It’s nice to start the new year in an organized way and my wife and I have long practiced a habit called “Round-Up Day” to get our financials in order. Jane Bryant Quinn wrote about this useful concept in her book Making The Most Of Your Money. Once a year, you spend a day rounding up all of your bank statements, investment accounts, and checkbook registers and seeing where you finished the year.
We usually do it the week between Christmas and New Years, when we were both off of work and had plenty of time to score things up. This past Tuesday – two days after Christmas – was when we sat down at the kitchen island to do this work for the end of 2016. We spread out our checkbook registers and investment statements and dug in. We didn’t spend all day on it, but probably half of the day.
NET WORTH / BALANCE SHEET
The first step for us is to calculate our net worth. I still do this in an old school fashion with an Excel spreadsheet. I have tabs that go back over 20 years that create a fun look at where we are and how far we have come. Most important though, is the tab that shows how we finished the year relative to the goals we set up last year.
Our net worth spreadsheet is organized into a few sections: quick assets (cash), retirement accounts (401k, IRA, and brokerage accounts), slow assets (house, cars, personal loans), and stock options. The stock options are retirement savings, but require some formulas that adjust them to the current stock price that gets plugged in. All of the assets are calculated at their after-tax (or selling cost) value.
All of the statements we need are online now – quite a change from the days when we would call the “phone bank” to see what checks have cleared or where our 401k balance was at. Still, we usually still have a glitch or two with online passwords or how Mint.com is classifying things.
Some assets are harder to estimate the value of than others. For our house, I use the sale price of comparable houses in our neighborhood and apply an average ‘price per square foot’ to or house. I could just use the Zillow price if I wanted to, but I don’t always see a good correlation between Zillow and actual selling prices. For our cars, I use an online website that appraises the value of used cars. The key is condition, mileage, and using the ‘private party’ sale price. For my pension, I pull the net present value of the pension from the MegaCorp website.
CASH FLOW / SPENDING
Our spending spreadsheet, which also goes back more than 20 years, is gradually being replaced with Mint.com. it is much easier to have our accounts set up to automatically be tracked online than to go through checkbooks at the end of the year. That said, I’ve had duplicate systems until this year. I think I’m just going to keep a file with a summary of our overall spending and keep a tab on the biggest expenses that drive year to year variation.
It always surprised me at the end of the year to see exactly where our money goes. One of the nice features of Mint.com is that it can quickly aggregate the spending by category or merchant. Looking at 2016, I see that we spent a huge amount of money on car repairs. It was over $5K – more than triple what we spent on car repairs last year.
At the end of Round Up day, we have a income statement (our family P&L) that shows how we did for the year and an updated balance sheet (that shows our net worth). This year our net worth grew nicely, even though our spending exceeded plan due to our new convertible and some upgrades we made on our home. These were all very conscious spends we will enjoy for years and since our net worth went up nicely (~10%), there are no real worries as new early retirees.
There are a couple of other things that we do at the start of the year that I will write about in January as part of an ‘Organized for FIRE’ series. Watch for them in the coming weeks.
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