I mentioned in my August net worth report that there were three main reasons for my 7.7% increase. One reason was the stock market, which slightly lifted some of my investments. The other two reasons should be apparent from the income and expense report that is included in this post.

My net income for the month was $11,582. That’s the highest monthly amount on the bottom line I’ve ever had when not including realized gains. In fact, my August total beats my 2004 full year total. Continue reading for the full report and details. Click on the image for a larger version of the report.

It’s a long-standing tradition at Consumerism Commentary to review the details of my finances at the end of every month, and it’s that time again. I start with a “net worth report,” a list of my bank account, credit card, and loan account balances, investment values, and some more ethereal numbers like my car’s value and “accounts receivable.”

August helped me out financially for a few reasons, two of which I’ll explain in the forthcoming income and expense report. The third reason is the stock market, slightly up in the month of August, buoying my investments tied to market indexes. In total, my accounts were up 7.7% over the month, the largest monthly increase this year. The bottom line of this report is a modified net worth of $174,669. I call this a “modified” net worth because the report is more complete than a list of bank account balances but not quite as complicated as a net worth figure that a business might use.

For the details, continue reading. Click on the thumbnail for a larger report. Read the rest of this article »

My balance sheet provides a decent snapshot of my current financial state, but it doesn’t tell the complete story. While I have control over most of my investments and could sell poor performers and buy others if I so choose, I’d rather stick with what I have for the long term. Therefore, monthly swings in my balance are often due to forces beyond my control, like the health of the economy and the stock market.

That’s why I’ve been including an income statement each month. This report presents the details about the sources of my income and the destinations of my “outgo.” This was a successful month, netting $7,731 after expenses. For the year, I’ve managed to save almost $50,000. That includes money that I’ve invested as well as what I’ve deposited into savings accounts.

Here are the details. Click on the thumbnail for a larger version of the report. Read the rest of this article »

It’s two months later, and I still need to achieve another $50,000 to reach my net worth goal of $210,000 by December 31. With so much of my assets tied into the stock market indexes, it’s no surprise I’m not making the progress I hoped for.

When the company I work for releases its quarterly results, they include a special warning about “forward-looking statements.” The company forecasts its earnings for the rest of the year based on a 2% return in the stock market at large through the end of the year. If the market fares worse or better, they have no problem adjusting expectations. I’ll need to do the same.

Every month, I report my financial status, so here are the numbers. Click on the thumbnail to zoom in. Read the rest of this article »

In June I managed to save over $4,000 of my income for myself after all expenses were paid. That doesn’t mean that my net worth grew during June, however, as I explained earlier today. While I was able to add to my savings and investments, poor performance in the stock market caused my accounts to decline, which I hope is a temporary situation.

This post contains a look at my income and expenses for the month of June, though some lines are ignored to present a report that is a mix between an income statement and a cash flow report. I don’t bother with unrealized gains or losses here, but I don’t include money transferred to savings as an expense.

Continue reading this article to see my financial data for the month of June. Read the rest of this article »

Last month, I shared my belief that I would not make my net worth goal for the year, and June has been a step backwards. I ended the month with a modified net worth of $155,596, over $2,000 down from the end of May.

For any readers new to Consumerism Commentary, I post financial updates every month. This balance sheet, combined with an income/expense report, help me keep track of my progress.

I hope that monthly declines in my net worth continue to be few. The last time I experienced a monthly decline was in May 2006, a decrease of 1.3% and before that, May 2005, a decrease of 5.9%. Keep reading to see my current balance sheet with explanations. Click on the thumbnail for a larger version of the table. Read the rest of this article »

When first attempting to gain some control over your finances, it’s particularly helpful to micromanage. If your money is in a state of disarray due to spending more than you’re earning, then it’s helpful to look at every little expense, at least for a time. This will help give you a more accurate picture of your overall “outgo.” You may decide that those expensive coffee-related drinks you buy every day add up over time, and you can use that money for more important things, like investing for the future. (This idea is known popularly as the “Latte Factor®.”)

Paying close attention to the minutiae of spending is certainly helpful to many people as they learn to gain control of their financial lives and maintain that control. It’s easy, however, to get into the habit of looking through a microscope so often that you fail to see the bigger picture. This is a classic case of being penny wise, pound foolish.

Put another way, buying the wrong car can in an instant undo years of your hard work and financial gains sustained by eliminating your daily latte or replacing it with a $0.99 coffee. Following a tip on a hot stock has the possibility of decimating your investment in a short period of time. In fact, although I wouldn’t consider Vanguard’s Total Stock Market Index (VTSMX) a “hot stock tip,” I invested $5,000 in this fund for charitable causes at the end of of 2008, and the value has already dropped by 10%.

An article at the Motley Fool presents an interesting idea to illustrate just how much one big mistake, though seemingly innocuous, can undo years of scrimping and saving pennies here and there. The article presents a better example for housing than they do for stocks:

Conventional wisdom says that buying a house beats renting because you build equity and get tax benefits on your mortgage interest. But as with any investment, price matters.

And prices got detached from underlying value in a major way during the run-up. Those who took on conventional mortgages with monthly payments they could afford can wait out the storm. Unfortunately, those faced with refinancing teaser rates they could barely afford don’t have that luxury.

To calculate the cost of a housing mistake, let’s assume someone bought a $400,000 house and the house’s value dropped 10% (the latest numbers show average housing prices have fallen 14.4% year over year). That’s negative equity of $40,000, or 10,000 days of lattes. You’d have to skip that pick-me-up for 27 years to make up for this one. Yikes!

While most people decide when to buy a house out of necessity, perceived or actual, many people try to time the housing market, no matter how intelligent they may seem otherwise and how well they’ve convinced themselves of their infallibility. You can pinch all the pennies you want, but if you still make poor choices when faced with major purchasing decisions, you’re no better off.

The best solution is to find a balance between micromanagement and focusing on the entire financial picture.

Don’t Blow Your Retirement With One Mistake, Anand Chokkavelu, Motley Fool, June 19, 2008.

College graduation like when you beat Ganon, the resilient bad guy at the end of the classic video game, The Legend of Zelda, for the first time. You’ve been through many levels of challenges, perhaps even used a few “cheats” along the way, and did anything necessary to grow your knowledge and skills, many of which were necessary for the final test of strength.

You’ve saved Princess Zelda and were rewarded by watching one final scene and reading the names of computer programmers as they parade up the screen. You were relieved that your journey was finally complete, but before long, you realized there was more to the game.

Suddenly, you were presented with the option to begin your next journey. Your character, Link, displayed a new sword to indicate the completion of the first journey. This newly brandished sword is like your degree. With your degree in hand, it’s time to face a new world, one that is uncharted. (The map to this “second” Zelda adventure did not come with the video game.)

After graduation, it may take a moment for some to realize that you are now in control of your life and the decisions you make can have a profound effect on your future. Here are some ideas to help you, the graduate, make solid financial decisions.

1. Actively manage your expectations. You may have friends who have already graduated. They’ve provided you with endless entertainment as they talk about the “real world.” By now, you will have heard about new cars, new houses, new weddings, new kids, new relocations, new implants, and new gardeners, and you’re looking forward to sharing similar experiences.

With jobs, they have been receiving a steady income, probably sizable, and have been spending their money almost as quickly as they have been earning it.

Actually, they have probably been spending their money faster than they have been earning it, but that piece of information will be curiously missing from their stories. What your friends didn’t tell you about is debt. Ask them about their retirement plan and IRA. Ask them about their budget. You’ll likely receive blank stares, and not just because you’re being a stick in the mud.

It’s best to ignore these types of stories because the danger comes when you expect that this is how one must live life as an adult. This is actually quite expensive and detrimental to your future. By managing your expectations, you won’t be disappointed when you can’t find a management position earning $100,000 with no experience right out of college, even if your friends tell you that’s what you should look for. You won’t be disappointed when you have to settle for sharing an apartment with several strangers or moving back in with your parents until you are able to afford your own bills and establish an emergency fund.

Simply, don’t try to keep up with the “Joneses.” This hypothetical family’s perceived wealth is mostly an illusion and it’s best to focus on yourself rather than others.

2. Choose your first job carefully. Your first job sets the tone for your future earning power, particularly if you expect to stay in the same career until retirement. Earning more in your first job out of college not only allows you to save more and be flexible with your budget, but it also makes it easier to negotiate better salaries when future opportunities arise.

That being said, don’t select your first job with money as the solitary driver. It’s quite possible that the path you’ve chosen starts out without much opportunity. If the job that interests you is not in high demand, then you will have to settle for what is available. Like a professor told me as I was pursuing music education in college, “If there’s any other career that could possibly make you happy, consider changing majors.” If you are pursuing your calling, be prepared for a bumpy ride as you progress, mentally, physically, emotionally, and financially.

3. Pay off debt. Many college graduates leave school with credit card debt. While in school, education is your first priority, so depending on your course load’s aggressiveness, you may not have had a job. However, you still had expenses, and your parents may not have provided for you. This is perfectly normal, but it must be attended to immediately.

Unless you are starting in an industry where image is important, it’s time to pay down your debt. With newfound income due to your first job, put any available funds into paying off your credit card balances, and do not add new credit card debt under any circumstances. The debt avalanche is the most mathematically pleasing solution to paying off credit card debt.

Chances are you have student loans to pay off as well. Consolidate these when possible to take advantage of lower rates, but don’t slow down your repayment. You may decide to get your master’s degree, and it’s best to do so without compounding more student loan debt.

4. Automate your savings. Automation is the key to creating habits without having to change your behavior much. If you have a new job and your employer is somewhat familiar with twenty-first century technology, they will have direct deposit available. This will allow you to deposit your paycheck directly into a checking or savings account (and a high-yield savings account is preferable).

From the savings account, you can decide how much you need for spending money each week and how much you need to pay your bills each month. Transfer only what you need and leave the rest in the account earning interest. Work with your bank to create instructions for these transfers so they take place automatically.

This is probably the biggest component of building an emergency fund.

5. Investing basics: Open an IRA and 401(k). Once you’ve automated your savings and are in control of your bills, you may have noticed you have money left over. Rather than buying a new car for $4,000 down and monthly payments of $300, you started with a used car for $8,000. With your saved payments, you can open a Roth IRA to take advantage of what will probably the lowest interest bracket you’ll ever be in.

If your employer offers a 401(k) or its cousin the 403(b), take advantage of this option as soon as possible. In many cases, companies offer “employer matching” contributions; for example, for every $1.00 you contribute, your company may thrown in an extra $0.50, you to one-eighth of your salary. This is free money, and you should accept it without question. Invest in your 401(k) at least to the limit of your employer match.

Your 401(k) may have some confusing options. If an index fund is available, that should be your first choice. Otherwise, your company may offer an automatic rebalancing plan based on your age or years until retirement, or a mutual fund that does the same. That may be a good choice for the novice investor.

6. Develop a plan, but be flexible. Your friends’ stories were missing something. While they spoke of all the exciting things they are buying and doing, they didn’t mention to you where they’d like to be in 5, 10, 25, or 40 years. Perhaps they have some vision of what their future might hold, but they don’t have a plan, something that will explain how they will get to that point.

If you haven’t already, decide where you want to be with your life in the short-term and the long-term. Think about not just the size of your bank account, but about all aspects of your life. For each goal, determine what you will need for its achievement. This doesn’t have to be exact, and without much experience in the workplace, you shouldn’t expect it to be.

Now that you have your plan, expect obstacles preventing you from reaching your goals, but also expect things that will require you to change your expectations, much like the first point above. It is said that people fall in love when they least expect it. Suddenly your own plans must incorporate someone else’s. It’s important to be flexible, because life has a habit of finding its own course.

7. You only live once. It’s important to think about the future and make the wisest financial decisions. But this is your life, and it’s the only one you get. Balance your future plans with making the most out of today’s experiences. Remember that money isn’t the most important thing in the world, but it does let you do some amazing things.

This article is part of the Money Blog Network group writing project for June, focusing on graduation. Here are some participating articles: Welcome to the Real World, Pay Yourself First, My Money Advice, A Fully-Funded Roth IRA, Graduates Might Be Shocked and Four Tips for Recent Graduates.