2008 Work Out

The year end is a natural time to think about financial progress, goals, and ideas going forward. I do not consider myself very educated about all this, but just tracking balances on a monthly basis has me thinking about what might be helpful to track going forward. Right now, we track liquid assets (cash and stocks), illiquid assets (IRA's and 401k's), hard assets (cars and home); as well as debt (credit card, student loan, mortgage, and cars); add all that together and get our "net worth." We leave out things like pensions, accrued vacation time, children's assets, and liabilities such as tax liability and our dog (in general).

So, what do we want to know? And what would give us the most realistic and true outlook going forward? I would like to know whether we're on track to retire with $2.5 million, and how long that would take at this pace. I would also like to know whether we can afford to buy a big television set, which I really can not readily discern from this tracking. Metaphorically, I see that we are currently mapping the road as we go, but I'd like to see beyond the horizon to see when we'll get "there" and would like to see whether we have time to explore a few side roads along the way. Neither is clear to me at the moment.

Within our current system, I've been trying to think about how best to reflect our net worth, particularly because the vast majority of our net worth is tied to our home's value, which is likely in flux these days thanks to bubbles bursting, credit crunches, hysterical press articles, and all the rest. I thought about taking mortgage and home value out of the consideration altogether, but that seems unsatisfying, particularly since we make progress against the mortgage principal every time we make a payment. Perhaps I should take a small write down, and return our home value back to what we actually paid for the house? I had appreciated it some (but not much, considering the years we've owned the asset), and maybe should just take out that presumed appreciation, barring some appraisal or other solid information we could point to. Then again, we have made some improvements to the house, like adding a room, refinishing the floors, painting the entire interior, and upgrading the bathroom. I could consider the capital improvements we've made to the value, could split the difference, or could disregard them altogether.

Because there is so much uncertainty, I think that taking the house value back to what we paid makes sense, but then again, we added an entire room by finishing the attic off, so maybe I'll include the amount we paid for that work to the value, to reflect all of the work we've put into it. That amount is probably 2/3 of the total amount we've spent on improvements, that may be a decent approximation, and that's basically all I'm shooting for.

OK, that makes sense. I'll take the value back to what we actually paid (387,000) and add the amount we paid to have the attic finished off (about 10,000), which still will hit our total net worth by about 15,000, but that's OK, this is all theoretical anyway, unless and until we have to sell.

See, that's the beauty of NOT being Morgan, Merrill, et al. We get to continue to make it up...