Net Worth update - September 2007: Up 6.1%

As of the end of third quarter, 2007, our Net Worth was $650,200.

Our Net Worth increased by $37,597 (or 6.1%) in this quarter. This breaks down as follows:
  • $21,279 is new contributions we made to our accounts.
  • $1,701 is from increase in home equity due to mortgage payments we made.
  • The rest ($14,617) is due to investment income and unrealized gains in our accounts, and employer match in 401(k) accounts.

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11 comments:

Pradipta said...

Your 401K balance increased by about >22K in 3 months, i.e. >11K in 3 months per person. So it is increasing roughly 4K every month. I am wondering how much of your salary goes to 401K. Assuming the regular 10%, your salary comes to about 40K per month!!! Am I missing something or are you really this great executive?

Nigel said...

No, I'm no executive :) Most of the increase is due to unrealized gains in the stock funds we own in the 401K. As you know, the last quarter was good for large-cap stocks in particular.
We do contribute the pre-tax maximum to our 401K's ($15,500 annually for 2007)

Pradipta said...

Thanks for the clarification..one more question, with the dollar heading south are you comfortable with your 401K being the biggest component? You can't touch it till you are 60 and who knows what the value of the dollar will be then. Do you have any investments/real-estate/savings in India?

Nigel said...

Good question: Several things come to mind..
--I have a long enough time horizon that I am not overly concerned by short-term fluctuations in the value of the dollar. We do have a small real-estate holding in India and plan to add to that as we get closer to retirement.
--Yes, the 401K is held in dollars, but it also contains international equities. An undervalued dollar benefits many large US companies as well.
--About "dollar heading south", nobody really knows this for sure. The tax-deferral and upfront tax deduction provided by the 401K make up for the risks IMO.
--We don't plan to touch the 401K till we are 60+, but it is possible for early retirees to withdraw from their 401Ks without paying a penalty (Google for "72(t)").

lokesh said...

Hey nigel:

You are obviously quite foccused on your plan and that is a very good thing. I am 41 and, it looks to me you are few years younger.

I just could not help but bring to your attention that with the goals you have set and the kind of focussed person you are, you would be better served by some how doing better on the side of offense in increasing your earnings consistently specially something that you love to. You seem to be doing pretty good job on the defence. Also, have an alternate plan to retire in US. This is so because India is changing so rapidly. By the time you are in mid 50's it may be less expensive to live in US than India (after taking everything in account). Many factors including real estate, increasing labor cost, growing cost of living as people's income picks up (including for quality healthcare) and last but not the least dollar depreciation would come into play.

Besides with this increasing cost of living as you noted, India may continue to lag behind in overall quaity of living (though it will catch up somewhat). This includes, helath care, law and order and infrastructure.

Just because you are so foccused and young, I would encourage you to think offense (cautiously) ie instead of retiring, focus on working as many hours that does not bother your main life goals in what you will do in retirement. Try to achieve that sooner rather than in fifties. eg. Say you work 40 hours a week now but would consider yourself retired if you were working 15 hours a week. Suppose you earn 40 $ an hour, see how you can earn 120 $ an hour. Or even more see if your savings can be leveraged to increase your hourly earnings. Also doing so (using your investment pool) may give you a kind of work which you will feel more like what you would want to do even when you are retired. This is not easy. I feel a foccused hard working couple has a better chance here than what you are doing or planning.

This path in best scenario, could also help you live life that you obviously do not value in terms of luxury at this time.


My bottomline message is sky is the limit to grow earnings for a focussed person but in terms of cutting cost thier is always a limit. This is (such offence) is also more secure way. Obviously you do not need to change your life style to luxury if you do not want to. But again a plan to consistently increase earnings has many upside which in my judgement exceed cost cutting and the kind of plans that you are making. You are counting lot on chance thinking best will happen after a very long time of hard work and savings (in my judgement it will if you are lucky). The fact you have a plan is good but review your plan and probabilities besides looking at your net worth. It is more important for you to know what you will do with retirement time. Life is uncertain in my judgement the best you can do is to have a system or method that gives you consistent earnings increasing above inflation for a work you enjoy (generally with the capital invested that you have.) If this work is what you would do with your time if you were retired anyway then you are retired.

On the flip side if you are having terrible time in what you are doing then relieve yourself of misery. You can buy a one crore place (floor or house) in India (hope that fits your value), house will grow over your life and your savings should give you 12 K plus income per annum in India without touching retirement now. Then you can do or decide what you want do with your time in India. Do not wait. In other words work towards having better earnings for less time and quality of work instead of retirement. Otherwise you will be dissappointed to find that the same house is 10 crore and you stand essentially where you are now, counting your net worth.

Good luck.

Lokesh.`

nigel said...

Lokesh,
Thanks for your comment and the nice words. Your suggestions certainly make sense and you seem to be speaking from experience as well.
At the moment I am not focusing on increasing our income, since I haven't identified any options that don't require me to 1) spend more hours at work or 2) take on undue risk. I believe that chasing income is a goal that can never be reached, since there is always more money to be made. At some point, one has to say that enough is enough, and focus on "defense" as you put it.
My goal is try to achieve financial independence on the income of a normal middle-class working couple who don't own a business and did not receive any financial windfall, and live a normal middle-class lifestyle. Even if we fail at this, I think it's a goal worth pursuing.

lokesh said...

Hey Nigel:

Do speak from experience (and reasonable success). Word about risk: You are taking risk even in your 401k and ira's past performance is never a guarantee. You have approximately saved 33 cent to dollar of after tax earnings. I have paractised as good a defence and saving rate though better, it is so because of higher income. Risk is better managed when you know what you are doing and if you have some kind of edge in what you are doing. it is usually beyond investing in mutual funds or stocks. Last even as you live a reasonable middle class life style you will do soemthing with your time beyond living your dreams. it is not possible to do any other way (in retirement). Further your dreams may be capable of stable earnings which is better than a retirement fund.

Any way good luck. I just thought you may need an alternate plan which could work in US and India.

Lokesh

nigel said...

Lokesh,
I invite you to read the other posts in my blog, rather than focusing on this one post. I am well aware of the risks of investing in stocks and the tax implications of 401k's. Also, despite the name of my blog, retiring to India is not our primary goal, but is rather our backup plan in case we are not able to retire early in the US.

Since you provide no specifics of your proposal (beyond "try to increase income by doing something you have an edge in"), it is hard for me to take your words seriously. I suspect that your individual experience may not apply to most other people. It was nice to hear your point of view, and thanks for stopping by.

lokesh said...

Basically you are right. My expereince is not for crowd. But I see you having lot of knowledge of financials, management of finances and a good reader also a very disciplined person. You can achieve much more than you are targetting you just need to know and stimulate your dreams. Again these comments are not for all or crowd. There is nothing for me to share about my success as it is a very dull exercise. Other than basic steps: have a written plan, target very high, have a vision what all this is about and keep working persistently about that vision. You are doing all these things but your vision or target, I felt eventually may not give you what you wanted. This happened to me. So I thought I would caution you to think hard you could do better (like quantum). Do not ask me how. Think yourself. I can only give some concepts, pick activities that give you reward based on risk you are taking and cost including time and resources. Your reward is based on your values and to some extent desires and could be monetary. If monetary the best way is to think how you can increase your EPH (earnings per hour) for a particular level of risk and effort. Eventually how you can decrease effort and risk to an acceptable level with these activities(say same or less than effort and risk for stocks). I am sure you have read some of these: Rich dad poor dad and 4 hour work week etc. This may give you a better feel of what I am talking about. I have been to your other areas in site, possibly not all. Good luck.
Other things:
Their are ways you can convert your current retirement plans into roth IRA you may want to plan for that or may be aware of already. You can do it any time your AGI is less than 100 K or if higher you can still do it in 2010. You can also pay taxes without penalty from non retirement accounts that to over three years. a roth ira requires no RMD and you can withdraw principal after 5 years without taxes or penalties and is off course tax free for life.

Educational savings account can also help you save 2000 per child per annum tax free.

For business owenrs they can contribute now 15,500 for them and employed spouse in roth 401k every year with no future taxation. You can also request your current employer to make a roth 401k available, thier is no income limit to who can contribute in roth 401k. On top of that also you can make substantially more contributions like 100,000+ to your retirement plans by simply owning a business. Which again is not for crowd but for anyone who is disciplined and on the offensive towards earnings.

Other things: i may have missed, I tell all my friends: life insurance is essentially free or costs very little in us. After you account for taxes. (I am not an insurance agent). I recommend ROP plans for long durations 20 to 30 years depending on age with face value atleast 10X tiems your annual expenses.

Anonymous said...

Hi Nigel,
Good Work and very glad that you have reached a balance with your financial goals.

I have a few questions though: Your portfolio is heavily loaded in US based Assets (Real Estate + 401 K) and some of this net worth returns are taxable as well when you want to sell it and cash it.

If our real intent is to settle in India, with the way costs are increasing in India, we cannot even buy a decent house (with 4 crores INR or a $1 Million) in the city (leave alone what will happen in the next 5 years).

I am 30 yrs old and intending to retire by 37. I calcualted my net assets and this is what I have :

I have about 1.2 Crore INR in Indian properties + about USD 200,000 widespread in 401K and Savings.

I will be trying to buy a house in US by next year but still reamin very bullish on Indian Real estate, what do you think, Is my strategy a good one given that I want to settle in India.

Nigel said...

Anon,
Thanks for your comment. Our real-estate assets include a small holding in India, and the 401K contains international stocks, so we have some diversification there.
I have no plans to sell/cash the 401K in the near future, and the taxes upon withdrawal in retirement are hard to predict, considering that the tax laws may change by then.

I share your concern about the real estate prices in India. I have no plans to live in a tier-1 city in India, but city prices cannot continue to rise at the current rate for many more years. Home prices in the US, in many areas, are at reasonable levels and it may be a good idea to buy in the next 1-2 years.