I was so excited thinking about writing this post last night that I couldn’t fall asleep! I guess that’s when you know you’ve gone personal finance CRAZY. I like to think of it as enthusiasm.
With all this talk of net worth (what it is, how it compares, how mine has changed over time and how mine breaks down) I decided that it was time for a new goal. I haven’t talked much about my goals, but this year, for the first time in a long time, I didn’t set any personal finance-related goals for myself. I know, I know, what kind of personal finance blogger am I!?
This is about to change. Starting as of July 1, I am going to track my net worth percentage increases, by account type, over the next year. My goal: to re-balance my accounts and increase my overall net worth.
Isn’t July kind of a weird time to adopt a new year-long goal?
Yes and no. I have often found that the “fiscal year” (or FY) is just as good for goal setting as the calendar year. I happen to have started working in July, so that marked a good point to begin monitoring my finances. My company operates on a fiscal year basis (July 1 to June 30), so certain things tied to my pay are triggered by the start or end of a new fiscal year. And last, but certainly not least, I would argue that there is no time like the present to start working on a new goal.
As you saw in my net worth allocation breakdown, I look at my net worth in four categories: overall net worth, cash savings, non-retirement investments and retirement investments. After looking at how my accounts are currently balanced, I feel that I am too heavy in both cash and retirement. After all, I’m only 27, so retirement is likely a loooong ways off (at least of the kind that will let me access these retirement accounts without penalty). My cash savings is also too high right now, in part because I have been considering buying a new car. Since that is less likely to happen at this point, I don’t really need to hang on to so much cash.
Therefore, my focus will be on increasing the balance of my non-retirement investments. This will happen both by actively adding money to my non-retirement investment account and by passive growth (if the market ever starts going up again) from investments. For simplicity, I’m not going to separate out these two growth drivers.
Here is how the goal will break down:
- Overall net worth: Increase by 46%
- Cash savings: Decrease by 11%
- Non-retirement investments: Increase by 271%
- Retirement investments: Increase by 22%
You may be wondering why my goal involves increasing my retirement investments even though I just said that I am too heavy in retirement investments. Well, for one, this money grows all on its own thanks to the market, and I’m certainly not interested in stopping that. Two, I think that Roth IRAs are one of the best investment vehicles out there, so I intend to take advantage of it for as long as I am eligible (someday I will hopefully hit the income limit). Three, I save 10% of my salary right off the top each month. This money goes into an employer-sponsored account (sadly without match) so I never even see it. And I like it this way. It’s a good habit and one I am loathe to break even for a little while.
Here is how the numbers lay out graphically. As you can see, my goal is to re-balance so that my cash sits at 14% of my total net worth, my non-retirement investments at 32% and my retirement investments at 54%.
I’d still like to make retirement investments a smaller part of my overall net worth, but this is the best I think I can shoot for this year.
I’d love to know what you think about this goal. Do you think it is reachable? Any thoughts on the allocation by account type?