Have you ever woken up and started your day, just to realize it was a dream and you’re still lying in bed?
Well, I wrote this 1Q 2015 Goal Update back on May 5th (okay, yes, that’s still later than I wanted it to be, blah, blah, blah).
But I never published it. For some reason, I keep thinking that I have. And then I realize that I haven’t, so I try to finish it and publish it until other pressing matters take over. (Like trying to bathe on a regular basis, and watching reruns of Big Bang Theory.)
I’ve finally wrapped it up, and it’s almost embarrassing that I’m posting it in JUNE. But like I do with many things that don’t go as planned, I perform an “end of the world” check.
Me: Is it the end of the world?
Me: Nope.
Ok then, moving on. It’s time to figure out if we met this quarter’s savings benchmark.
[Lengthy-but-Likely-Unimportant-Side-Note: Up until now, we’ve always measured our goal progress based on our investment balance. That’s been adequate up to this point, however, our method of measurement is changing. Now that some of our cash has been invested in the purchase of the laundromat, we want to be sure that money we invested still “counts” towards our savings goal. (It’s still technically invested, just not in the stock market.)]
So…all that to tell you that we’re now measuring our progress using total net worth instead of just the balance of our investment accounts.
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[Update: I was kindly asked by reader “Ali” for more detail on how we calculate our progress now compared to how we calculated it before. So I’ve added some more details to this section. If this kind of detail doesn’t float your boat, then just move down past the dotted line below and start reading again. Cheers.]
Calculating net worth can be a little different from one guy to the next, but at it’s core, you take the total value of your assets and subtract your total liabilities.
Net Worth = Total Assets – Total Liabilities
For example, to get your total assets, you would add together the balances of your bank accounts, investments, home values, auto values, business values. Next, you find the total amount of your liabilities; home mortgages, auto loans, student loans, credit card debt, business loans and any other loans or debts. Subtract your total liabilities from your total assets and you have your Net Worth.
We used to only track our investment balances, but now that we’re using Net Worth, this is how our old and new methods of calculating our progress compare:
Net worth calculations include ownership in a business, so we’re still getting “credit” for the money we invested in the coin laundry as part of our overall invested balance. Yay.
But in order to migrate from investment-balance-based benchmarks to net-worth-based benchmarks, I had to figure out the difference between our actual investments balance and our net worth as of Dec 31, 2014. So I went to Personal Capital, and determined that on Dec 31, 2014, our investments balance was $181, 765 and our Net Worth at that time was $318,683.
This tells me that our Net Worth figure was higher than our investment balance by $136,918. So, I took our investment benchmarks, and adjusted them upwards by $136,918 to get our new Net Worth benchmarks. It’s not sophisticated by any means, but I wanted to make an effort to level the playing field now that we’re using Net Worth to track our progress.
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Below is our new benchmark grid. You can see that I’ve adjusted all of the future investment goals upwards so that they reflect the new, higher net worth goals (If you want details on how I derived the new net worth benchmarks, scroll up to the section between the dotted lines).
Originally we would have been shooting for a total investment balance of $267,300 in 2015, but now that we use Net Worth to gauge our progress, we need to reach $404,218.
Ok, enough side bars. Back to the discussion at hand.
Technically we’re in June, but for the sake of this post, we’re pretending that it’s the first week of April, just after the close of the 1st Quarter. So let’s rewind the tape, and see where we ended up.
With $404,218 our goal for the end of the year, our 1st Quarter goal for 2015 is $340,067. When I looked at our net worth on Personal Capital as of April 1st, we were at $357,873.
So…we did it! We met our quarterly net worth benchmark!
With the value of our home going up, the value of the laundromat increasing, our consistent saving and decent returns on our investments, we met our goal. In fact, we surpassed it by $17,800. That feels A-M-A-Z-I-N-G.
We’ve now set our sights on the next quarterly goal (which being that we’re in the month of June, we’re almost there, sigh).
By the end of 2nd Quarter, we need to have a net worth of $361,451.
And I’ll just say what we’re all thinking. Yes, my other goal is to post about it before September. 😉
Wish me luck.
Rob says
Well, well, what da know, she is still alive! 🙂
Glad to read, Laura, that you guys are still doing well.
We’ve always used total net worth (total assets – liabilities) to measure our financial progress. Being retired now we are now in the consumption phase rather than prioritizing acquisitions. Still keeping within monthly budget, our investments and real estate still continue to grow well in value but now we are acquiring assets and increasing our discretionary spending as we crystallize some of our profits.
I am kinda curious though on how you arrived at such an odd number as $361,451.
(meaning, I won’t hold it against you if you only hit the $360,450 mark) 🙂
Laura aka Mrs. Nickels says
Yes, I’m a-l-l-l-i-i-i-v-e (make sure you say that in an old theatrical Frankenstein sort of voice). And you’re retired now? Congratulations!!!
I tried not to bore everybody with all of the inner calculations (but maybe some appreciate that).
And yes, the targets are odd and very specific numbers. (They’re all based on the numbers from my spreadsheet, which are not nice round numbers) 🙂 Essentially I took our end-of-2015 net worth target ($404,218) and subtracted what our net worth target would have been at end-of-2014 if we were using net worth to gauge our progress ($318,683), then just divided it in 4 quarters ($21,384). So I added that $21,384 to the end-of-2014 net worth target of $318,683 to get our 1Q 2015 target of $340,067. Then I add another $21,384 to get my 2Q 2015 target of $361,451. Add another $21,384 and I get my 3Q 2015 target of $382,834…and then that final $21,384 gets me to the end-of-2015 number of $404,218.
And keep me posted on how the retirement life is going…I’m dripping with envy.
Rob says
See, I knew that was exactly how you calculated it (right down to da penny)! 🙂
Welp, these days retirement life is going well, with lots of housing upgrade projects on the go.
So far, in the last month, we’ve replaced 5 home appliances and this week we’re getting a new stone coated steel roof installed, with a 50 yr warranty. No more future roof replacements for me after this sucker gets installed!
Ali @ Anything You Want says
Wow – impressive growth! Must feel great to beat your goal 🙂
Now that you are changing the way you calculate your net worth, will you do anything to reconcile what is included in the new calculations with old calculations? It might be hard to see change over time with this disparity.
Laura aka Mrs. Nickels says
Thanks Ali! And just to be clear with everyone, I’m not changing the net worth calculation, per se. Technically, we’re transitioning to a net worth calculation. (Maybe I’m splitting hairs here, but I didn’t want folks to get the impression that I changed how net worth is calculated, because that’s fairly standard, assets-liabilities.)
Before I only used the balance of my investment accounts, and now we include ALL of our assets and liabilities in our calculation (which meant our annual targets had to be increased accordingly). But I agree it would be good to show what things are included in our net worth calculation. So maybe I’ll add that as an edit! Thanks!
Dominic (Gen Y Finance Guy) says
The only thing that we actually leave out of our net worth calculations are our cars (which are fully paid for and depreciating by the day) and personal property like jewelry.
Otherwise it’s the regular Assets – Liabilities calculation.
Congrats on blowing right past the Q1 goal! And sounds like Q2 is pretty much in the bag as well.
Cheers!
Laura aka Mrs. Nickels says
Hey Dominic! We do include our cars (they too are paid off and not worth a whole heck of a lot, but we chose to include them) but we do not include any other personal property. As suggested by another reader, I’m going to break out what our net worth is made up of in an update coming soon…thanks for stopping by!
TheMoneyMine says
Great progress!
Your new method does make sense to capture the investment in the laundromat and even your house.
So how do you value the business value of the laundromat: it is based on what you paid for (fixed in time) or its value on the market (to take into account the appreciation of your work)? If the latter, how do you do this estimate?
Laura aka Mrs. Nickels says
We use an estimate based on the current market value. There are a few valuation formulas used by the coin laundry industry, but a ‘back-of-the-napkin’ ballpark formula is to take the annual net profit (cash flow) and multiply it by a ‘condition’ multiplier.
The ‘condition’ multiplier is simply a number between 3 and 5, where ‘3’ would be applied for a store that has deferred maintenance, outdated machines and an unfavorable lease. A ‘5’ would be applied for a higher-end store, with new or nearly new equipment, modern decor and fixtures and a favorable lease.
When we bought our laundry, it was being valued at a 3.2 multiplier. We figure our improvements are worth at least an additional 0.3, so we now use a multiplier of 3.5 to determine valuation.
Thanks for asking!