Posts filed under ‘net worth’
A long time ago my husband and I consolidated all of our accounts into one bank. We rolled all of 401ks into IRAs and acquired access so that we can view each others retirement accounts. When we log into our bank account we can now see each and every dollar we’ve saved and just how much it’s increased or decreased as the days and months pass by.
After entering a user name and password we can see a total of our net worth minus the properties we own. For the record I don’t include cars, jewelry and other such things in my net worth. I include money in the bank and real estate; nothing else.
Having everything in one place certainly makes things easier, but could it also be saving me money? I hadn’t thought much about it until a friend forwarded me this link. I did not pay to read the entire study, but the abstract states:
The decision to save enhances well-being in the long-term but it conflicts with the desire to spend money to gain immediate gratification. In this research, we examine the influence of having single versus multiple accounts on individuals’ savings and spending decisions. We find that individuals save more with a single account than with multiple liquid accounts. Utilizing work on motivated reasoning and fuzzy-trace theory, we suggest that multiple accounts engender fuzzy gist representations, making it easier for people to generate justifications to support their desired spending decisions. However, a single account reduces the latitude for distortion and hinders generation of justifications to support desirable spending decisions. Across four studies that provide participants with the opportunity to earn, spend, and save money, we demonstrate the proposed effect and test the underlying process.
Perhaps it is easier to overstate your net worth when money is placed in multiple accounts. When money is not co-located you must add the funds from each account in order to decipher just how much money you have. If you don’t manually add the figures together you may create a fuzzy estimate of your overall worth.
I think this makes perfect sense. Without looking at a concrete figure you create a ballpark estimate in your mind and then decide whether or not you have enough money to spend on the items you want. I can see how it would be easier to spend money without that black and white figure staring back at you.
Over the years I’ve found that the more I save the more I have a desire to save. That’s because I can log into my bank and see the progress I’ve made to date. If you save $100 in one bank and $100 in another the numbers don’t look nearly as impressive as saving $200 all in one place. It seems silly, but it’s true.
Looking at that $200 number will provide the incentive to continue setting aside money. As the number grows so does your sense of achievement. The more money you save the more accomplished you feel.
I never thought about the correlation between consolidated bank accounts and saving money, but the more I think about the more it makes sense. For the record, sites that provide a snapshot of your bank accounts could probably provide the same value.
What do you think? Do you think consolidated bank accounts and snapshots of net worth would help you save money?
My husband sent me this snapshot of our current net worth bar chart. I left out the actual numbers, but you can get the gist of our progress without knowing the specifics. In 2011 our net worth reached positive status and since then it has remained steady and strong.
It hasn’t grown in leaps and bounds since that time, but in 2011 I left the working world to stay home with my son, so we knew the rate of growth would slow. In fact I was terrified of what would happen to our finances after that decision and I’m so happy to see that while the numbers aren’t ticking up rapidly they aren’t falling dramatically either.
A big reason for our continued progress was my husband’s decision to form his own company. While I stopped earning a significant paycheck his pay increased enough to cover my losses.
I love watching that chart grow!
Most of us who save our pennies and hoard our dollars are saving with some particular goal or number in mind. Sometimes we’re saving for something small like a special dinner out with friends, a new dress, or new rugs for the dining room. Sometimes we strive for something larger like a kitchen renovation, new photography equipment, or a two-week vacation. Outside of these small and medium sized goals sits that one humongous goal that feels like it’s never within reach.
Ever since I bought my first house I dreamed of saving enough money to pay off my mortgage. I don’t actually intend to pay off my mortgage in one fell swoop but I love the idea of acquiring enough money to cover our debts and to date our mortgages are the only debts we hold. When we bought our second home my goal expanded by quite a large margin, as our second home was more than double the price of our first one.
At some point quite awhile back we hit the first goal and accumulated enough cash and securities to cover the first mortgage. With the first mortgage “covered” I started taking a peek at the bank accounts to see just how far we have to go on the second mortgage. My off-the-cuff calculations are similar to calculating net worth. I compare our debts against our assets and figure out how far we have to go to get to the plus side. The difference between my numbers and typical net worth calculations is the absence of retirement savings or home equity. My true goal is to have enough cash and assets in non-retirement accounts. Of course, even those numbers are invalid considering the taxes I’d have to pay on capital gains.
We still have a very long way to go to meet the magic number that would cover our second mortgage, but the good news is that every month our mortgages shrink ever so slightly. We hold 15 year mortgages on both our homes, so while our savings grows our mortgage falls and sooner or later the two will meet in the middle.
The image above represents our current net worth including the liabilities on our mortgages but not including the value of our homes. According to the graph above if we cashed in all of our investments today my husband and I would have just enough money to pay off our mortgages. I removed the actual dollar figures for reasons I have discussed at length in previous posts, but you can clearly see that the green net worth bar is now slowly moving up, while the red liabilities bar begins to inch down.
In reality, although our assets are now greater than our liabilities, we couldn’t exactly cash out and pay off our mortgages. The majority of our investments are stored in retirement accounts, which would incur hefty taxes and penalties if we sold them. I don’t want to work out a whole bunch of fancy math to figure out just how much we would need to pay off our mortgages in full, the important thing is that dollar for dollar our assets have surpassed our remaining liabilities. Plus we would never sell off everything to pay our mortgages, but it’s nice to know that we could if for some reason we needed to.
This month our net worth has finally exceeded our liabilities. Now we all now net worth is the total value of property minus debts. Net worth itself is a tricky subject, a lot of people believe a household’s primary residence should not be included in the net worth calculation. It is certainly excluded when calculating millionaire status. In our case, assets can be broken down into four main categories: rental home, retirement accounts, primary residence, and non-retirement accounts. Any way you look, it’s nice to see the liabilities shrinking as our assets grow.