Category Archives: Wealth

Our Net Worth Increased By 455% In A Ten Year Timespan

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From the year 2001 to 2011, our net worth has increased by 455%!

401k History

401k Performance History

 

Okay, first let me saying that any increase in net worth really depends on the starting amount and the ending amount.  It’s easy to be amazed by a percentage like 455% until you consider the starting amount.

For instance let’s look at a few examples:

If my starting amount was $100, that would mean that I have $555 dollars today, not so impressive after all huh!

But if my starting balance was $100,000 then I would have $555,000, that’s a much nicer chunk of change!

What I used to calculate our net worth:

  • Roth IRA (didn’t exist back in 2001)
  • 401k Balance (not to shabby even in 2001)
  • Home Equity (This is the biggest chunk of my net worth)
  • Checking Account Balance (stayed the same, surprisingly grrr)
  • Brokerage Account (big jump, yay).

So as I’ve said before, we’ve never had a year where our household income has exceeded $100,000.  But since my wife and I are frugal, and I’m investing a decent amount of our discretionary income, we were able to grow our net worth nicely.  While I won’t reveal our actual net worth number, I will say that it’s over $100,000.

Here are some random statistics about our change in net worth from 2001 to 2011:

  • Around year 2003, I started a Roth IRA
  • While my home value is the largest percentage of my net worth, my brokerage account had the greatest percentage increase (over 1000%) during the past ten years.
  • The amount in my checking account has remained at $5,000, but that’s because I have my money working for me.
  • My 401k has increased nicely too, over a 10% annual return since 2001.  Back in the early days, I had some great appreciation in certain mutual funds.

We were able to do the above activities because we sacrificed and saved like we were still in college.  Back then, we only went on a real vacation every other year or so.  Our house is full of nice looking but mostly used furniture and hand me downs.  We always looked for opportunities and took advantage of great values when we recognized them.

Hopefully for the next ten years, we can increase our net worth by 200%, I don’t think 455% is sustainable and not a realistic goal for the next ten years.

Do you frequently calculate your net worth change from the past to the present?

Bests,

MR

 

Giving My Son A Financial Checkup On Getting Rich

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I’m very focused on teaching my kids as much about finances and making money, and have been teaching them the financial knowledge that I know over they years.

On a whim of the moment, I decided to get my son a financial checkup to see how he has progressed.  The following are the questions and results that he answered (his answers are in blue).

 

Getting Rich Questions:

1.) How did the rich get all of their money?

By having businesses and investments.

2.) Do you think you’ll be rich some day?

No, not really, just regular.

3.) Do you want to be rich?

Kind of.

4.) Do you think that rich people are rich because their family have been rich by making investments and owning businesses way back when?

No, some but not most

5.) What would it take from someone exactly like you to get rich someday?

Hard work, lots of hard work

6.) Do you think that everybody that is rich has a college degree?

Most, but not all.

7.) Do all rich people have fancy cars and houses?

No, not all of them.

Conclusion:

First, let me say that my son’s responses impressed me.  I know that I’ve worked with him, but still some of his answers surprised me.

I’m a little concerned about his answer on question #2 “Do you think you’ll be rich some day?“.  When he said that he doesn’t expect to be rich some day.  From a probability perspective, he’s right, only a few actually ever become rich.  But if you don’t try, your chances of becoming rich or well off decrease dramatically.  By having knowledge on finances, you increase your odds of being rich just be being in the known.  I know plenty of people who have made more money that I have but don’t have anywhere near the net worth that I have.  So, question #2 is a takeaway action for me to work on.

Second, I’ll have to boost his confidence that he can be rich based on his answer to question number 3 “Do you want to be rich?“, I didn’t think it was possible either until I started reading financial books.  Perhaps I can give him a leg up on this.  That way he can start earlier.

Overall, I think I’m doing a good job with his financial education, I’m very please with the results of this little checkup!  I’ll be doing future checkup and quizzes in the future just to get a reading on how I’m doing with my the financial teaching efforts.

MR

3 Reasons Cash Isn’t The Best Place To Keep Your Wealth!

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I love Cash!

Not only is it interesting to look at from an artistic perspective, but if you think about how it works from an abstract viewpoint it’s pretty fascinating too.  Abstractly, it’s all about believe of value in a piece of paper.  Without believe, cash is just worth the paper it’s printed on…

As much as I love cash, I only keep a small portion of my wealth in the bank as the famous greenbacks.  Currently, in such a stock market roller-coaster riding times, you might be wondering why?

Here’s why:

  1. The US has debt issues, and of the two realistic solutions (raising taxes and inflation), inflation is the most likely too occur.  How does the government make inflation occur,?  Well, on way would be that the government prints money to cover it’s debt, which in turn lowers that value of it.  Inflation hits all social classes, both rich and poor should hate inflation, at least high single and double digit inflation rates.
  2. Cash is like a depreciating asset (at least so far it has been).  The historical inflation rate per year has been 3%.  That means that every year your plain cash loses the amount that it can purchase by 3%.  To me, this is the same as the value of cash depreciated by 3%.  Granted the value of cash (hopefully) will never be totally worthless, it will decrease in value as long as inflation exists.
  3. The value of Cash is a belief.  Without believe it’s just fancy paper with a number on it!  If a system starts to lose belief in the money, or if it’s abused by poor government policies, the value of cash can drop like a stone in a pond.  In the past, this was one of the reasons certain unstable countries actually preferred receiving US dollars instead of their own currency.  Another great example would be the US South’s Confederacy money that existed during the civil war times.

Geez, reading my three points above, you’d think that I hate cash…  This isn’t so, at least over the short term!  Cash/Money definitely has a place in your financial portfolio!  But please realize that it’s not the ultra safe investment that many people make it out to seem.  That said, I always have some cash in my investment portfolio (obviously, I have cash in a checking account in the bank for expenses).  Having cash on the side means that I can jump in when the stock market is very low or the stock market has an extraordinary dip (like it has lately)!

So what do I hold instead of only Cash?

I keep a diversified portfolio of different types of asset class investments.  Admittedly, mostly in stocks, mutual fund and ETFs, but as I become more wealthy, I will invest in broader type of asset classes, much like my richer friends do.  However, right now I’m not to the level were I can settle for a lower but safer rate of return.

Do you hold a broad mix of investments in addition to cash?  Where do you keep the bulk of your wealth?

MR

 

Am I Really Uncomfortably Poor?

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On a recent trip to the library, I noticed a book called “How to Get Rich: One of the World’s Greatest Entrepreneurs Shares His Secrets” by Felix Dennis and on a whim, I decided to borrow it (in the true sense) from the library.

It’s an interesting book because the author isn’t writing the book to become rich by writing a book, so in my opinion that gives him instant credibility.  The book has been a good read so far, but what really fascinated me and what I’m going to focus on was his table that reflects his interpretation of the Net Worth Wealth Scale.

Wealth Scale (measured by Total Assets):

Millions of Dollars Category
2 – 4  The comfortably poor
4 – 10 The comfortably off
10 – 30 The comfortably wealthy
30 – 80 The lesser rich
80 – 150 The comfortably rich
150 – 200 The rich
200 – 400 The seriously rich
400 – 800 The truly rich
800 – 1,998 The filthy rich
Over 1,998 The super-rich

So based on his wealth scale I’m not even at the level of “The Comfortably Poor“, so obviously if I’m not “Comfortably Poor“, then I must be “Uncomfortably Poor“.  Now granted Felix Dennis (the publisher of Maxim Magazine and other mags) is a billionaire, so in comparison to his level of wealth, I definitely could be considered “Uncomfortably Poor”…  Still, this has me thinking about my current financial state and if I am truly, “Uncomfortably Poor”?

Being Uncomfortably Poor!

If I were to lose my job right here and now, I would be uncomfortable, that’s a given… and here’s why.  I have a family of four to support, but without my current job, I really don’t make enough in dividends and side income to feed and clothe my family, let alone pay taxes.  This means that I would have to liquidate my investment assets and starting the downward spiral by decreasing the value of my net worth.  I would guess that after ten years of no salary, I would be penniless and extremely uncomfortable!

That said, I don’t think I would need a minimum of 2 million to be comfortably poor.  I think I could probably get by with 1.2 million, especially considering how frugal I would try to be.  Healthcare would be my main worry…

So while I don’t live paycheck to paycheck, I still have a large dependency on the paychecks provided by my employer.  Eventually, I would be uncomfortable without the income stream provided by my place of employment, but not immediately…

The pyramid below is my own wealth grading scale, I’m still in the trenches though, so my vision at the top is limited. Felix is starting from the “Rich” level in my pyramid and going up.

So what do you think of the Wealth Scale provided by Felix Dennis?  Are you (like most of us) uncomfortably poor?

 

Financial Pyramid

Bests,

Don