Net Worth Challenge

Back in January I wrote about several financial goals that my wife and I have going into 2007. There is another goal I have, although unwritten, that I am personally trying to work towards this year.

• I would like to spend less time each week working on my finances.

Now this doesn’t mean I want to get away from the blog and talk less about my financial situation — quite the opposite, in fact. I simply want to spend less time managing the day-to-day and week-to-week activities and find ways to automate my system to free up my time for additional activities — including writing more posts on my blog.

As of lately, it has been a daily routine for me to look at my planning spreadsheets, Microsoft Money account balances, and check stock/mutual fund quotes. The addition of our new rental property in March has meant additional bills to pay; all with varying due dates. I’m not one to be lax with my payments, so I have been working on my finances to some degree each and every day to make sure I do not accidentally skip a payment or forget an upcoming payment due date. The complexity comes in because I try and manage the balance in our checking account to be as minimal as possible. If we have extra money sitting around, it gets sent to our money market account to earn interest. Then when a payment is due, I transfer money back into the checking account and authorize (either electronic or over the phone) a payment to be made.

My planning spreadsheet helps out tremendously because I track when income is supposed to arrive (ie, paychecks for my wife and I) and when expenses are going to be due (ie, regular monthly mortgage, credit card, utilities payments, etc). I am able to keep the checking account balance at a minimum and the money market account balance at a maximum. This is all great and dandy, but it’s starting to take up more and more of my time.

To combat this situation, I am going to begin automating several tasks as best as possible. I have already taken steps to do this for some items; mainly our student loan payments. My next step is to automate all the mortgage payments (our house and our rental property) and find ways to automate my deposits into our money market account. There are several deposits that are equal from month to month — might as well make it as easy as possible. As I make improvements to my overall financial system, I’ll try and keep you updated. Wish me luck!

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.

In so many areas of life it makes sense to set goals and create plans that work towards those goals — and the area of personal finance is no different. Although sitting down and setting a goal (and making a plan) may sound like a lot of work, it truly is a HUGE weight off one’s shoulders when completed. I have my own personal financial goals written down on paper as well as yearly mini-goals that I hope to achieve. Eventually, I will share these mini-goals when the time is right. But, in the spirit of getting started and ’setting the goal,’ here are my personal financial goals that I hope to be held accountable for on this blog:

• Accumulate a net worth of $2.5 million (in 2006 dollars) by retirement
• Be able to pull $60,000 per year (in 2006 dollars) from savings at retirement without depleting capital.
• Have the ability to be able to retire between the age of 40 and 50.

Does it seem simple enough? I am dreaming big with these goals, but I do believe with the right plan and resolve these goals are within reach! Setting these goals may be simple, but coming up with a plan with be the challenge — and I’ll save that for another post.