Oops. Net Worth "Fix"

I jumped the gun last week to update my net worth.  It was the last day of the month and I went ahead and posted.  Well... those who follow the markets day-to-day may have noticed that Leap Day did not turn out so well for stocks.  I lost 2.14% off my 401(k) and Roth IRA portfolios and had to revise my February results downward a tad.  As a result my investments were nearly flat for the month and I have have now adjusted my net worth downward by about $350. Oops.

Now, what is important is that this little hiccup doesn't really bother me.  Other than for record keeping purposes I try not to even follow the day-to-day movements of the market.  I turn 25 later this month so my retirement is still decades away.  That long time horizon means that this 2% drop is nothing but an opportunity to buy more stock "on sale."  I don't know where the market will be tomorrow, next week, or next year, but I do know it will be higher - much higher - in 40 years.  That is all that matters.

Lets all close our eyes, cross our fingers, put saving on autopilot, and check in once a year to rebalance.  Our future selves will thank us for our good habits and resolve.

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It's The Big Things Stupid!

One of the biggest misconceptions that I read all the time related to personal finance is that the little choices we make about money are the key to fixing our financial ills. Every time I turn around someone tells me the reason I am broke is that I buy my coffee every morning and have a couple cans of soda every day; that the little things sink our financial boat. I don't buy it. I think the reason most people are broke is that they don't do the BIG things right. Think about it, what has more effect on your overall financial health, your car buying habits or your coffee habits?

Buying a car is a Big Thing in our financial lives. When a person finances a $40k car for 60 months at 8% (or even higher) interest the monthly payments are over $800 a month not even including the insurance, maintenance, or taxes. Sadly I have a neighbor that lives up the street who has $200k worth of cars parked in front of his $180k house for himself, his wife, and his 3 driving age children. You could drink 6 designer coffees every day to catch up with what is wasted for each of his 5 cars. You could buy a house 5 miles closer to the city center and install a full roof of solar panels. Or you could continue to throw you money away for the speeding tickets that a V-8 turbo charged engine brings you. The same consequences are true for buying a house or leasing an apartment which exceeds the needs of its occupants. The picture gets even worse when you consider boats, ATVs, jet skis, or other pricey toys bought to keep up with the Joneses.

Another Big Thing that will ultimately sink your financial ship that so few people consider the free money that comes from a 401(k), IRA, or Roth IRA plan. According to this paper by the Social Security Administration the 401(k) participation rate was 67% and the Traditional IRA participation rate was only 8% (Roth IRAs were not included in the analysis). The choice to skip using these vehicles to contribute to your quest for instant gratification is the loosing end of a million dollar choice. That choice has consequences which far outweigh whether or not you uses coupons when buying your OJ at the local grocery store. It has even been shown that the amount contributed and the particular investments selected within these retirement accounts is not nearly as important as simply contributing NOW.

The final Big Thing that I think too many people get wrong is they miss the opportunities that education presents. A good paying middle class job for the high school graduate is a thing of the past. According to this Census Bureau paper investing in a college degree is another million dollar decision that people fail to make. Public and private assistance for college is available for nearly everyone in some form or fashion. Federal Tax incentives such as the Lifetime Learning Credit and Hope Credit apply to everyone who has earned income and wants to attend higher education.

I don't abdicate completely forgetting the little things, but I think if you make good choices about the Big Things you will end up doing better than most. So far I feel like I've gotten most of the big things right, but screwed up plenty of smaller things. Despite these mistakes which might amount to a few hundred dollars here and a couple thousands dollars there, I know that buying a house I can afford, striving to pay cash for my reliable (not luxurious) transportation, investing as much as I can stand (and then a little more till it feels tight), and taking lifetime learning to heart I build my wealth and bring prosperity.

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Where to Start?

I've never had a blog before so I spent part of yesterday creating a to-do list. That is one of the best ways I have found to organize my thoughts to get things done. I keep my list as a simple text file on the desktop of my computer (I loose pieces of paper). The list has turned into a long list full of features I plan to bring to Aspire2Wealth. Hopefully other people will take advantages of the site and enjoy reading what I put out there. Ultimately it would be great if I can create a community to share knowledge and support one another while we all create wealth.

Oh by the way, take a look at the NetworthIQ graphic at the right side of the page. I plan to post monthly updates of my progress. I have a positive net worth which I'm very happy about, but money always seems to be tight because so much is tied up in my house, car, debt, etc. My cash flow (monthly income vs. expenses for those new to financial matters) is tight, and I don't have much cash that is accessible. Once there are some regular readers I hope you all will hold me to task about making sure that wealth figure grows.

I've jabbered on too long already. Time to get to that to-do list.

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