and snackeroos.

So, without diverting any money from our budget we participated in the 3/50 Program.

The point of the 3/50 Program:

Think about which three independently owned businesses you’d miss most if they were gone. Stop in and say hello. Pick up a little something that will make someone smile. Your contribution is what keeps those businesses around.

If just half the employed U.S. population spent $50 each month in independently owned businesses, their purchases would generate more than $42.6 billion in revenue. Imagine the positive impact if 3/4 of the employed population did that.

Now, I am not suggesting or encouraging mindless spending by mentioning this program. In fact the money we spent last weekend was money we were going to spend regardless of where we spent it. The point is, if you are spending budgeted money, consider diverting that money to support your local independent retailers.

Someone Has Questions - Part III

FC said - I just read your entire blog backwards ... in sequence from newest to oldest. I would love to hear more about your background as far as being able to attain such a high net worth ... it seems like you both earn a relatively high income from your jobs/careers but also what else goes into it. I'm hoping that you can provide advice on landlording ... including how long you've owned the properties, how far apart you bought them, how did financing investment properties differ from financing primary home, what were some positive things that you've done versus some things that you would have done differently now that you are wiser, is it ever overwhelming having so much mortgage debt as a liability, how is the actual cash flow now versus a year or two ago versus what you initially planned/expected?

Wrapping this up -

The negatives of investing in real estate. Yes our cash flow is down a bit from last year but the real problem is that the value of our properties is down significantly. We hope to sell these properties to fund the construction of our vacation/retirement home. While we had planned to hold these properties for a longer period of time than the typical "flipper," we had plans, which are now on hold, to sell at a certain point.

What would I have done differently - I would have sold Rental #1 in 2007 and we would have made a super profit. I would not have bought Rental #3 in 2005. Basically, I would have been scared when others were greedy and as such, during the run up of real estate values in South Florida, I would have sold when everyone was buying (Rental #1) and I certainly would not have bought when everyone was buying (Rental #3). Of course hind-sight is 20/20 and if we had sold Rental #1 in 2007 we would have likely plowed that profit into another real estate investment.

Is it overwhelming having so much mortgage debt - sometimes. The real estate debt was more overwhelming when we were also carrying $50,000+ in other non-secured debt. But, on the other hand, when our property values were higher the real estate debt felt better on a psychological level.

Most of the time, I believe the positive of investing in real estate outweigh the negatives. As far as I know, real estate is the only investment in which someone else pays the monthly costs. The other positive for us relate to taxes and the tax benefits we receive from our real estate investments (although I am not one to invest in something to get a tax benefit, but I do appreciate the perk).

Credit Card Debt

We are not a credit card family, at least not for the last two years since we paid off all our non-mortgage debt via Dave Ramsey's Total Money Makeover, and therefore we do not use credit cards except for travel (car rental and airplane tickets) or for business expenses.

Our real estate investments are a business and, accordingly, we sometimes, as much as it pains us, use credit to finance repairs and or upgrades and then we pay off that debt with rental income. I am sure you can see where this is going . . .

We presently have $1472 sitting on our Home Depot credit card incurred during this past month as Mr. Sam did some upgrades on Rental #1. The good news, this debt is interest free assuming we pay it off by July 20, 2010 and that we keep up with the 0% rules (we make our minimum payments of $10 a month on time). I hate, hate, hate having credit card debt but it made sense to finance these upgrades using Home Depot's 0% credit card deal.

So now I will also be tracking our credit card debt on this site until it is paid off:
Home Depot: $1472 (0%).

Dog Days of August

(1) Max out 401ks - $33,000
(2) Max out 2009 IRAs - $10,000
(3) House project and furniture - $6,000
(4) Add to baby fund - $5,000
(5) Add to emergency fund - $10,000
Total - $64,000

(1) $21,433 (63%)
(2) $10,000 (100%) [completed]
(3) $966 (15%)
(4) $576 (12%) ($5576 in our ING baby account)
(5) $1,770 (18%) ($23,651 in our ING e/r account)
Total - $34,745 (54%)

Slow progress, but happy to actually have some forward progress this month.