My Net Worth Is Down Only 10% Since Its August 2008 Peak

So, how did I manage this remarkable accomplishment?  Let me tell you….

I have been tracking my family’s net worth for about eight months now.  May 2008 was my baseline starting point, and the family’s combined net worth increased throughout the summer.  Our net worth peaked in August 2008 as the recession started to kick into overdrive, and the value of our assets have been sliding like the rest of the markets ever since then.  But, my net worth is only down 10% since August! 

My Investments Are Down.  Just like yours, my Roth IRAs have been severely beaten up like the general market.  They are actually down more than the S&P 500 and other indexes because of the mutual funds’ bad gambles in stocks like AIG, Wachovia, Fannie Mae, and Freddie Mac.  Lucky me, right?  My 401-k plan through my employer is invested in index funds and is of course down in lockstep with the overall markets.  But my family’ net worth is only down ten percent!

Paying Off Debts.  One surefire way to increase your net worth is to pay off your debts.  This assumes that all other things stay the same, of course.  If your assets do not lose much value, your net worth will increase by the amount of debt you pay off.  Finance is dictated by the classic accounting formula: net worth equals assets minus liabilities (net worth = assets – debts).  You are essentially earning the interest rate of your credit cards and car loans when you pay them off.  So, paying off an 18% annual interest credit card is the same as earning 18% on that money spent to erase the debt.

Investing In Education.  My net worth would have actually been the same over the last six months, not up or down, had my wife and I not been paying for her Masters degree out of our own pocket.  We have been blessed to receive a lot of financial aid for the cost of her distinguished private university, but the out of pocket expenses and childcare costs have still been high.  Thank goodness that her program is only a one year course of study.  The big difference is that we saw the expense coming and saved for it.

Spending money on education is a wonderful investment for a person.  My wife and I have never had a dual income family, and we are looking forward to increasing our retirement savings and ramping up our investments when she begins work this fall.  My wife’s degree is also very marketable.  She will most likely earn two to four times what we have spent on tuition and childcare each year she works, even in this depressed economy.  That is a repayment period of only three to six months….not bad!  For example, investing $10,000 in education that will pay you $40,000 in increased disposable income is a great return on investment.  Where else will you earn 400% return per year?  And, this investment continues to pay you over a lifetime too!

Track Your Net Worth.  I know that it can be depressing in this recession to track your net worth, but it can also be uplifting when your net worth begins to rise again.  And, it will rise again.  Less than 49% of Americans actually know their net worth according to a survey conducted by the Consumer Federation of America (CFA) and the Financial Planning Association.  Tracking your net worth lets you see where you are financially and how healthy your family’s situation is.  Are you meeting your financial goals?  Are you headed in the right direction or sliding backwards?  Are you saving enough for retirement, college, etc.? 

I think a lot of us, myself included, sometimes get wrapped up into looking at our net worth as a benchmark to compare ourselves with others.  But, of course, it is not healthy to get wrapped around the axle so to speak on keeping up with the Jones.  I try to track and think about my family’s net worth more in terms of whether we are on track for retirement, whether our investments are performing well, and whether we are diversified with the correct asset allocation.

So, this is one of the reasons why I have tried not to list specific net worth monetary figures.  Unless I am way off base (and let me know if I am), I think that people would be more interested in reading about my net worth in terms of percentages instead of raw dollar figures.  If you want to know more about where your net worth stands with people your own age, income level, job tenure, etc., you can check out this recent study comparing people’s 401-k’s in America.

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