In Naked With Cash, seven anonymous Consumerism Commentary readers publicly track and analyze their finances on a monthly basis. For almost a decade, I tracked my own finances on Consumerism Commentary; now I’m sharing the benefits of public accountability with the participants. I’ve partnered with financial planners who will offer some guidance along the way. Read this introduction to learn more about the series.
Anonymous S is a 24-year-old engineer earning $67,000 a year plus bonus. He also builds websites on the side for an hourly fee of $20 to $35. Read his bio here. Anonymous S is on Team Roger, with Certified Financial Planner Roger Wohlner.
Keep reading to see how Anonymous S progressed throughout the month of August. (You can read July’s update here.) Following his own analysis, Anonymous S will be able to read feedback from Roger.
Roger Wohlner, CFP appears courtesy of The Chicago Financial Planner.
Anonymous S analysis and comments
At the beginning of August, I realized that due to the order in which I get paid and pay my bills, my July net worth numbers might have been slightly higher than what they should be. While this doesn’t materially affect anything, it makes the jump from June to July seem massive, and the jump from July to August seem tiny. Part of this is also due to my net worth now being much more highly correlated to the whims of the stock market. The market peaked at the end of July when I was calculating my net worth, and now is in a comparative slump. Since I track present value instead of cost basis, this shows up as a decline in value of my investments.
In August I sold a majority of my I-Bonds, exchanging the tiny interest rate of 1.76% for a much higher expected return in the stock market. I moved the money directly to my index fund portfolio, where it will stay for a very long time. I haven’t decided what I want to do with it yet, but I know that I won’t need any of it for a long time so am comfortable with riskier asset classes. My emergency fund made up of higher interest savings bonds and cash is still doing quite well, and I don’t expect to have to use it anytime soon.
Part of this security is from that fact that I no longer have a car, along with all the associated costs and unpredictability. The car which I used previously was given to me by my grandparents, and is now residing with my parents. This was a huge burden off my back, since I now no longer have to pay for gas, parking, insurance, oil changes, tires, random engine problems, or any other mechanical problems out of my control. While having a car was great for getting out of the city on weekends, it really wouldn’t be worth having one in New York City.
I was only able to reduce food expenses (including alcohol) by 2% in August compared to July, but that’s still positive progress.
In a comment on my last blog post, someone asked why I didn’t have my future apartment lease costs factored in as a liability on my net worth. I think this is a slippery slope to go down, since it’s not a typical liability. It’s the same as putting a car loan as a liability, but not the remainder of a car lease. You’d also have to factor in discount rates, since a rental payment a year from now certainly doesn’t have the same value as the one due next month. I would like to see some debate on this, as I don’t think it’s a topic that has been written about too much.
Feedback from Roger Wohlner, CFP
You continue to keep spending in check and in general your situation is very positive. I think at your age moving the I Bonds to index stock funds is likely a good idea, but this is said in a general sense not knowing the details of your overall portfolio. Your level of investment risk is still important, but at your age you can assume quite a bit with assets that won’t be needed for a number of years.
As far as the apartment rent issue, I’m not sure that I agree with listing your security deposit as an asset. To me this is more of an ongoing “wash” than anything else.
Feedback from Jacob Wade
I really think the “no car” thing is going to set you apart here. I mean, I just did a quick calculation in my head, and my cheap, paid-for cars are still costing me about $300 a month (gas and insurance)! Most people have a car payment on top of that, and higher insurance costs, so you are saving more than $600 a month compared to your peers. That is impressive, and something you should keep up as long as possible.
It sounds like you like to dabble in the market a bit, just wondering if you are doing this with your taxable, or non-taxable accounts? Just asking, because playing with the tax-sheltered accounts won’t have any tax implications now vs. paying capital gains on the taxable securities. I guess my question is: How much do taxes play into your investment strategies?
On the whole, well done again. Definitely on your way to a prosperous future and financial independence.
Feedback from Luke Landes
Roger and Jacob have done a great job of covering this month’s feedback. Because you are in New York City, eliminating a car makes a lot of sense. Parking is a surprisingly large expense in New York, on top of insurance. I’ve seen people buy parking spots in the city that cost as much as a condominium in New Jersey. Public transportation gets you everywhere you need to go within and near the city.
Your move from I Bonds to stock market index funds is probably a good move at this time. It’s somewhat risky to time the market, but it looks like you’ve bought into a dip, which is something I try to do when I can, as well. Since this is money you won’t need for a long time, the sooner you get invested in a low-cost stock market index fund designed to track a broad index, the better.
If you wanted to be 100% comprehensive with your net worth statement, there are a lot of other liabilities you could include. You could include the tax implication from retirement accounts if you were to withdraw those invested funds today as well as an income tax offset for any income you’ve earned this year. You could include all expected bills for the next twelve months as “current” liabilities. Current liabilities are a company’s debts or obligations that are due within one year, including “short term debt, accounts payable, accrued liabilities and other debts,” according to Investopedia. There are many items that people can add to their personal balance sheets to make them all business-like.
Many of those extra items don’t matter. What they represent doesn’t normally affect your day-to-day financial decisions. You’re not going to withdraw money from your retirement accounts, for example, but if you do, you’ll just accept the tax consequences as an expense, reducing your net worth at that time rather than letting a tax liability affect your net worth.
The purpose of the net worth report is to track your progress on a month to month basis, and some of the more fringe business-like aspects of net worth that you could include don’t really help achieve that goal. The security deposit, in the same respect, doesn’t need to be included in your net worth report, but it’s fine; you’ve noted what it is, so there’s no misunderstanding among people who are reviewing your monthly reports.