Knowing Yourself – Your Balance Sheet – 2016 Financial Report

On Monday I wrote about the financial pyramid, and the importance of knowing yourself as the foundation to financial freedom. Today I’m going to talk a bit more about net worth, and share the outcome of my quarterly net worth process.

I wrote a bit about my quarterly net worth process before. To be honest, I’m such a financial nerd that I get excited when it’s almost time to run the numbers! (I also get excited about tax time. Please don’t judge me). I have to wait for statements to come in the mail for my major accounts before I can do it, so yesterday was the first time I had all the statements I need. FYI this is one reason I don’t use or recommend tools for doing the calculations. I use Excel instead. Using Excel also lets me create customized annual financial reports.

Why Knowing Your Net Worth (Balance Sheet) is Important

I’ve put knowing your net worth as one of the foundational components to achieving financial freedom. Many of my fellow personal finance bloggers already do this step, but most people don’t. Why not? There’s likely many reasons:

  • I don’t have the time – it’s going to take forever
    • Counterpoint-it takes me 30 minutes once every 3 months. Over the course of a year, that’s two hours, which works out to an average of 10 minutes a month. It’s worth 10 minutes a month to invest in financial freedom!
  • It’s going to be complicated
    • You can make it as simple as listing all your accounts (assets) and all your debts (liabilities) into an Excel spreadsheet. Or you can use one of the many tools available to pull in your account information and automatically create your net worth statement
  • I don’t want to know!
    • Being an ostrich is tempting, especially if you suspect you’re not going to like the results. Maybe you have more debt than assets (student loans, credit cards) and you don’t want to see a negative number. Or maybe you haven’t been doing as good of a job saving and investing as you wish you had. Let me say that you need to pull your head out of the sand and look at the numbers. They are what they are whether you look at them or not – and looking at them is the start of the ultimate path to financial freedom!

My Current Spreadsheet

The spreadsheet I use makes it easy to pop in the numbers. Every account is listed in the rows, with the last quarter balance in the columns. So I just add a new column and go down the list of accounts putting in the current number. For the mortgage I put in a negative number so it will be subtracted from my home value. Then I have running totals throughout the document.

The Excel workbook I use now goes back to 2010. I have an earlier spreadsheet somewhere in the house, but I haven’t seen it in a while. That one went back through the 2008 financial crisis, back to around 2002 or so. It’s fascinating to watch the changes over time.

The spreadsheet has five sections:

  • All finacial security and financial freedom accounts – saving, investing, retirement
  • Kid #1 accounts for college
  • Kid #2 accounts for college
  • Kid #3 accounts for college
  • Debt and home value

After each section I do a subtotal, and then a total at the end. This gives me the value of all accounts, the amount set aside for each child’s college, and how much home equity I have. Note – back when I had other debt like car and student loans, they still went in the section with the home value. 

Net Worth Controversies

Believe it or not, there are a number of debates in the personal finance space about what you should or shouldn’t count. Here’s my take on the three I hear most often:

  • No cars? No, I don’t count the value of my cars, or anything around the house. It’s strictly financial accounts. This is a personal choice, but since I don’t have outstanding debt on a car I don’t feel the need to carry it as an asset. Even when I had a car loan I didn’t put the value of the car on the spreadsheet. It depreciates too fast for my taste
  • You count your house?! I know some people don’t count their house at all. I include it because (1) I have a mortgage, and that mortgage is offset by the value of the house; and (2) I do find it useful to keep the house as an asset. I could sell it and move/downsize if I wanted to. Some people choose to not count it at all, which is fine as long as that works for them.  I don’t do anything fancy with the home value though, I’ve just left it at the amount I bought the house for 11 years ago.
  • Counting kids college? Many people don’t track whatever they’ve set aside for their kids college. One of my major goals is to have enough saved to fulfill my “College Compact” (more about that later) with each child. That means closely tracking what I’ve already set aside, and what remains in order to reach my goals.  But as you can see I do it separately, because that goal is separate from my other two big goals (being mortgage debt free and achieving financial freedom).

In my net worth calculation, each of my three major goals have their own sections. The savings and investments are my financial security and financial freedom funds. Each kids college is calculated separately because I have very specific goals I need to reach in 5, 8, and 17 years. And the home equity/mortgage has its own section so I can see how much my home equity has increased over the past year

My Annual Financial Report

Using the information from my net worth accounts, I’m able to develop my annual financial report. I can then share this with the non-financial nerds in the house (*cough* my husband *cough*). Here I’ll share some key highlights of account breakdown, increase from 2015, and progress toward two of my three major goals.

Account Type % of total
Cash & Cash Equivalents 13.44%
Retirement 53.70%
After-tax 7.82%
College Savings 10.71%
Home Equity 14.32%
Total 100.00%

You can see here that the breakdown is fairly balanced. The bulk of what we have saved and invested is toward financial security and financial freedom (75% of the total). The remainder is home equity and savings for college.

Next I took my 2015 numbers and calculated the increase (or decrease) in each category. Fortunately there were no decreases this year.

Account Type % Incr (Decr)
Cash & Cash Equivilants 5.19%
Retirement 14.78%
After-tax 2.85%
College Savings 21.76%
Home Equity 12.98%
Total 12.81%

A few things likely jump out here – why did some things do so well and others so poorly? Here’s some of the reasons:

  • CMO, how did you earn 5% on your cash?! I only wish I could. This is a combination of savings accounts and savings bonds (some of which actually do earn 4%). But the bulk of this increase is new contributions toward the mortgage payoff fund
  • Almost 15% increase in retirement and 21% in college savings? What’s your secret? New contributions + index funds = good year
  • Your after-tax did horribly! There’s two reasons for that. That number includes unvested company stock. I had a bunch of stock vest in 2015, which was sold immediately per my plan. The bulk of that sale went into college this past year, with some toward the mortgage payoff goal. So this category helped those two buckets. Plus my company stock ended the year lower than where it started, so although the 3% increase is small, I’ll take it
  • How did your home equity go up so much? This is where the secret of the 15 year mortgage is on your side. I’m now 3 1/2 years into a 15 year mortgage. About 70% of my payments go to principal. This is in sharp contrast to back when I had a 30 year mortgage. My mortgage payment is the same with the 15 as my old 30 year, but only about 20% was going to principal five years into the mortgage. In my article on mortgage freedom I debunked the myth that “paying like a 15” actually gives you the same result as a real 15 year mortgage.

Now where do I stand against two of my major goals – mortgage payoff and college funding?

Progress To Goals
Goal % Complete
Mortgage Payoff by 2020 47.82%
Kid 1 college by 2021 54.38%
Kid 2 college by 2025 40.57%
Kid 3 college by 2033 10.05%

Not too shabby! Still plenty of room to go, but I’m getting there. That’s part of the challenge with long-term, large goals. You don’t get the small wins you get with smaller debt payoffs or savings. The key is to just keep going toward your goal and celebrating small wins.

2017 Goal Adjustments

So after running the numbers, I took a look at my original goals for 2017. I then look at my goal years, how much I have left to go, and determine if I need to up my game. Sure enough, I needed to make an adjustment to my mortgage payoff goal. Originally I wanted to hit 60% funded by year end. Instead I’m upping that to 70%.  It will be a challenge to do that while continuing to contribute the federal maximum to my 401k and reach the college funding goals, but I want to reach farther than I’m comfortable with.

So that’s where the CMO household currently stands for year end 2016! Tell me about your 2016 annual financial report and 2017 goals. Are you planning to get to know your balance sheet to ultimately reach financial freedom? Let me know in the comments.

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16 thoughts on “Knowing Yourself – Your Balance Sheet – 2016 Financial Report”

  1. My wife and I are still kicking around exactly where we want to live when we reach FIRE. I’d like to be closer to FIRE but there are some things that she thinks that we need before we get there. So while we’re trying to increase our balance sheet each year the end goal is slightly hazy.

  2. We are on track for mortgage payoff and the college savings are in good shape. In regards to FI, I’m very much on the conservative side. My ‘magic numbers’ are higher than Mrs. Need2Save thinks we need.

    We primarily use Mint, Personal Capital, and Sigfig to track our net worth, budgets, and balance sheets. We exclude different things on each one to get a different view. For example, SigFig only has retirement and brokerage accounts whereas Mint and PC also include cash accounts and home information.

    1. Interesting idea! I’ve tried Mint & PC and keep going back to my trusty Excel. I’m just an Excel nerd with the pivot tables, I guess 🙂 I haven’t tried SigFig, I’ll need to check that one out!

    1. You’re right that by itself the numbers aren’t useful – but it’s a good tool if you use it the right way. It all depends on why you’re tracking it and what you’re doing with the information. You’re right that if all you’re using it for is to pat yourself on the back for being “worth more” than the average, it’s not helping you. But if you use the numbers to achieve your goals and dreams, then it can be valuable.

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