The Yearly Financial Check Up

Every year, around January 1, I do two exercises related to my finances: calculate my net worth, and review the prior year’s spending. I have been doing this for years–long before I met Mr. PiN–so I talk about my finances, though it has really been our finances for some time.

While it is certainly pleasant to see totals moving in the right direction, I find the most helpful aspect of the exercise is to reflect on where we are as a household, and consider next steps (not resolutions!).

This year, going through the finances is taking a bit longer than usual. I finished the net worth calculation early, but the spending review is taking much longer.

Instead of going through both topics at once, I will be splitting them up: this week, the net worth discussion; soon (hopefully next week) a review of our spending in 2021.

I won’t be giving exact numbers, per Mr. PiN’s request, but I hope that going through this exercise with me may be informative for you.

I must confess, I felt a bit like I was writing a paper. The kind where all the meat is in the discussion. It’s a bit dorky, but I’m going with it:

Introduction

Why do I calculate my net worth?

Mostly, so that I can (hopefully) see progress when it seems like growing my wealth is taking forever.

J. Money was a big proponent of this at Budgets Are Sexy, posting his net worth publicly on a regular basis; he encouraged bloggers to post their net worths too.

For me, it is kind of fun to go back over the years and see the debts go down (no more student loans, no more mortgage, no more car loan!) and the totals go up.

The other half of my exercise is make sure that I am funding my goals.

It’s not quite an investor policy statement, but I make sure that my savings are sufficient to fulfill my plans such as: covering 6 months of spending as an emergency fund, growing my car fund (I don’t want any more car loans), covering my annual vacation budget (which I have only actually come close to spending once, but this lets me feel OK about our actual vacation spending), etc. Once I know that these goals have been funded, I can plan what to do with any money that is left over, if there is any.

My financial life is quite different from when I started this in residency, but I find this a useful exercise to do every year.

Methods

I have been totting up my net worth in basically the same way for over 20 years.

For those who argue about what should be included in a net worth calculation, I will elaborate that this is my liquid net worth: stocks, bonds, cash, minus liabilities (loans). I include retirement accounts and regular accounts.

Not included: value of my car (I tend to drive them until they are worth nothing), value of my house (I can’t sell it in a day or two, and I plan to live somewhere permanent in retirement), or my expensive things like jewelry or furniture (which can take a little while to sell, and almost never bring in as much money as you think they should).

At this point, I am looking at the money I can use to fund my retirement.

Results

2021 was a bummer of a year in many ways, but financially it was a bonanza.

My net worth increased by over 3 times my gross income. That’s bonkers!

Almost all of this is from growth in the stock market, though some of it is certainly from putting more money away in retirement accounts.

Discussion

If I am going to do more than just sit back and crow unbecomingly about making money in the stock market this year, I should really reflect on what I learned through this exercise. Here are some of my thoughts:

Is it time to buy bonds?

I have been a stock buyer for a long time. When I was in my 20s, I had decades ahead of me before retirement was a consideration, so stocks were the way to go.

I am now a lot closer to retirement. Even if I don’t retire early, I have only 15 years until I reach full retirement age. That means there is less time for me to recover from a drop in the stock market.

I remember the dot-com bust of 2000, and the Great Recession. Though stocks came back, and probably will again after the next big market crash, losing 50% of the value of my stock portfolio now would be very tough to stomach. Unless the market rebounded amazingly quickly, I would be thinking about working at least another 5 to 10 years more.

By adding more bonds to my portfolio, I will miss out on some of the outstanding portfolio growth I have enjoyed over the past 10 years.

On the other hand, when the next market drop, of unknown duration, comes, those bonds may help limit my portfolio drop to 40% or 30%. Which may directly translate into fewer years spent working.

Is it time to trim some of my cash holdings?

It is true, I like to see cash in the bank.

For me, a 6-month emergency fund–in cash–provides peace of mind. I know that if something happens to interrupt my paycheck, we can live pretty much as we are now for long enough to find a new job and get credentialed. Or to start collecting disability insurance.

I also love sinking funds.

The house fund is fully set for our large property tax bill, which is coming up soon. If this is the year I put my foot down and insist on getting a new A/C system for the house, we can pay for that as well.

Same for an expensive vacation or two . It’s still fun to look for deals and use travel points, but the best way to pay for a vacation–to my mind–is to have just about everything paid for before you leave. Coming back to large credit card bills that can’t be paid off immediately definitely dulls the experience.

I also have a fully loaded car fund. We paid off my car loan, and I plan never to deal with one again. We don’t have enough to buy a new luxury car, but I don’t think we want one anyway. When it’s time to buy a new vehicle, the plan is to pay cash; if we have to dip into another account for a few extra thousand dollars, fine.

However, all of these accounts add up to a hefty chunk of change; and that’s before realizing that we have even more than the goal amounts saved. (I can thank my secret savings account for that, as money is saved automatically in an account I almost never see; I use only whatever hits my checking account.)

I never used to worry about cash drag (losing out on potential returns), but this sum is getting high enough that this is really a consideration.

It sounds like some of this cash should be invested–maybe in bonds–and some more should at least be moved into high(er) yield savings accounts. I foresee some time spent on researching CDs and high yield savings accounts in the near future.

Is it time to streamline the number of accounts?

I noticed this year that I had quite a few more accounts to add up this year.

Mr. PiN has a brand new Roth IRA account (and a traditional IRA, but the amount there should be zero, except for the few days a year in between funding the account and transferring the money to the Roth account).

I also have a new Roth IRA (with attendant traditional IRA), plus a new investment account at the same broker.

I also deal with my “secret savings” account, our regular bank accounts, a legacy savings account, a retirement account at my current employer, another at my old position, and my investment account and old Roth IRA with my traditional broker.

I’m getting tired just typing this all out.

Add in new accounts for high-yield savings and CDs, and the list can only get longer.

I feel like I am mentally in good shape now, but even so, this is a lot to keep track of. I don’t do so well with paperwork when I am super busy at work, and as I get older, this may certainly be too much to keep track of.

I would ultimately like to reduce the number of the house accounts to single digits, if not 3 or 4.

I don’t know that this will happen this year, but we will see.

Conclusion

To sum up:

1. Stock market returns have been good to the PiN household.
2. It’s nice to have no major debts.
3. Our sinking funds are pretty well covered.
4. I probably need to reconsider our asset allocation, as my risk tolerance may be shrinking along with the time until my retirement.
5. The number of our banking and investment accounts is growing like a hydra’s heads. Over the next few years, it may be time to prune the number of accounts.

Do you calculate your net worth yearly? More often? Any thoughts or reflections after walking through the numbers?