2006 Year-End Review III: Net Worth
This is the third part of my year-end review. In the first two segments of this review series, I looked our own contributions in 2006 and how a good market helped us in growing our net worth. Now it's time to see how we did exactly.
We started 2006 with a net worth of $294,299 in the following categories:
- Credit card debt: $5,069.44
- Cash: $29,061.08
- Taxable: $133,389.08
- Retirement: $126,404.71
- 529 plans: $1,506.86
- Bonds: $9,006.74
and we closed the year with $458,992 (details can be found here). The year-to-year net change is $164,693, or a gain of nearly 56%. Contributers to the net change include:
- New money: $87,608
- Market value change: $58,825
- Dividends, capital gains, and interests: $16,759
- Free money: $1,500
Percentage wise, each contributer accounts for
Since we are still in the accumulation stage, it didn't surprise me that more than half of our net worth change in 2006 came from our own contributions. This trend should continue as long as both of us work and keep our regular investments. Our assets appreciated nearly 20% over the past year, thanks to the double-digit gain of the broad market. In this category, we were slight ahead of the market. However, since this is unrealized gain (the value change is only on paper), what 2007 will bring us is up to the market conditions. About 10% of 2006 net worth change were due to realized gains (which I call passive income, such as dividend payouts, capital gains, and interests. Among them, about $7,406, or about 44%, are from assets held in taxable accounts, meaning that we are responsible for the taxes of these gains. As we continue to add shares, this part should grow over time and we hope one day the passive income will become a major contributer.
Though I started to track what our nest egg in 2004, monthly change data were only available since I launched this Diary with a regular update of our net worth. The following chart shows the steady growth of our net worth in 2006.
The four-year history of our net worth from January 1, 2004 to January 1, 2007 is shown in the next plot.
The small increase from 2004 to 2005 was mainly due to the $50,000 downpayment when we purchased our current house in 2004. Other than that, we only made a few big purchases in the past two years: $3,000 car downpayment in 2005, $2,400 for a big screen TV in 2005, about $1,200 for a home theater system in early 2006, and a trip to China in the summer of 2006 for about $3,500. For 2007, there is no big spending planed so far. We may want to buy a bigger house as we are expecting our second child. And the new addition of the family will increase our day-to-day spendings as well. Hopefully, we can still keep our saving rate around 40%.
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16 Comments
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how much is your gross household income? I ask because you have saved 87k+ in the last one year.
Wow, a savings rate of 40%, that’s fantastic! I thought we were doing well at 30%, I must say I’m jealous. Thanks for setting a good example for the rest of us.
Sun, Did you get any Dividends or Short term and long term distributions in your 401K funds ? The reason I am asking this is because I hold about 5 diversifed funds whose ticker is not available to be tracked like other funds and none of them paid any dividends or distributions.I am little pissed because all dividends and distributions are supposed to be good if held in a tax deferred account like 401K or IRA.For my Roth IRA i invest in a target allocation fund and have got substantial dividends and distributions.At this rate I am thinking of not putting any money in the 401K because all i see are asset charges and admin fees
yabadaba: I try not to disclose how much we make on my site as this is probably the only private I keep with only us (all the others are real, though
). Since you asked, I can give you a range. We currently make between $160K to $190K per year before taxes. Our salaries are the only source of incomes. But there is guarantee of how much we will earn in the future, could be more, could be less. We want to save as much as possible when we can.
moneysmartlife: Yes, we have a quite high saving rate. But things may change next year if we get a bigger house. Actually, I think any rate above 20% is good.
I’m really amazed that you’ve saved so much on that kind of income! I don’t know many in that income bracket that save 40%. You’ve set an incredible example.
Bob: Yes, I did receive quite some dividends/capital gains for the funds hold in 401(k) accounts. But I think that really depends on your plan provider. For us, we have our plans with Fidelity and many of our funds are therefore Fidelity funds which pay dividends. And these distributions are indeed good for tax deferred accounts as you don’t need to pay taxes for the distributions and if you reinvest the distributions, you can be more shares of the fund since for mutual funds the price usually drops quite a lot after the payout. If funds in your plan don’t pay any dividend and charge high fees, it’s probably not a good idea to max it out. But at least you should contribute the amount to get your employer’s match (if there’s any). Roth IRA is better because you can choose whatever fund you want, but it has a much lower contribution limit than 401(k). You may want to find other ways to save for retirement if 401(k) isn’t your best choice.
Hi, Sun,
“We currently make between $160K to $190K per year before taxes”.
I remember you said you both contribute $8000 in 2006 for Roth IRA. The IRA is limit from full to zero when AGI (Adjusted Gross Income) is from 15k to 16k. I bet you AGI is over 15k, you might need to pay attention to IRA threshold.
Ming: Probably I wasn’t very clear about the contribution. It is actually we both contribute $4000, the maximum amount allowed, to our IRA accounts. The $8000 is a total number, not for each of us.
simply amazing.
If we already put $6K each (spouse & I) in a Simple; then can we still buy a Roth IRA each for $5K. We are both over 50. Thanks
Renee: I am not very familiar with SIMPLE IRA, but from what I read and my understanding, you may not be able to contribute the maximum to both Roth and SIMPLE. Since SIMPLE is one type of traditional IRA, and the maximum you can contribute in one year is $5000 for 2007. If you already maxed out your Simple, then I don’t think you can put another $5K in Roth. Check IRS publication 590 for more details.