Happy Independence Day to all Consumerism Commentary readers in the United States! I’m celebrating my financial independence, as I do every month, with my regular net worth updates. These monthly reports have been a mainstay of Consumerism Commentary, with only a few lapses early on in the history of this website. For the most part, I’ve been providing these updates close to the beginning of each month, including a financial report outlining my assets and liabilities, as well as commentary about my income and expenses.
The first thing you may notice this month is that my net worth has decreased significantly from my last report. After considering feedback from readers, I’ve decided to remove all business accounts from the report. Business account balances unfairly skewed my bottom line net worth too high. While I included business bank balances, I didn’t include items like tax liability, that would have helped to provide a better picture of my financial situation.
With my new net worth calculation, there are only two ways the number can increase: either by gains in investments or by transferring profits from the business to my personal accounts — something I try to keep to a minimum. Some months I might transfer $2,000 while other months, the number is closer to $5,000. I’ve adjusted my working spreadsheet to use the new calculations going as far back as December 2004. I still maintain a calculation that includes business assets and liabilities in the spreadsheet, but that information won’t be public for now.
Keep reading this article to see the new numbers.
I created the above report using data from Quicken, which contains every financial transaction since 2002. A few years ago, I stopped tracking my cash transactions as closely, though. They constitute a small percentage of my overall spending. Tracking every expense down to the cent is no longer my priority, though at the beginning, it was very helpful to move my finances in the right direction. I export the data from Quicken into a spreadsheet. I’ve recently upgraded from an old version of Microsoft Office to the latest OpenOffice, so there may be a slightly different look to the reports.
This net worth template will work well either in Microsoft Excel, OpenOffice, or even Google Docs.
Cash in banks
This category now includes only my personal saving and checking accounts. The bulk of cash I’ve reported in the past resides in business accounts. If you’ve viewed previous reports, this accounts for much of the $600,000 decrease. I’ve updated my spreadsheet to have an accurate history using the same revised calculation, but I’m not changing past reports on Consumerism Commentary. These numbers won’t tie to past posts, but they do tie to the spreadsheet I keep, that always uses a consistent calculation.
Investments and retirement
The investments line includes all my non-retirement investment accounts. About half of this balance is my employee stock account (from my prior employer), wherein I sold a good portion of the stock on Friday. Just about all of my investments were down this month.
Now that my business is not included in this report, accounts receivable basically reflects whenever someone owes me money. This is not a common occurrence, so this line will be zero or missing most months. My business accounts receivable reached a record high as of the end of June, strengthening that asset. The $600,000 decrease in my net worth that occurred by removing business accounts consisted of the removal of the cash accounts, as mentioned above, and from the accounts receivable.
2004 Honda Civic
My car passed 133,000 miles this month, and it’s still running well. I mentioned last month I was planning to schedule maintenance, including a regular oil change and tire rotation, but I haven’t had a chance to do so yet. That’s on my calendar for this week.
I pay off credit card balances before the bill is due, ensuring I don’t accrue any interest or late charges. Mistakes happen once in a while, and I’m not immune to scheduling a payment incorrectly. I’ve managed to avoid this for a long time, but the good news is one mistake shouldn’t damage my finances.
While business income should be strong this month, the nature of my new net worth report doesn’t really take that into consideration. My personal expenses should be fairly normal this month, but I am planning a small vacation to a lake in upstate New York later this month. I expect my personal expenses to be higher than usual this month to cover the costs of travel.
With the flexibility I have today, particularly the ability to take as much as I need from business income to meet my personal expenses, measuring my net worth from month to month with this new calculation may give a truer picture of my personal finances at any moment, but the numbers have less meaning. I can easily manipulate the performance of my net worth by increasing or decreasing transfers from the business. While there are consequences to this, particularly due to taxes, adding 1% to my bottom line is not really much different than adding 5%. Even if I leave more money in the business and my net worth decreases from one month to the next, I wouldn’t be able to consider that a problem when I know cash is available in the business.
At the minimum, I transfer enough from the business to personal accounts for my Individual 401(k) and SEP IRA; the cash transfer is variable depending on what I need for the month. One way to fix this problem would be to assign myself a steady salary.
Including the business accounts, June’s net worth would be $994,884, reflecting a 15.6% increase over May.
What do you think of this new way of reporting my net worth? Is it more helpful to see what is truly in my personal accounts rather than including business accounts in the same calculation? Is this a better representation of my finances?
Updated March 6, 2012 and originally published July 4, 2011.