Money Progress

It has been a while since I have spent enough time working with my finances to write here about it.  The great thing though is that tools I’ve set up have automatically been keeping track of things for me.  I’ve mentioned before that I use Yodlee MoneyCenter to track my net worth and it is still doing so very nicely.

In my previous post about how to feel good about saving money I posted a screenshot from Yodlee with my net worth chart.  I’m doing so again here so that I can both have a personal record and to show you that while it is useful it does have limitations.  Take a look at the chart in the previously mentioned post and then look at the one here.  At a glance, they look surprisingly similar!  If you don’t look at the numbers or dates, they are not very different at all.

Now when you do look at the scales you can see that I have about nine months of new data in this chart and that my net worth has about doubled in that time period.  Yodlee has faithfully kept track of this for me by automatically updating the balances and transactions in all of my accounts over this time period.  The problem is that I’m stuck comparing charts like these two to try and compare my overall financial progress.  I can not view more than twelve months of data at a time, nor can I view data that is older than last year.

I said this chart was how I became interested in tracking my financial progress, and it is also why I’ve become interested in improving the process because of its limitations.  I obviously need to make my own charts that will show me the complete picture for all of the data that I have.

Since my last post and this one, the similar online financial tool Mint has also added a new net worth chart.  It looks extremely similar to Yodlee but it is a bit fancier.  They allow you to select more flexible time periods than Yodlee, which addresses one issue.  However you may notice that the Mint chart below has different data than my Yodlee charts.  This is because I have not had all my accounts on Mint as long as I have had them on Yodlee.

So while both Yodlee and Mint are very helpful tools, I think automatic solutions like this will always have some limitations.  It is clear that I’m going to need to spend time organizing my financial data so that I can create my own charts that will give me a clearer picture of my financial progress.  Jonathan over at My Money Blog has created his own charts and he accomplishes this very nicely.  It is one of my goals to do the same and I will share my results here so that hopefully I can help others in this process as well.

This post has been featured in the 85th edition of the Money Hacks carnival over at Dough Roller.  Go check it out!

The recent downturn in the economy has caused many people to question their investments, including myself.  Here is a short summary of my background.  I graduated from university with a bachelor’s degree just over a year ago.  Since then, I have been in the “working world” getting paid a salary for my work week, just like many others.  Thanks to graduating with no debt and keeping my living expenses low, I was able to start investing some money within just a few months of working full-time.  In hindsight I wouldn’t have started investing so early, but that is what I did.

I started a 401k and also fully funded a Roth IRA for 2007 since I had enough income as an intern for that year.  By September I also fully funded my Roth IRA for 2008.  All in all, I had invested $12,000+ in a fairly short amount of time.  Most of this money was in stocks, as is suggested for someone my age who is investing for retirement.  I also “diversified” by investing $3,000 in Vanguard’s Total International Stock Index in a non-retirement account.

We all know what happened next, the stock market dropped severely.  Here are a few pictures to illustrate.  The first is from Yodlee MoneyCenter and the second from Vanguard.

The large jump in the Roth IRA just before the crash is a 401k rollover from changing jobs and a transfer from my non-retirement account.

On October 10th I decided I didn’t want to risk losing more than I already had and I transferred 90% of my Roth IRA from the Vanguard Target Retirement 2050 fund to their money market fund.  Since then I have added to the risk by adding some bonds to the mix.

This type of investment change is exactly what most experts and advisers would say not to do.  I just bought high and sold low!  Well, it was at this point that I decided my cash savings was not sufficient enough to have this much money invested in stocks.  One of the reasons I was so aggressive in contributing to the Roth IRA is because I knew I could always withdraw the contributions tax-free if I had an emergency and really needed the money.

Since the crash, the only money I’ve invested in stocks has been in my 401k.  You might notice that the curve on the purple line that represents this above is getting a bit flatter.  That is because I’ve been steadily lowering my contribution percentage to the 401k.  I have decided that I would much rather have cash in savings rather than money invested in anything with a large downside risk at the moment.

The reason for my new found desire for a large cash savings is two fold.  First, I think that an emergency fund with 12 months of living expenses is probably not a bad idea.  With unemployment climbing it seems fairly reasonable to have a fund of this size rather than the more commonly suggested 3 months or 6 months.  My other justification for hoarding cash is actually representative of my new investment strategy.

This new investment strategy is the thought that perhaps I should be investing in myself instead of others. I’ll expand on this more in future posts, but it is a thought that has been guiding many of my recent decisions.  The traditional thinking might be that putting away money early for my retirement in stocks and bonds is investing in myself and my future.  However, that doesn’t ring entirely true.  I am investing for my future in this way, but I am actually investing my money in hopes that others will make financial progress and increase their value.  In that sense, I am not investing in myself.

I have not decided to do anything radical, but this thought will shape my investments in the future.  I plan on continuing traditional investments in stocks and bonds once I decide I have enough of an emergency fund, but probably in a reduced capacity.  Therefore on this site I will write some about these traditional investment methods, but I am also very interested in exploring alternatives.  Right now the main alternative I am considering is saving money to invest in a business of my own, rather than investing in other people’s businesses.

Feel free to post any thoughts in a comment below!