Beginning the Journey to Debt Free. Let’s take a moment to look at our 850k Net Worth now.
This is what I see first everyday when I open my budget to make sure my family’s financial health is, well, healthy LOL. SAD FACE for September 2020 (the day we made this post).
Today, I will show you guys what changed in our net worth over the last couple years. Technically I’ve been tracking my expenses AKA “budgeting” strictly since 2017 (the year my daughter AKA first kid was born), but I only started tracking my net worth since August of 2019. That’s why there is a straight line in the graph between January 2019 to August 2019 because I honestly don’t know how my net worth was growing / shrinking any time before then.
For those that don’t know, finding your net worth is super simple. As Dave Ramsey puts it, “take what you own minus what you owe”. But since everything in this world needs to have a fancy name, in the finance world “what you own” are called “Assets” and “what you owe” are called “Liabilities”.
Mathematic equation is simple algebra for net worth.
X - Y = Z, where “X” = Assets, “Y” = Liabilities, and Z "= “Net worth”.
So, if you want use me as an example. My total Assets = $1,453,954.00. My total Liabilities = $595,722.94 and if you subtract them $1,453,954.00 - $595,722.94 = $858,231.06. So, $858,231.06 is my net worth on 09/26/2020.
The most important thing in the graph is not how fast the lines are growing, but just to make sure that each year line is above the one before it and through out the years you’ll eventually reach your goals. (in this case the green line = 2019 and the red one = 2020)
ASSETS
I don’t check this too much because this is a Numbers workbook (like Excel) and all the cells are pointing to each other, so this is just all automatic with other sheets of the workbook. It’s just a nice to have to see what your different investments are doing, but I get the important information from the Net Worth sheet for everyday purposes.
Well… let me break down my Assets a little more so that you guys know how I got to 1.4 million.
I like to categorize my Assets into three different categories, “Large and Fixed”, “Liquid”, and “Personal Items”.
“Large and Fixed” Assets are things that you plan to hold for a long time such as investments or extra vacation homes. Which is why my two rental properties fall under this. I currently live with my mom and I’m helping pay for her mortgage which is why I don’t personally have a mortgage of where we are living yet. I also have money in the stock market which is where the volatility of my net worth comes from. I am a buy and hold type of investor so stock falls under “Large and Fixed”. Lastly, I have a few retirement accounts 401k, and two IRAs. I have two Roth-IRAs because I have one for my wife and myself.
“Liquid Assets” are things that can easily be transferred into something tradable in my view, but for everyday talk you’re looking at things that can easily become cash. Under this, I only have various bank accounts. I have emergency funds for 6 months for my personal life. I choose 6 months over 3 because I have two kids that I don’t want to play around with if something financially crazy happens. I have 3 months worth of emergency funds for my rental properties. The checkings are just a buffer account where I make payments to my credits cards, bills, and other stuff. This is why there is only ever 5 grand in there, because I would rather have a high interest savings account for the majority of my emergency money.
“Personal Items” are things that could probably fall under “Large and Fixed” in an emergency, but you probably just want to hold onto it because of sentimental reasons or utility (you get something else from it). Things that fall under this are like cars and thinking about it now I would probably put the house that you own and live in under this category too. Because you probably don’t make money from the house you live in (unless you house hack which I approve of). Since my wife and I only have our car (utility example) and wedding rings (sentimental example) which don’t add up to much, I just leave this section blank because a 5 grand car that we’ll drive until it can’t do anything any more doesn’t move my net worth that much and like my best friend from middle school would say “I would be in a body bag before my wife gives up her wedding ring.” LOL so yeah…
LIABILTIES
Now the stressors of my life, Liabilities. I FREAKING HATE MY LIABILITIES WITH A PASSION. OMG SO MUCH. I only have two categories “Long-Term” and “Short-Term”.
“Long Term” Liabilities are things that will take YEARS to pay off. When a say years, I mean YEARS. Things like mortgages, car payments, STUDENT LOANS…. AHHHHHHHHHHH. I just hate them so much I can’t even control myself anymore. This is where I take a break from typing and go make some tea.
**** DEEP BREATH **** ok well I have two mortgages for my rental properties which are just stupid. I used to have student loans, but my wife and I were fortunate enough to pay off the 40 grand at an average of 6.5% interest rate before out children were born. So I don’t have to worry about that and we were able to get a new car (my wife before we were married, Honda Civic), so we are fortunate enough not to have a car payment either. But those two DAMN properties just give me unbelievable stress when I get 30 days notices, repair asks, and various things. We have a GREAT, AWESOME, and AMAZING property manager for one of them and the other a just as amazing renter. However, things are going to change which we’ll cover below in the last section of this article explain why we decided to go debt free.
“Short-Term” Liabilities are things that you can pay off quickly like month to month things. These are things like your credit cards, maybe small personal loans that you took out. Maybe you need to pay back a friend cause they covered you at dinner. These things shouldn’t be a big deal if you are able to pay them off quickly. However, PLEASE PLEASE PLEASE don’t overspend with your credit cards to the point you can’t pay them off. It’s a financial death trap. If you don’t have the self-control then destroy them, cut them up, and then throw them away.
Why we decided to go debt free and How we are going to do it
I won’t hide the fact that I’m a major fan of Dave Ramsey, I think it’s pretty obvious. I also like to listen to Graham Stephan and my best friend from college (not Graham), which is why my wife and I have one credit card each. I will try cutting the cards up as a second step after all the major ones are done below and see what it’s like to be totally on the Dave Ramsey plan. And as you can see, you can probably feel the resentment I have in the liability section of the blog article. It’s just a major stressor in my life when it doesn’t need to be. I realized this after an emotional trigger and nearly going crazy.
This trigger was realizing that my mother and I can’t live together. We are both alpha personalities and end up hurting each other for no reason. This is something I don’t want. It’s not healthy for me or my mother. So I talked it over with my wife and she said a quote that will probably live with me forever, “This is a house we live in, not a home”. That is what did it, that is what made me crack. This made me realize things are too hard when they don’t need to be. I don’t need all this pressure for a high paying high stress job. I don’t need to struggle with two mortgages, I don’t need to have anyone tell me that my kids won’t have a roof over their heads, not matter how small that roof might be if only temporarily. I just didn’t give a <INSERT ANYTHING YOU WANT HERE FOR HOWEVER LONG> anymore.
So, I just said we are going to go debt free just like Dave Ramsey’s Plan and go forward from there. I will never look back ever again. This is how we decided to do it. We are going to sell one property to pay off the other. Unfortunately, that means I have to get rid of my great property manager and great tenant but I need to do this for my family. As bad as I feel to do this, (it kept me up at night before telling my tenant) I need to do this for my mental / emotional health and to have my wife feel like she has a home.
I’m telling you guys this to let you know my plan. I will update you guys along the way and let you know what it feels like to be on this journey. I will say this though. I moved all my budget numbers to the future scenario and even with hypothetical numbers, I felt a major relief over my life and I’m super excited to execute the plan. Oct 1st is when we were told by our property manager we will officially get a 30-day notice from our current tenants and that’s the day it will hit the market.
I’ll let you know the progress.
- M