This monthly report is a snapshot of my current financial health. I researched financial metrics to track and came up with the numbers you will see below. As always, this is a work in progress and will evolve over time.
The numbers for August remain mostly unchanged from July. To be honest, I was hoping for better. I hate to just tread water. I want to make fast improvements, drastic changes. That’s what all this work is for, right?
Right now this report is a painful evolution, going through my financial accounts and pulling up my debts to plug into a spreadsheet, eventually showing my financial health metrics. (Seems disingenuous to call it “health” at this point. It looks more like a disease in serious need of some antibiotics or something.) It just hurts to see the balances on credit cards and the fact that I can only make minimum payments on them while the interest keeps racking up every month. Painful!
I feel like there should be more to show than what I’ve got. It’s the same with my weight loss efforts, where I have gained weight after a renewed focus. But the excess weight is due to weight lifting and taking creatine for recovery. Similar with my financial efforts…my debt hasn’t gone down but my savings have increased and my investment accounts are growing. After looking closely at my debt, I’ll take positives anywhere I can get them.
I’m showing my impatience again, but that’s only part of it. I thought I had paid down more debt than I did this past month. I must be living in my spreadsheet projections again and not in the real world of actual numbers. That’s my guess, anyway.
Add to that some unexpected charges found on a credit card. It’s not much, but I found a few charges that my wife made that were not on the plan. In fact, she’s not supposed to be using any credit cards, not even for emergencies (there are none that require using a credit card).
With that said, on to the show…I mean, the numbers…
*Note – Numbers show total amount, percent change from last month, and a grade I give myself for the month.
Total Non-Mortgage Debt: $130,010, +0.8%, Grade: F
Almost no change from last month. The current debt situation is still in the “massive” category.
Next month will be worse when the debt from my new HVAC system is added to the pile. Our HVAC system kicked the bucket this month (second system this year) and I financed the debt because it was cheaper than putting it on a credit card. One more big setback in the journey towards freedom from debt, but at least this debt is locked up at a manageable interest rate (lower than my credit cards) for now.
Credit Card Debt: $81,885, +2.5%, Grade: F
This is where our high interest debt lies and is the place I’m attacking first. Highest debt first and working on down, the debt avalanche method.
The credit card debt went up slightly. I only paid a minimal amount on credit cards this month and didn’t realize it was so small until I pulled the numbers. What I paid down didn’t equate to what we used on credit cards this month either, so total debt went up. The new plan is to pay for whatever is charged each month AND to make additional payments on top of that.
Net Worth: -$213,794, +16.4%, Grade: C
The big, positive change in the net worth this month comes from two things…a house appraisal and increased cash in savings. Assets went up and liabilities stayed about the same.
We had our primary residence appraised as part of the process for our mortgage refinance application, and the numbers came back much higher than I anticipated. Frankly, I was shocked, but I’ll take it.
The other change was an increase in cash. I held onto more cash this month in an effort to build up my emergency fund, and added an old account to the calculations that I had forgotten about. The extra cash is great, but I’m going to put some of it towards debt next month. I can’t stand treading water with debt.
Debt-to-Income: 38.9%, +15.1%, Grade: D
As I mentioned last month, the debt-to-income ratio for July was artificially lower because I had made payments on credit cards and there were no minimum payments on them to be added to this calculation. Now the number is back in the range it has been before. I give the grade of D because I’m lower than 40%, which is a number some experts throw out as a threshold to stay under. It’s still way too high for my comfort, but at least I’m below the threshold.
Credit Capacity: $37,615, -5.0%, Grade: F
Credit Used: 68.5%, +2.4%, Grade: F
The credit capacity and credit used are metrics that affect the credit score. They have an inverse relationship. We want the capacity to go up and the credit used to go down, showing that we have the ability to use lots of credit but choose not to use it. Both numbers went in the wrong direction this month, corresponding with the increase in credit card debt. I’ll get these numbers going in the right direction soon enough.
Liquidity: 3.5, +65.6%, Grade: C
Liquidity jumped up significantly from last month and it has increase for two months in a row! This is basically a measure of our emergency funds (liquid assets divided by monthly expenses). I now have enough liquid assets to cover us for 3.5 months of expenses. I finally have this up over 3 months and I might begin sleeping better at night.
Total Change Over Time
With any efforts at improvement, we must track the metrics over a long timeline. This helps show us trends and smooths out the peaks and valleys of short-term tracking. With that said, these percentages are the changes in financial metrics from the beginning (November 2015), a total of 10 months…
• Total debt = +33.2% uggh!
• Credit card debt = +2.3%
• Net Worth = +7.8%
• Debt-to-Income = -11.2%
• Capacity = +12.1%
• Credit used = -3.2%
• Liquidity = +361.3%
Huge improvement in liquidity! I finally have a real emergency fund. I never looked at it that way, though, because the funds are not separated out into their own savings account. That will come later.
The only other number that has gone in the right direction is net worth, but that is more the result of a calculation than actual results. Everything else needs to be turned around. That will come in time.
Goals for Next Month
Finalize the cash-out refinance on my primary residence. We are most of the way done with the process, just need to close it out hopefully. Fingers crossed that it goes through because this one move can wipe out about half of my current non-mortgage debt.
The house appraisal came back higher than expected, giving me more equity in the house than I thought. There will still be equity left in the house after the refi, which is a great feeling.
The next goal is to aggressively pay down some credit card debt. I have more liquidity than I realized and I would rather apply the excess to debt than have it sit in a bank account. I can’t stand to see the interest charges on my credit cards each month. I would like to knock them down.
The final goal is to convert my thinking, from making monthly payments or deposits to making weekly payments or deposits. I’ll explain more in a blog post coming up, but the basic idea is to apply the same amount of money, just in smaller and more frequent moves. This move is more psychological than financial, which I’ll explain in the post.
Let me know what you think of my financial health with a comment. What financial metrics do you track?
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