Thursday, September 13, 2012

Financial Update - September 2012

I have a lot of catching up to do since my blog hiatus. My first order of business is to provide an update on my financial progress. After all, how can you determine the amount of progress you have made without having something to compare against?

Even though I wasn't writing about it, we were still plugging away at our finances these past months. As I mentioned in my 2012 Goals, we decided to switch our focus in 2012 to saving rather then continuing to pay off debt. While I'm still not convinced this was the right decision, I consider it an experiment in financial philosophy. Compared to our financial update from September of 2011, we have increased our net worth by about $81,000. Most of that increase is due to general savings, an increase in our retirement contributions and fairly decent earnings in our retirement account. Currently our total assets have topped $200,000. Not too shabby!!

What really stands out in this update is not our increase in net worth, but how little our
student loan principal amount has decreased in one year. We have paid the minimum payment of $315 for the past year yet the principal balance has only decreased by $1700. That means almost $2,000 went towards interest payments on this loan in the past year. For some reason the idea that less than 50% of my payments are going towards principal is surprising to me. Without consistently tracking my finances I may not have noticed this result that could end up changing my financial behavior.

So my advice to you? It might seem like a waste of time but you should really make an attempt to track your financial progress over the long term for the following reasons:

Easily Track Progress. It's great to see see savings balances increase or debt balances decrease but do you know if they are changing at a rate you find reasonable? A quarterly and/or annual comparison will help give you a sense of accomplishment throughout your financial process. If you don't feel like you made progress then you may give up. To keep up morale, make sure you create a clear sense of progress that your whole family can easily see and understand.

Reframe Your Expectations. Which statement has more impact?
  1. A good portion of my monthly student loan payment goes towards interest.
  2. For every dollar I put towards my student loan debt in the past year, only 45 cents goes towards paying down the principal.
For me it's clearly statement #2. Say what? Only 45 cents? Something's got to change.....Although I logically know that a lot of my payment goes towards interest, it doesn't really hit home until I know exactly how much (or how little). Don't you feel just a bit more sense of urgency to get rid of that debt?? I know I do.

Stay tuned,
Related Posts Plugin for WordPress, Blogger...