Since 1999 the Honeybee and I have used our trusty Excel spreadsheet to steadfastly track how we use every dollar earned that is not siphoned off by federal and state taxes, or automatic retirement contributions. Over the years, this disciplined approach has given us extraordinary insight into our spending patterns which we use to continually optimize our personal finances.
Four weeks ago I specifically asked the household CFO to deliver her report to me by January 20th. Unfortunately, I regret to say that the Honeybee missed her deadline by a couple of days.
Naturally, her tardiness compelled me to assemble a crack committee — consisting of my kids Matthew and Nina — charged with investigating ways to prevent late reports from crossing my desk in the future. Hopefully, the kids’ report comes in soon, or else I’ll have to convene another committee to investigate methods for preventing tardy committee reports on, er, preventing tardy reports. But I digress.
Now I’ve never been a fan of tracking net worth, which is why I do this only once per year. Unless I plan on liquidating all my assets in the near future, net worth doesn’t really convey a lot of useful information.
That being said, the annual percentage change in net worth does give a fairly good indication of whether or not my personal finances are either improving or, perhaps, in need of some extra attention.
So, after reviewing the latest numbers, I am pleased to report that the state of the Penzo household is very good.
As of 31 December 2010 our household net worth was just a hair over $750,000. This represents an eight percent increase over 2009.
Overall, household assets increased seven percent while liabilities were reduced by two percent.
We continue to be financially disciplined. On the liabilities side, outside of our very small mortgage, we still have no loans, credit card debt or other obligations. That, ladies and gentlemen, is called financial freedom!
With respect to assets, I estimated no change in the value of our household personal property, which includes things like our two cars, furnishings, jewelry, and various collections.
Although home prices in my area essentially held their ground over the previous year, I estimated a slight increase in home value due to a kitchen remodel and upgrades to a bathroom and powder room.
Meanwhile, the value of my investment holdings (essentially my 401k account) increased approximately 14 percent this year.
My Long Term Financial Performance 1999-2010
Our household has relied on my engineer’s salary ever since Matthew was born 13 years ago. For that reason, we have always striven to stay out of debt, save as much as possible, and live well below our means.
For those of you in your twenties and thirties, not to mention those who may be questioning whether early scrimping and saving is really worth all the hassle, just take at look at the next chart. It is a graphical representation of the Penzo family household expenditures between 1999 and 2010 as a percentage of my gross income.
Let’s analyze some key areas of this graph.
Worst Performance: 39.9% (!) of gross salary (1999)
Best Performance: 5.4% (2010)
Now, when looking at this summary chart of the household expenses over the past 12 years, the most glaring item is the red line on the chart. This is the percentage of my salary dedicated to loans and, as you can see, in 1999 it was literally off the chart. However, just look at how that red line plummets over time!
Key Takeaway: Patience is a virtue. Over time, people who choose to live within their means can expect to see less of their take-home pay consumed by loans.
Worst Performance: 1.6% (1999)
Best Performance: 18.9% (2006)
Cash savings extracted from my take home pay — but not including my 401(k) contributions — are represented by that lime green line.
Notice the impact that the loans had on our savings (not to mention all of the other expenses) in 1999. The irony, of course, is this is the very time when we were most vulnerable to defaulting on those pesky loans that were eating up most of my take-home pay! However, over time we were able to begin building a fairly significant savings cushion.
Key Takeaway: For those who can minimize their debt load, the ability to save increases over time.
Worst Performance: 7.9% (2005)
Best Performance: 5.7% (1999)
Current Impact: 7.1%
Despite the fact that the brown line representing our food expenses looks essentially flat, it belies that our grocery bill has more than doubled in real dollars since 1999 — and I expect it will probably nearly double again over the next decade as Matthew continues through his teen years.
Key Takeaway: Paybacks are a bitch. Just as I ate my mom and dad out of house and home, Matthew is now doing the same to me.
Bonus Tip: Yes our grocery bill is large, but did you know our food bill would be as much as 20 times higher if my family of four ate most every meal at a restaurant? You can see the complete analysis here.
Finally, here is an illustrative breakdown of how we spent our money in 2010.
The chart to the right shows the changes where the household income was allocated over the previous year.
This year the biggest increases in expenses as a proportion of our household income were seen in the home expenses category. That is mainly because of our kitchen and bathroom upgrades. We spent more on entertainment too. Those increases, however, were offset by decreases in most every other category.
Believe me when I say that keeping detailed records not only instills an immediate sense of purpose toward improving your financial situation, but it also allows you to set smart goals.
I think the long-term data for our household reveals trends typical for households with a genuine commitment to living within their means. More importantly, it affirms the advantages and benefits of sticking to a disciplined budget that just can’t be seen over shorter periods of time — especially for those of you just starting out.
Now if you’ll excuse me, I’ve got to check on my kids. Their committee report was due over an hour ago.