Well. I have rather failed at blogging this year. My personal and professional lives were topsy-turvy in 2012, and I just couldn’t bring myself to blog about my failures to maintain my financial plan. Maybe I didn’t want to hold myself accountable and just wanted to let myself SPEND, as if that could possibly ever be a way to make myself feel happier. It didn’t. All it did was leave me with a sick, sinking feeling in my stomach when I went to tally up my finances for the end of 2012…I frittered away so much money on little things that all adds up to a LOT of money I could have put to so much better use!
Enough. It’s almost a new year, and while I think New Year’s Resolutions often fail, this is as good a place to start over as any.
Here’s a snapshot of my Net Worth:
I was so excited to see that I had a positive net worth! (even without including my depreciating asset of the car).
Soome quick additional explanations: The value of the home is listed at what I paid for it, not what it is probably worth now (less than that), but I do not intend to sell until we are at least back at what I bought it for! Also, I pay for almost all of my monthly expenses (besides my mortgage) with credit cards (easy tracking and 1-5% cash back!) BUT I pay off both of my credit cards in full every month. I included the balance on the credit cards here because I haven’t come to the due date yet on the cards, and I consider that money already spent, even though I haven’t yet paid it off with cash.
So…now that I can see the bigger picture, what are the best steps I can take in 2013? Let’s first look at the assets:
I plan to continue contributing the maximum allowed to my Roth IRA ($5000/year). I am not yet sure what my additional savings goals and mechanisms will be, so I will have to touch on that in a later post.
Now let’s look at my debts:
I have three separate loans from my parents, and one to the bank for my mortgage. This is somewhat of a bizarre situation to be in, but my parents helped me put the initial downpayment on the house (at a rate of 6%) and then helped again with a downpayment when we refinanced (at a rate of 3.375%), and I owe them the money for the car without any interest. The mortgage is currently at 3.375% and may go up in 10 years.
Now I now that all good financial advice out there usually suggests paying off your highest-interest loan first, but I don’t think that’s what I’m going to do here. I have owed them the money for the car the longest, and I think I can manage to save up the last $4000 this year and pay that off outright. Getting rid of one source of debt completely would be incredibly satisfying and would help keep me motivated to do more.
My parents have been incredibly slow to get back to me with actual numbers for my downpayment loans, so I will have to post an update when I hear from them. The idea for the original downpayment was that my parents would be investors in the home and when we went to sell would collect their initial investment with 6% interest. This was based on the fact that when I bought the house, we thought we had hit the bottom of the market. Well, three years later and now we know that the bottom kept dropping dramatically. At this point, I don’t know that we will be able to sell the house in the next few years for a good profit. It may take another 10 years. I have been mentally toying with the idea of keeping this house as a rental property – it’s a great set up for a rental and we would have a ready supply of good renters. The problem with holding onto the house as a source of passive income for the long term is that I would need to pay my parents back this huge lump sum of money that they initially put into the house. This is one issue I will be revisiting again and again!
The second downpayment from my parents came when I went to refinance. I thought our original mortgage interest rate of 5% was outstanding, but then rates dropped even lower! Thinking that I had a maximum of 4-7 years left here in my city, we looked at a 10 year ARM to get the lowest rate for the time we expected I would be interested in holding on to the home. Unfortunately, due to a glut of foreclosed properties in my city, the appraisal on my home came back extremely low, and we therefore needed to bring additional money to pay off the difference between the original loan and the new, lower amount of money in the loan. This second downpayment loan my parents agreed to give me at the same cost as the bank rate and over a 10 year period…but they haven’t given me the numbers yet, so I have not started repayment.