Quest for a Million – Net Worth – 4/2011

Last month I ended my post with the following bit of hubris: “The only net worth change I anticipate between now and next month is my tax refund which will serve as a 1 time gain that will be used to complete the funding of the 2010 Roth’s a little later than I’d hoped and to add to savings.” How wrong can one person be? Have you read Judith Viorst’s childhood classic, Alexander and the Terrible, Horrible, No Good, Very Bad Day? Well March was my terrible, horrible, no good, very bad month. What went wrong? Lots…

It all started on March 7, when I got this note from my employer:

Dear 401 k Participant, I want to advise you regarding an impending return of excess contribution check you will receive prior to March 15, 2011 . The intent of this email is to inform you the reason for the refund and advise you to confer with your financial advisor or tax preparer since the refund is a taxable event. Attached is a letter detailing why you were selected for the refund.

Briefly, the Internal Revenue Service rules require that qualified retirement plans like ours perform compliance testing on an annual basis. In general, a qualified retirement plan cannot favor highly compensated employees. This means highly compensated employees, as defined by the IRS, cannot contribute a substantially greater percentage of their pay to the plan than non-highly compensated employees.

Based on your income, you have been identified per IRS regulations as a highly compensated employee. For 2010 plan year testing purposes, the definition of a highly compensated employee is one who earned over $110,000 in 2009. Therefore, you are impacted by the results of this mandatory compliance testing for the 401(k) Plan. The average refund is approximately $3,900 which includes a participant’s contributions plus earnings for the 2010 plan year.

In order to maintain the tax benefits of our 401(k) plan, we are required to return a portion of your contributions and earnings to reduce the disparity between the average deferral rates of the highly compensated and non-highly compensated plan participants.

What a great reward for someone who is trying to save diligently for retirement. UGH! If you’re interested in more information related to 401k testing and my thoughts on how this punishes savers, check out this post.

It only gets worse from here.

On March 9, my wife who has been ill since November finally hit a breaking point and entered the hospital for severe gastric distress and malnutrition. She stayed a week and will be fed by IV for the next month. Aside from the obvious personal toll this takes on a family, the healthcare costs are incredible. Although much is covered by insurance, and a significant portion will be covered by my FSA, there will be substantial healthcare costs coming in the next couple of months. (My wife’s health continues to improve daily.)

On March 10, perhaps in an act of desperation or just bad timing, I bought a Google call option that would expire in about 2 weeks. Over the next week, there was a major earthquake in Japan, a tsunami, and the threat of nuclear meltdown. You can imagine how this played out in the value of my option, but if you need a graphical illustration, you can find it here.

On March 24, I received my annual bonus. A time of joyous celebration? Hardly. To say I was underwhelmed would be an understatement. I haven’t had a bonus this bad since the year before when I didn’t get one at all. Last year I was offered a job with a signing bonus about 10x what I just received as an offset to my potential bonus. I walked away from it. ARGH!!! There may be some who think I should be grateful to just have a job, let alone a bonus. There is merit in this thinking and I AM thankful to have a job. However, when my employer plays up bonuses all year long and the payout potential is huge then comes to me with this, I end up feeling lied to and under-appreciated. I love my work-at-home situation, but it may be time for a change.

Finally, on March 30, just when I thought the worst of the month was behind me, I was informed by the corporate repairman doing his semi-yearly checkup that my HVAC system compressor is dead and that he thinks I should replace the whole system. Quotes ranged from $7k-$10k. Just what I was hoping. And, to make it worse, I took the available energy tax credits last year so there’s no tax offset. Luckily I have trust issues so I called the local downhome repairman. The next day he educated me about the system, and we talked through the alternatives. I have decided to replace the current system with a comparable unit and keep my 2 year old air handler. Total cost will be $1,850. Painful, but not in the same way as $7k-$10k! Go local repair guys!!!

What a month!

Let’s take a look at the numbers.

Net Worth April 2011

ASSETSThis Yearvs. Last Month
Real Estate
My Home (Zillow)$345,500-11%-2%
All Accounts$31,946-17%22%
All Accounts$222,01610%1%
529 Plan$12,09225%1%
Total Assets$617,117-3%0%
Credit Cards*
All Accounts$4,276
Student Loans
All Accounts$67,096-3%-1%
Mortgage Loans
My Home$300,062-3%-1%
Total Liabilities$371,434-3%-1%
NET WORTH$239,971-2.9%2%

Well, given the circumstances, these don’t look too bad. On the asset side, the value of my home continues to fall, and I continue to not really care. I have no intention of moving or selling in the next decade so its value is essentially irrelevant. I have an untapped home equity line of credit and see no reason to tap it in the near future either. My savings got all messed up in March due to unusual cashflows in from my state and federal tax refunds, 401k offset and crappy bonus. I’m still nowhere close to my goal of $40,000 by year end since my 2011 Roth’s are unfunded ($10k) and real estate taxes will need to be paid in Dec. (~$5k). This is an ongoing dissappointment. On the positive side, all investment accounts are up year over year and month over month. This continued growth is heartening.

On the liabilities side, there is more good news. I continue to pay the mortgage and student loans down at a slightly accelerated rate.

Overall, net worth is still down 3% for the year. This is not what I’d like to see, but sometimes this is how life works. How one perseveres through tough times says a lot about their character. Here’s hoping April bring better days though!

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