Net Worth Challenge

My wife and I have been very pleased with the purchase of our duplex a couple years ago. Instead of purchasing a home, we decided to purchase a rental property that would “kick start” our rental portfolio. Our plan was to purchase an entire duplex building, live in one side, and rent the other side out. Although my wife originally wanted the house, she has been very happy with our accomodations and has no regrets when it comes to the choice we made. The side we live in is very nice and truly feels like a “little home.”

Well, it’s been a couple years and again my focus has turned to the rental market once again. I would like to purchase an additional property to add to our portfolio, but this time the focus is a little different. This time around we are looking for a house that would make a great home for my wife and I, but also would be a great rental when it came time for us to move on. We are going to keep the duplex and rent out both sides when we move out and into our new home. Eventually, when we outgrow this new home, the plan is to keep it and rent it out.

For the past several months, I have been actively searching through real estate listings and trying to keep a pulse on the market. I have stepped up my search during the last few weeks and have notified our realtor about our intentions. I have also organized the necessary paperwork in order to begin the bank pre-approval process. I expect to receive information from one bank tomorrow and will post that information when it comes in. Since I am only looking for preliminary rate information, I have asked the bank to not pull my credit report at this time. I do not want any unnecessary credit inquiries on our credit reports until we get closer to finding a property.

During my search I have been utilizing some great, online sources of information. I typically visit the following types of sites in order to get the best feel of the local market:

1. Local Realtor Websites - Used for routine home searches and for viewing photos of properties.
2. Google Maps - I often find that the local relator websites have clunky mapping interfaces that are difficult to use and not nearly as clear as Google’s alternative.
3. Zillow - This is a great site that attempts to show specific values of homes. In my area, the values are inflated beyond what the local market truly is priced at. However, I find this to be a useful tool when viewing specific neighborhoods. I can easily see where higher and lower priced homes are located compared to the home I am looking at. It gives me a great, neighborhood perspective.
4. County Tax Records - Logging onto my local county’s website allows me to sift through mountains of great data. First, I am able to pull up tax information and even recent sale information on specific houses. Second, I am able to compare the house I am looking at to the other houses on the same street. This is valuable information that was once only available to realtors. Now, because of technology and local county’s pushing for easier access to public records, I am able to utilize this information in my initial search.

These are just four of the main resources I use when I initially search for homes online. After I’ve compiled a list of homes that meets my criteria, then I’ll call up my local realtor and ask to visit the homes.

In the past I would typically balance out my Roth IRA contributions throughout the entire year. I would start the New Year by seeing what the maximum allowable contribution would be for the entire year and divide it by 12 to determine my monthly contribution amount. For instance, in 2007 this would mean:

• $4,000 / 12 = $333.33 per month

However, I’m taking a different approach this year by attempting to make my contributions earlier. I am bullish on 2007 and believe the market has no place to go but up. Plus, I have a large reserve of cash sitting in my money market account at Vanguard, which I believe could be put to good use through this plan.

Now some of you are thinking, “wait a minute, what would it mean if you were bearish on the market instead?” Regardless of what I think the market will do in a given year, I will always contribute the maximum allowable amount into my Roth IRA (and my wife’s Roth IRA) for the year. But if I were bearish in a given year, I would follow the plan of balanced contributions for the year (ie, $333.33 into my Roth IRA each month).

With that explanation said, I made a $1,700 contribution last Tuesday into my Roth IRA account for 2007. I have not yet made a contribution into my wife’s account, but I expect to in the middle of this week. The maximum allowable contribution into a Roth IRA (if you meet the IRS income requirements) for 2007 is $4,000. With my contribution from Tuesday into my Roth IRA account, this means I can still put in $2,300 for tax year 2007. I can also put in $4,000 into my wife’s Roth IRA account for tax year 2007.

Last year we were able to finish on a nice high note, ending the year with a net worth of $137,960.77. We accomplished all but one of our 2006 goals, which I still consider to be a great success. I’ll talk about the goal that we didn’t make a little later (it regards an emergency cash fund) in a future post. Looking ahead in 2007, these are the goals that my wife and I are going to strive to achieve:

We want to continue the momentum of savings and accumulation from 2006 leading into this New Year. In 2007, our goal will remain to continue improving our financial foundation using the plan we put in place in June 2005. Specifically, this year we are hoping to:

• Make the maximum allowed contributions to our Roth IRAs held at Vanguard as we’ve done in the past. This means putting in $4,000 for my Roth IRA and $3,000 for my wife’s Roth IRA. My wife’s goal is less because her grandparents made a generous gift of $1,000 during Christmas-time (directed toward 2007 tax year) into her Roth IRA account held at Ameriprise.
  06/15/2007 - Goal completed early.

• Contribute into both of our company 401K plans in order to get, at the very least, the matching amount. The goal is to contribute at least $6,170 for my 401K and at least $7,650 for my wife’s 401K.
  Contribute as much as allowed (by law and by our companies) into both of our company 401k plans. The goal is to contribute the maximum allowable amount of $15,500 for my 401k and at least $9,000 for my wife’s 401k (her contributions are limited by company policy).
  07/09/2007 - Increased goal because of raise at work and tax implications related to raise.

• Contribute $1,000 per month into our general investment account at Ameritrade and Sharebuilder. The majority of the money will be invested in small-cap companies each month, in an attempt to balance out the large- and mid-cap focus in our Vanguard accounts. The goal is to save $12,000 for the year in our general investment account, bringing the total amount in this account up to $42,000.

• Continue saving $1,000 per month into our “Future House Fund” currently held at Vanguard. The goal is to save $12,000 for this year for this purpose, bringing the total amount in this account up to $48,000 $28,000.
  04/01/2007 - The amount per month won’t change, but had to lower total amount goal because of rental property purchase in March.

• Reach a net worth of $225,000 $210,000 by year end.
  07/09/2007 - Increased goal because of raise at work.

This update marks the official end of 2006. The year ended quite positively with a nice surge in the stock market, which ultimately helped to send our net worth to a record level of $137,960.77 —- an increase of $14,953.26 from the previous month. Yes, that increase is correct! I know because I checked my numbers three times just to be sure!

Part of the reason for the increase was that my wife had a $4,500 CD (certificate of deposit) from her old bank that she had not told me about. Truthfully, she had forgotten about it herself. Upon learning about the CD, I insisted that we take the money and put it into our Vanguard Money Market account — which is paying a higher interest rate than the rate at her old bank. The other part of the reason for the increase was a small bonus of around $1,000 total from our employers at the end of the year. It was not a large bonus, but we were still happy to accept it.

Overall, I am more than excited to see 2006 end on such a high note. Since I started this blog last September, I did not get the chance to post my 2006 financial goals early enough for everyone to view. One of those goals, however, was to “reach a net worth of $110,000 to $120,000 by year end.” The discovery of my wife’s CD means that our numbers should be increased by $4,500 than the original goal — placing the range at $114,500 to $124,500. We clearly surpassed our original goal set last January, which I suppose is better than not meeting the goal in the first place. However, there were a few reasons that played a role in surpassing our original goal by such a significant amount. I believe we exceeded our goal because of three reasons:

• Stronger than expected return from the stock market. Our investments performed better than my conservative, moderate, and agressive predictions.

• Ability to save more than previously expected. I received a nice raise in my paycheck in July — more than I had hoped for or even expected. Instead of using this “newfound money” for spending, I decided to take the opportunity to increase my contributions to my 401k account. This extra savings helped push our net worth higher during the later part of 2006.
• Matching 401k contributions from employer. I knew that both of our employers offered a matching portion to part of our 401k contributions, however, I did not factor those contributions into our goals for 2006. I will make sure to include this point for 2007, though.

Now that 2006 is over, I am ready to focus on 2007 and am excited to work towards a new set of goals. I’ll save that list for the next post.

It took me a little while to make this post (ok, a month late), but here it is. November was a positive month for our net worth just as October had been. Since last month’s update, we saw a gain of $5,952.46 in our net worth. Since starting this blog in September, our net worth has increased by $15,333.32 — a gain of 14.24%.

I hope everyone has a Happy (and prosperous) New Year in 2007.  We have officially wrapped up 2006 and now it is time to move forward into the future.

I took a little bit of a break in December 2006 —- but don’t worry, I’ll be back in full force this month.  I need to catch everyone up with an update to last month’s net worth and a quick snapshot of where I’m at at the beginning of 2007.  But for now, catch up on that sleep you missed from last night and enjoy this wonderful January 1st day.  I’ll be in front of the TV watching some great football; starting with the Rose Bowl!