Frontloading: Managing Cash Flow (And the accounts I use)

My spending plan spreadsheet shows me how much the checking account needs to receive to cover the next month’s spending plan. This varies a bit, but has lately been around $3,000. If I go over the spending plan (cough on clothes or condo projects), then that amount goes up. Since I graduated from college (until my current job), I was salaried and paid monthly basically the same amount every month, except when I got a raise, I finished paying Social Security tax for the year, or when I got a bonus (at which that amount would appear in my brokerage account and I would transfer it directly to savings since my normal paychecks covered my spending entirely).

The process!

A sample month in 2014 would look like this:

  1. My full paycheck ($5,000 and change) would be direct deposited into my checking account on the last business day of the month.
  2. The spending plan amount would stay in my checking account (somewhere around $3,000).
  3. The remaining amount would be transferred somewhere else, e.g. to the mortgage, to investments, or to a savings account.

This year, on the other hand? My direct deposit this year was/will be enough to cover my next month’s spending plan only 6 out of 12 months. The amount of money direct deposited to my checking account has varied a lot:

  • one month of under $3,000, not quite enough to cover the next month’s spending plan (last month at the old job)
  • one month of $0 (while between jobs)
  • two months of five figures (first month at the new job and a later month where I sold an ESPP purchase)
  • four months of under $500 (while frontloading the pre-tax/after-tax 401(k))
  • one month of $5,000 and change (while frontloading the after-tax 401(k) and selling an ESPP purchase)
  • one month of $6,000 and change
  • two months of $7,000 and change (when I’m done paying Social Security tax and contributing to retirement accounts)

Direct deposit amounts in 2016 will also be sporadic, though I will be able to cover the next month’s spending plan 9 out of 12 months and my average monthly direct deposit will be $2,000 higher than in 2015.

My newly adopted system smooths out all of these moments. Right now, I have four accounts at Ally:

  1. General savings (or what some people would call their emergency fund), which has a target amount of $30,000 (increased to $35,500 around December-March to cover my Roth IRA contribution)
  2. Grad school savings, which has a target amount of the remaining tuition and books
  3. Next month fund, which has a recurring target amount of $3,000 or what the spending plan amount for the next month is
  4. Donations

All income gets sent to the “Next month fund” savings account, including ESPP proceeds, direct deposit from my job, bonuses, tuition reimbursements, and credit card rewards (dividends from investments are automatically reinvested at the moment) and then a series of transfers keeps the money sorted out properly between these accounts. On the last pay day of the month, I take a few minutes to put the data from my pay stub into my tax spreadsheet (which also tells me how much should go to donations) and:

  1. I transfer 1% of my gross pay for that month (currently ~$100) to the donations account.
  2. I set up a transfer for the 1st of the next month to transfer the spending plan money from the “Next month fund” to my primary checking account and if there isn’t enough money in there, I borrow it from the “General savings” account.
  3. I use any money left in the “Next month fund” after the above two transfers for the savings snowball! In priority order that is: keeping the general savings account above the target amount, keeping the grad school savings account at the target amount, paying extra principal on the mortgage, and then lastly, taxable investments.

I’ve debated direct depositing my paycheck to my general savings account and then when the balance surpasses its target, transferring money elsewhere. I don’t like this option because then I need to withdraw money from savings in order to pay my expenses every month instead of just in the months where my direct deposits don’t cover my expenses and I have a disposition to not withdrawing money from savings.

You’ll notice that I don’t like the term emergency fund. I have always labeled my “first” savings account “general savings” and hadn’t heard of the concept of an emergency fund until I started reading personal finance blogs a few years ago. I have never had a concern with borrowing from my savings account because I’ve always paid myself back. I see the amount in this savings account simply as a cash buffer to weather whatever storm comes my way, despite the fact that most months, my cash flow can cover most “emergencies”.

The central point of my financial management is my primary checking account, through a credit union offering no monthly fees with no minimums. I bought a check book on the account years ago before I realized that other banks (i.e. Schwab, Fidelity) would give you a check book for free just for opening an account. ATM withdrawals at most credit unions are free and easy to find, as is a branch, somewhat. My boyfriend has his checking account with the same credit union and we have it set up so that we can transfer money to/from each other without seeing the other’s accounts, though that is much less necessary now that Square Cash is so easy to use. I have occasionally debated changing the institution that has my primary checking account (probably to Schwab), but this one meets enough of my requirements and has everything set up to go through it at this point that it doesn’t seem worthwhile to switch. This checking account is a “rewards” one in that they’ll pay me X% interest (marginally better than Ally’s) on the first $Y,000 in the account if I use my debit card at least Z times in a month, which I’ve taken advantage of on the months where I’ve bought lunch at work.

I have two other checking accounts: Schwab and Fidelity. I have the Schwab one because they reimburse ATM fees worldwide and have no foreign transaction fees. I usually keep somewhere around $200-500 in that account. It was super useful when I went to Japan! I didn’t have to worry about how much to take out at a time. I have the Fidelity checking account to receive the cashback from my Fidelity American Express card.

All of my bills autopay to either a credit card (cell phone) or primary checking account (mortgage, HOA dues, property taxes). My credit cards are all on autopay out of my primary checking account. All non-bills go on credit cards and those are accounted for in my spending plan spreadsheet at the time of the spend.

Other accounts: I have my Roth IRA and taxable investment account at Vanguard. I have a brokerage account wherever my employer(s) have opened one up for me, for the sole purpose of receiving their Restricted Stock Units (RSUs). I have a mortgage loan. I have my 401(k) where my employer opened it up for me. I have a Health Savings Account (HSA) through my credit union for a higher interest rate, as well as the one opened by my employer.


Budgeting: always stay a month ahead

I loved being paid monthly. I know some people hate it because then they run out of money by pay day. A simple bit of budgeting or planning (whichever word you prefer to use) can help with that really (so long as you do have enough money to go around).

Since an internship when I was 20 (quite a few moons ago now!), I’ve been paid monthly. And I have loved it! Without even realizing it, this forced me to always be a month ahead. I would get paid on the last business day of the month, set aside some money for the next month’s spending, and then send the rest to whatever my current savings goal was. Now with being on semimonthly pay, I plan to use part of the first paycheck to cover the next month’s spending and then the second one to savings, so that if I don’t get the second paycheck, the next month is already covered.

The other way that I stay a month ahead is on my credit card. You know how you can charge money on your plastic and then not actually pay for the items until sometimes almost two months later? That’s not how I budget. I follow a similar methodology to YNAB in that the day the money is spent is the day it comes out of my budget. My checking account balance has enough money at all times to pay off all of my credit card balances, even the ones that haven’t seen a statement yet. There’s no looking around for where to get the money when the statement comes. It’s already there.

Once you’re a month ahead, finances are much less worrisome. It doesn’t matter whether you’re paid biweekly, weekly, monthly, semimonthly, or completely sporadically. You add up all the income you received in the month, send some to savings and set some aside for the next month’s spending, rinse and repeat.

My parents always taught me to use one paycheck to pay for some things and the other one to pay for other things and to always pay your credit card before the due date, as in a few days before was just fine. I tried that way for a while and I found it really stressful to always be pulling money out of savings to pay for things you hadn’t planned on when the credit card bill came, so now I do things this way. I budget a bit (but I’m not very hard on myself at all if I miss the target) and have the money to pay the credit card statements in my checking account long before they come due. It’s freeing!

Edited to add: I’ve gotten a fair number of comments in recent months asking if I budget. I wrote several detailed posts on this back in April 2012. I’m still using the same spreadsheet, but the numbers are a bit different.

  1. April 2012 Spending Plan
  2. How I Made My Spending Plan
  3. April 2012 Spending Plan: Conclusion

Looking back at those posts made me realize that I don’t forecast for home maintenance or long-term car maintenance. I also don’t have a plan for what I’ll do to replace my car. My current assumption on the latter is that I’ll have the mortgage paid off then and will just sell some taxable investments. For home maintenance though? I’ve definitely had to do some replacing. Honestly, I just keep a larger cash buffer to help with that.

Readers, how do you pay your credit card bills? Are you more like me or my parents?

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July 2015 net worth update (+1.4%)

31-Dec-2014 30-Jun-2015 31-Jul-2015 MoM YTD
cash $12,300 $10,400 $7,800 -$2,300 -$4,500
savings $47,800 $49,600 $55,600 +$6,000 +$7,800
investments $164,500 $203,100 $206,500 +$3,400
mortgage $143,000 $138,600 $137,900 +$700
net worth $531,600 $574,200 $582,000 +$7,800
taxable assets – debts $70,600 $58,400 $56,200 +$2,200
$ until FI $811,300 $849,300 $806,500 -$42,800

This month, I continued to work on maxing out my after-tax 401(k). I have 3 more paychecks of that left. I also sold some ESPP and moved the money to my general savings account. It turned out that when I transferred 2x as much as usual to my checking account for July, I really only needed the normal amount, oops! So I only transferred about $200 to my checking account this month. That resulted in a 105% savings rate for July and a combined 58% savings rate between June and July.

Expenses: I spent $3,578 in July including the mortgage or $2,551 without it. Some of my controllable expenses broke down as follows:

  • $0 clothing
  • $33 Entertainment/Social [average so far this year: $133, average last year: $211] – this was all eating out with friends.
  • $10 Eating out by myself [average so far this year: $6, average last year: $18]
  • $12 Work lunches [average so far this year: $56, average last year: $147] – I brought my lunch every day until our fridge had an issue and then I bought lunch on two days because of that.
  • $114 A birthday present and a donation to a friend’s GoFundMe campaign (my donations account isn’t all for deductible donations!)
  • $1,456 Housing: regular HOA dues, annual condo insurance policy, repairing the fridge, and buying a new guest bathroom sink.
  • $ Annual umbrella insurance policy
  • $20 Eyebrows
  • $0 Toiletries [average so far this year: $39, average last year: $33]
  • $120 Shopping – A second can of paint and some painting supplies that we’d forgotten about with the first trip. Also some plants for the balcony.
  • $481 Transportation: six month car insurance policy and one tank of fuel
  • $78 Travel – my half of the rental car

As per usual, housing was 70% of my spending this month. I’m expecting it to be about 90% of next month’s spending.

PSA: Make sure to shop around for insurance every few years. I was able to save 25% on my package of insurance policies by shopping around, from what my previous insurance carrier wanted to charge me.

Savings: $55,600 (up $6,000)

These funds are spread across a checking account that gets free ATM fees anywhere in the world, my current employer’s health savings account, a health savings account at my credit union, a bit of a buffer in my credit union checking account, and general and grad school savings accounts at Ally.

This is up from my HSA getting a nice boost this month, as well as me transferring the ESPP proceeds to my general savings account, which is back up to $18,000 and a balance I’m much happier with. The plan for non-retirement savings for the rest of the year is to boost this account up to $30,000, top up the grad school savings account a bit more, and then pre-pay the mortgage.

Investments: $206,500 (up $3,400 or +1.7%)

This includes my pre-tax 401(k), employer 401(k) matching, my after-tax 401(k), my Roth IRA, and my taxable investments including stock index funds, Series I Savings Bonds, and ESPP cash/shares.

The change here comes from:

  1. Large contributions to the after-tax 401(k)
  2. Employer matching contributions (almost double what I got at my last job!)
  3. A month’s ESPP deposits
  4. A quarter’s ESPP contributions sold
  5. My investments were mostly flat this month
Mortgage: $137,900 (down $700 or -0.5%)

Some statistics here:

  • 2.5%: the interest rate on my 5/1 ARM
  • January 2018: when the interest rate on my mortgage is set to reset, possibly to 7.5%
  • 28.1%: portion of my regular payment went to interest (originally was 59%; down 0.2 percentage points)
  • 61.5%: amount of equity in my condo, assuming purchase price (up 0.3 percentage points)
  • 51.8%: amount of the mortgage I’ve paid down (up 0.3 percentage points)

I’m just letting the regular, automatic payment go for now, until my cash savings is at the level I want and my 401(k) is fully maxed out for the year.

TOTAL: $582,000 (up $7,800 or +1.4%)

I ended 2014 with a net worth of $531,600, so I’ve seen a change of +$50,400 or +9.5% so far this year. I’m going to set the y-axis on this graph to $650,000 so we can see how my net worth grows towards that throughout the year.

July 2015 Net Worth Update



Reining in the why behind my clothing spending

A few astute and critical readers have commented on my clothing spending occasionally. This year, I had spent $2,608.02 on clothing as of June 30th. In July, I spent $0 on clothing. My goal for August is to, again, spend $0 on clothing.

I’m mostly fairly controlled about my spending, so you’re probably wondering why I spend so easily on clothing. I’ve wondered that too. For most of my life, I’ve kept spending low by being busy with school or work and not having the time to shop for miscellaneous items, which then results in a flurry of spending once the busy season ends. Online shopping can blow that out the window since it’s so easy to buy stuff.

There’s no real reason for me to save the amount of my income that I do. I’m far over-saving for a “normal” aged retirement. I could easily cut back on savings and be just fine, eventually. But there’s also no real reason to unconsciously spend money on stuff that doesn’t bring me joy. Sure, I have a really nice leather purse now, but I have one. And sure, I have a nice smartphone, but I keep them for 3 years before getting another one. The real kicker though is that I still have my five year old car and plan to keep it for many more years, same with my condo.

The little spending can easily get away from you when you make enough money, when it seems small. That exorbitant sum of money I’ve spent on clothing is a whopping 4% of my net income so far this year. I’ve resolved that with my level of income, I’m more than willing to spend money on things that bring me joy. Our trip to New Zealand earlier this year cost me around $7,000, plus two months unpaid off work (that made it a very expensive trip!), but that was totally worth it.

Do you know why I realized I was spending so much money on clothing this year so easily? My new job. At my old job, my to do list was never ending. At this job, sometimes the to do list does end and then I need to busy myself with finding more tasks or go home early. Or sometimes, there’s more wait time while in the middle of task. You know, compiling. Well you know what I was busying myself doing while compiling? Looking at clothes online. And BUYING them. That’s not all of the spending though. One thing I’m good at it is not having too many of one particular item…so then I create new categories of items and buy one of those!

Most of my projects for the summer have been to try to see what I’ll give up for grad school, combined with some deep cleaning. I’ve figured out how to get my hour of exercise a day: walking to/from the bus stops on my commute and going for a 15 minute walk mid-afternoon at work. Getting an hour of exercise on the weekends will always be a work in progress. I’ve developed some strategies for bringing my lunch to work and that it’s not that expensive anymore if I forget. I’m trying to reduce the amount of time I spend thinking about clothing. I’ve developed some strategies for spending less time geeking out over spreadsheets: reducing transactions has been a huge help with this. We have also been purging and reorganizing things around the house as part of merging two households into one.

Usually telling myself I can spend $0 on a category results in me spending tremendous amounts of money on it, so I’m quite surprised this worked. Now to stick to this no clothing buying plan through August as well!

Readers, how do you keep yourself from spending money on clothing?



Q2 2015 Update


Things were pretty normal in terms of income in Q2. There were no bonuses or missed paychecks. I did get only about $375 in paychecks though! Probably my lowest paycheck amount ever other than unemployed quarters in the past? My net income was about $300 less than Q1.


In Q2, I only saved 59% of my net pay: depositing 105% of my net pay to various savings accounts and withdrawing about 45% of my net pay from savings accounts to cover spending. My savings deposits were split up to the following accounts:

2015 Q1 Savings Distribution

This quarter, I finished maxing out the pre-tax 401(k) at $18,000. My employer will continue to make their matching contributions every paycheck for the rest of the year, as if I had been contributing each paycheck. I started on the after-tax 401(k) contributions.


Q2 2015 Spending

All in all, I spent $11,706 in Q2, with education taken out. Housing + shopping + clothing added up to 80% of my spending this quarter. The pie chart cut off the legend for the following categories: personal care, recreation, life, and financials.

I had estimated I would spend $8,548 in Q2, so I went $3,415 over my estimate. $2,429 of this was the refurnishing and repainting of my home office. Most of the rest of the overage was extraneous clothing spending. I came in under my estimate in travel, entertainment, food, and transportation. Housing was right on the dot and was high this quarter because of some extra HOA dues and property taxes. Food and entertainment were mostly under because my boyfriend has been picking up those costs with our current expenses arrangement.

For kicks: I spent $87.37 on transportation in Q2, which bought me two tanks of gas, one Uber/Lyft/taxi ride home from somewhere, and a top up to my prepaid tolls account. Living in the city has some frugal benefits! I also spent a whopping $10.32 on travel and $157.61 on entertainment for the entire quarter. I spent $211 on average in 2014 on entertainment, MONTHLY. My food costs were also about half of what they were in Q1.

With the overages this quarter, I estimate that I am on track to spend $42,190 this year overall, which is about $4,083 over my original estimate or an 11% increase.

I’m not going into too much detail here since you can see that in my monthly reports.


Let’s check in on my goals from the beginning of the year:

1) Enjoy living together! Have an awesome trip to NZ! ON TRACK! Living together is going great overall. It’s definitely taking some time to get the place to a point where it feels more like things were chosen by both of us.

2) Contribute the maximum to all tax-advantaged accounts available to me. This means $5,500 in a Backdoor Roth IRA, $18,000 in a pre-tax 401(k) and possibly some additional funds to the after-tax 401(k) and possibly my 2016 Roth IRA amount in a savings account ready to deploy in January. This will account for probably about 2/3 of my savings in 2015. ON TRACK! I’m done with the Backdoor Roth IRA, the pre-tax 401(k), and have started on the after-tax 401(k).

3) Learn the ropes at my new company and have an awesome first year! ON TRACK! Things are going great so far. I like my group and things seem to be much less toxic than in my previous company. I’m really optimistic about how things are going!

4) Exercise for at least 45 minutes per day. My phone is really helpful at tracking this for me! ON TRACK! I’ve exercised for an average of 53 minutes per day according to my phone. February was the best month with the traveling!

5) Go to the gym (or run) three times per week. FAIL! This is just a flat out fail. I’ve managed to lose some of the stress weight from my last job and get a reasonable amount of general exercise and outside time (yay city life!), so I’m fine with this.

6) Contribute enough to a Health Savings Account such that Out Of Pocket Maximum ~= Current HSA balance + Employer contribution + my contribution. ON TRACK! I may increase this once my after-tax 401(k) is done for the year, we’ll see.

7) Succeed at Operation Bayes – I’ll explain this later. SUCCESS! Now you all know that this was applying to and getting into grad school, which I did successfully! Yay!

8) Spend under $40,000. FAIL! I’m now on track to spend $42,000 this year.

9) Save 70% of my net income monthly…and 100% of my bonuses. (Yay for a big raise that will allow me to save that much of my monthly income!) NO IDEABetween the ESPP, lump sum contributions to my 401(k), etc. this got far more complicated to calculate in the same way that I was doing before. So far, I’ve saved 69% of my net income overall.

10) Contribute the maximum that I can to the Employee Stock Purchase Plan. ON TRACK! Definitely doing this.

11) Pay down the mortgage with any funds that are leftover after 2), including the proceeds of 10). NOT HAPPENING! I’m reasonably confident at this point that I will not make any extra mortgage payments in 2015, mostly due to two months of no income, setting aside money for grad school, increasing my emergency fund, and maxing out my after-tax 401(k). All of those things took….$85,000. Wow!

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June 2015 net worth update (+0.3%)

31-Dec-2014 31-May-2015 30-Jun-2015 MoM YTD
cash $12,300 $7,100 $10,400 +$3,000 -$2,200
savings $47,800 $56,900 $49,600 -$7,300 +$1,800
investments $164,500 $197,900 $203,100 +$5,200
mortgage $143,000 $139,300 $138,600 +$700
net worth $531,600 $572,600 $574,200 +$1,600
taxable assets – debts $70,600 $53,500 $58,400 -$4,900
$ until FI $811,300 $806,000 $849,300 +$43,300

This month, I finished maxing out my pre-tax 401(k)! My employer will continue to contribute the match amount each paycheck throughout the rest of the year (~$300/month). I’ve started the after-tax 401(k) and will finish that in mid-September. My savings rate was really low this month (12%) because I had to borrow about 2x the normal amount from my savings account to keep my checking account appropriately flush for July.

The (taxable assets – debts) figure keeps going in the “wrong” direction because I’ve been living off of savings in order to max out my pre-tax and after-tax 401(k). That will start going in the “right” direction again once the 401(k)s are done in the fall.

Also, woo for my investments surpassing $200,000 this month!

Expenses: I spent $4,645 in June including the mortgage or $3,617 without it. Some of my controllable expenses broke down as follows:

  • $519 clothing – I returned that skirt I bought last month and bought a different one. I also bought a pair of running shoes, some pajama shorts, a summer robe, and a pair of denim crops.
  • $83 Entertainment/Social [average so far this year: $150, average last year: $211] – this was all eating out with friends. I didn’t buy any books this month – I went through several library books though!
  • $12 Eating out by myself [average so far this year: $5, average last year: $18]
  • $60 Work lunches [average so far this year: $63, average last year: $147] – I started bringing my lunch partway through the month :)
  • Check for a friend’s wedding, plus two wedding cards
  • Some extra condo dues
  • $20 Eyebrows
  • $30 Toiletries [average so far this year: $46, average last year: $33] – cream, refillable travel bottle, and nail polish remover
  • $1,500 Shopping – as part of our 2015 furniture rearranging project, I bought a new desk. The old one will be disposed of. My five-year old Kindle also finally died and I bought a new one (good timing since they just came out with new ones!) and a case for it. The Kindle saves me so much money since it makes it much easier to have a gazillion library books on me. I also bought some paint and painting supplies!
  • $28 Fuel [$111 so far this year, $70 at this time last year]
  • $10 Travel – some food while traveling

I’ve been spending a lot on clothing this year. My goal for July is to buy no clothing. No clothing in July! My other goal is to bring my lunch 15 of 20 days. I have to pay the annual insurance bill in July, but I should still manage to spend less than in June.

In June, I hung out with at least one friend per week. With how busy our trip was with hanging out with people and the condo projects we have planned for July (painting, furniture assembly/disassembly, and some deep cleaning), I’m not going to keep that goal for July.

Savings: $49,600 (down $7,300)

These funds are spread across a checking account that gets free ATM fees anywhere in the world, my current employer’s health savings account, a health savings account at my credit union, a bit of a buffer in my credit union checking account, and general and grad school savings accounts at Ally.

This is down since I didn’t get much of a paycheck in June and used funds from savings to replenish my checking account for June, plus the furnishings spending between May and June that was not really in the budget.

I transferred my old employer’s HSA to my credit union in June, which turned out to be a really dumb move because they charged a closeout fee that equated to 5% of my balance! I should have just spent it down, like my original plan was until the online login got ridiculously annoying, oops.

I also finally got a bonus for a new savings account I opened up near the end of last year and then happily moved all of my savings back to Ally and divided it into labeled accounts again, which was a pretty magical feeling! I missed having labeled savings accounts like I did when I had less money, but the fact of the matter is that until I decided on grad school, I had no real short-term goals to make labeled savings accounts make any sense.

This is getting dangerously low – only about $12.5k of this is my emergency fund. The rest is my HSA and my grad school savings account. In July/August, I won’t take any money out of it and then in September I’ll get a paycheck again, so I should be fine. And if there are any real emergencies that would empty this account, then I’ll take the money out of my grad school savings account anyway.

Investments: $203,100 (up $5,200 or +2.6%)

This includes my pre-tax 401(k), employer 401(k) matching, my after-tax 401(k), my Roth IRA, and my taxable investments including stock index funds, Series I Savings Bonds, and ESPP cash/shares.

The change here comes from:

  1. Finishing maxing out the pre-tax 401(k)
  2. Starting on the after-tax 401(k)
  3. Employer matching contributions (almost double what I got at my last job!)
  4. A quarter of ESPP contributions that finally bought the stock :)
  5. About $3,000 in stock market losses

I’ve been really enjoying seeing this growing so quickly over the last few months with contributing so much to the 401(k)! I can’t wait to finish paying off the mortgage and watch the taxable account grow by leaps and bounds like my 401(k) has been lately.

Mortgage: $138,600 (down $700 or -0.5%)

Some statistics here:

  • 2.5%: the interest rate on my 5/1 ARM
  • January 2018: when the interest rate on my mortgage is set to reset, possibly to 7.5%
  • 28.3%: portion of my regular payment went to interest (originally was 59%; down 0.1 percentage points)
  • 61.2%: amount of equity in my condo, assuming purchase price (up 0.2 percentage points)
  • 51.5%: amount of the mortgage I’ve paid down (up 0.2 percentage points)

I’m just letting the regular, automatic payment go for now, until my cash savings is at the level I want and my 401(k) is fully maxed out.

TOTAL: $574,200 (up $1,600 or +0.3%)

I ended 2014 with a net worth of $531,600, so I’ve seen a change of +$42,600 or +8.0% so far this year. I’m going to set the y-axis on this graph to $650,000 so we can see how my net worth grows towards that throughout the year.

June 2015 Net Worth Graph



Net Worth: Why I Track It

There are a lot of arguments over what you should and shouldn’t track in your net worth. Your house value? Your cars? Shouldn’t you care more about your investments balance than your net worth? And yet I track my net worth every month, religiously, and have done so since I was 16. (It was a lot less impressive at 16, I promise you.) Shouldn’t you care more about how much you save in a month than net worth?

Why do I track net worth? I like that it is an overall picture of my finances. I’m a pretty detail-oriented person, which means that I’ll obsess over why I spent $5.32 on that random dinner and why did I not cook my own dinner at home instead of looking at the big picture. Tracking my net worth helps me to focus on the big picture. Sure, I haven’t gotten much of a paycheck since March and won’t get much of one until September, but I’m maxing out my 401(k) quite quickly, which is exciting in its own right. By looking at net worth instead of just cash flow, I am calmed to know that my net worth is still going up even though my cash flow is currently terrible. Money is fungible.

If I’m prioritizing paying down my mortgage, then my investments balance isn’t going to be nearly as exciting to track, but my net worth is still going to be doing great! If I’m bummed that I’m not prioritizing my mortgage at the moment, but I am stuffing my entire paycheck into investments, then my net worth is still going to be doing great. It is an overall snapshot of your finances at any given time.

It’s just like why I like to smooth my budget throughout the whole year. Monthly spending can get super lumpy. Some months this year I’ve spent $4-5k and other months I’ve spent $2-3k. That’s just the nature of expenses. There are more travel costs some months, insurance is paid out in one big lump sum, property taxes in two lump sums, sometimes my condo board does special assessments, some months have more presents to buy, and soon there will be grad school tuition (though I won’t be counting that in the spending that I report here). This year, I did a spending estimate for the year by breaking things down by category/item for the entire year and then estimated which month and quarter this spending would fall in. I expect some quarters/months to be more expensive than others. I can look at that and know that I’ll most likely spend less money in Q3 and Q4 than I did in Q1 and Q2 and that helps me not obsess as much over my spending being high in a particular month, unless there were huge unexpected expenses.

I also like net worth in that it is reasonably anonymous. Your income and some of your expenses aren’t that anonymous, nor is the value of your house (public records and all), but until my mortgage is paid off (as far as I know), that is reasonably anonymous, as is my net worth. My 401(k) provider doesn’t know my entire net worth, nor does my mortgage company, my savings account bank, my credit union, or my investments firm.

That said, even though I track net worth, I don’t make goals against it. I don’t set a goal to hit $N in net worth by the end of the year. That would be silly when my stock investments could drop 50% in a year. I set goals based on how much I want to put into savings in a particular year, broken down by category.

Readers, how old were you when you started tracking your net worth? Why do you track net worth?




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