Net Worth in the Time of Cholera…

Over at My Journey to Millions, my favorite conservative Evan is doing his monthly net worth review. He’s performing well. This month he reports that over the past year net worth has increased a startling 95.30 percent. Yesssss! Great work, Evan!

The amazing progress Evan has made since he started blogging says a great deal about stating a goal and then making (and following!) a plan to make the goal happen. In theory, it can work for any of us. As we know, Evan’s goal is to become a multimillionaire. It must be said that he has the tools: he’s well educated, he’s still reasonably young but has been around long enough to build the experience needed to earn well, he’s energetic and focused, and he’s willing to work hard.  You can frame all the goals you want, but unless you’re prepared to make them happen, they’ll avail you naught.

IMHO the key factor is the willingness to work hard toward the goal, followed by focus, energy, and growing experience. To that we might add flexibility. While we’re still told that people with bachelor’s degrees outearn those with AAs and high-school diplomas and people with graduate degrees outearn everyone else, I think we all know quiet millionaires who own landscaping and carpet-cleaning services, college grads with $30,000/year jobs, and people with graduate degrees who qualify for food stamps.

Well, naturally, having seen what Evan’s been up to, I couldn’t let my own figures just sit there. Over the past couple of years, frankly, I’ve been too depressed about the sagging real estate values and the likely permanent unemployment to even think about net worth. However, things may be looking up a bit. In January, as I mentioned a while back, my investments earned 16 grand, causing me to wonder why I bother to teach at all. The crash of the Bush economy devastated my savings: when times were good (October 2007), total investments (not counting credit union accounts) came to just over $743,000. My paid-off house was worth about $250,000 in 2007. By December of 2009, when I lost my job shortly after reaching an age to make me eligible for Social Security (and ineligible for hiring even under the best of economic conditions), the combined value of my investments had dropped to $483,000, a $260,000 loss; Zillow claimed my house was worth $180,000, and the house I was co-purchasing with my son had a negative equity of about $60,000.

So how do things look now?

Better. Since the crash, investments have risen $63,000, with no further deposits from me (because on Social Security and adjunct pay, one has nothing to invest). A neighboring house similar to mine sold in two days for $205,000, suggesting it was somewhat underpriced; since my house is the same model and upgraded to about the same extent, I figure mine would sell for about $210,000 or possibly $215,000. The downtown house is still upside-down, but probably to a lesser degree; I think we’re about $20,000 or $30,000 underwater now.

In April 2011, the last time I could bring myself to add up net worth, it looked like this:

By the end of last month, the picture had changed slightly:

So what we have here is an “up but down” sort of picture. Despite a significant drop in investment values since the last time I could bear to look, and despite continuing depreciation of the 12-year-old vehicle, total net worth has risen by about 22 grand.

However, that figure is based on the Never-Never-Land valuation of the two pieces of real estate. We really have no idea what either house is worth, and besides: you can’t eat real estate. When it comes down to the money that matters—the funds I will have to draw down to live on when I can no longer dodder into a classroom—I’m merrily sinking beneath the bounding main. Since April, I’ve lost another $21,000 of the money I’ll need to cover expenses in my dotage. That’s despite the fact that I haven’t withdrawn a penny from those investments since I was laid off my job.

I am, in a word, screwed.

And that is why I need a real job. Now. Old age or no old age. Either that or I need Death to come a-callin’ in a timely manner.

Infographic: The Great Recession in the United States. Timetoast.

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frugalscholar March 3, 2012 at 5:50 pm

Is that loss in your professionally managed accounts? If so, you should speak to your advisors. The loss may be equivalent to the fees (2-3%, generally) that you pay for the professional management.

I myself don’t even consider my home in my net worth calculations, for the reasons you mention.

Evan March 4, 2012 at 6:46 pm

Wow I am REALLY jealous of your investable assets! I am decades away from that!

Did you have any hesitations about putting it all on the line? I only put my gains but not hard numbers.

funny March 4, 2012 at 7:44 pm

@ Evan: Well… I figure maybe a cute young gigolo will come along, and then I’ll have someone to go on cruises with. ;-)

Not really. My son freaks out over it. But what can anyone do? To steal it, you’d have to find out where all that stuff is, get some fairly specific data, and crack some exotic passwords, no two of which are the same and all of which shift like the sands of Araby. The IRS has all the facts, since I’m obsessive about reporting completely and honestly, so they’re unlikely to haul me off to Leavenworth. Every charitable cause on the planet fills my mailbox with pleas for money, and so far I’ve proven impermeable. That Nigerian prince, though…hmmmm…

Because you have decades left, you should have no problem compiling all the investable assets you’ll need for retirement. Remember, my big IRA represents half of what my husband accrued during 25 years of practicing law, and then I spent another 18 years earning peanuts. Since he didn’t pay much attention to finances, he certainly did not build wealth at the rate you seem to be doing.

I figure what’s needed to maintain a middle-class lifestyle with a 4% drawdown is principal of about one million dollars. So take the number of years you expect to work and then figure inflation forward, and that’ll give you an idea of how much you need, realistically, to survive in relative comfort. That actually assumes about $12,000 in Social Security; if you believe your cohort will have zero Social Security or will be made to wait for it until you’re in your 90s, then add another 300 grand, for a modest investment goal of $1.3 million. Adjusted upward for inflation by however many years you have to go.

@ frugalscholar: I think the recent drop has been about 1%; their fees are around 3%. Remember, those figures represent the value on the last day of each month, which depends on the market that day; with just one fund returning 16 grand in a month, an $8000 difference between April 2011 and February 2012 isn’t very significant, absent a crash.

The thing is, I’m not very sophisticated about investments, and my guys are. About all I’d be able to do is stick the dough in a Vanguard index fund and pray for the best.

While I lost a chunk during the recession, it was as nothing compared to what others have reported. Apres tout, $260,000 is only 35% of $743,000. I knew people who lost half or more of their retirement savings. In my case, the assets have more than returned to their pre-crash glory, which I doubt would have happened had the money been left to sit in a mutual fund. Or had I done as SDXB did: he moved everything into CDs!

I do take the value of the house(s) into consideration, because the properties do count as part of my estate. If I drop dead tomorrow, my son will inherit a $211,000 debt on a house worth about $180,000; another house worth more than enough to make up the difference; and enough cash to either send him through graduate school or provide a nest egg for his own retirement. Or allow him to spend the next couple of years on an endless summer.

Stephen March 5, 2012 at 11:17 am

Look at the bright side. The real estate is recovering in your area. Soon the downtown house won’t be in red.

funny March 5, 2012 at 11:22 am

@ Stephen: Possibly. It’s debatable: like anything, a house is worth what someone will pay for it. That’s especially true in today’s climate.

We think it will take about ten to fifteen years for the downtown house’s value to come up to what we owe on it. However, there’s now a shortage of houses in the $100,000 to $200,000 range — a feeding frenzy among Canadian and Chinese speculators has pretty much cleaned out that segment of the market. In addition, the first cohort of people who lost their homes to foreclosure have recovered from the hit on their credit, and many are back in the market for houses. If demand continues and rises into the next tier, it could accelerate recovery of our house’s value.

101 Centavos March 11, 2012 at 5:56 am

You had me at the title… Brilliant!

funny March 11, 2012 at 6:22 am

@ 101 Centavos: If only I’d thought of it first!

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