How to Make a Half-Million Dollar Sausage

Thanks to it getting picked up by Lifehacker, one of my previous articles titled “Before You Step, First Look Where You’re Standing” has been one of my greatest writing successes in terms of page views. The article praises the practice of tracking your household net worth and expenses, and even provides an online template for doing so. (And, somehow it does all of that without shamelessly peddling affiliate links to PersonalCapital).

I like tracking my financial numbers. Doing so not only gives me a sense of confidence and control, but it also helps me stay on top of little financial things that I would otherwise forget about or end up tracking on small slips of paper around the house. Every once in a while, but not often enough, I provide an update of those numbers to my Retire29 readers. Last June (2016) I passed $400,000 in net worth, a few months later I was at $435,000, in March of this year I hit $490,000, and today I’m bringing another update, now at $546,610.

You Get What You Measure

If you want to improve your financial situation, I cannot overstate the importance of the first order of business being putting pen to paper and start writing down where you are. While that aforementioned boilerplate spreadsheet is a good place to start, I think it may be even more useful to show you how I track my own numbers. It’s probably not a huge departure from your typical household balance sheet. But, I’m hoping that if you see a real one that it might be the last push that you need to do your own.

My Balance Sheet Back Then…

The first household balance sheet I put together was in February of 2004. My net worth was six or seven thousand dollars, but growing rapidly thanks to the low expenses and steady paycheck afforded to an Army Private. I recall where I was when I crossed the five-figure mark, and I felt like the richest man on earth.

Back then, my balance sheet probably looked a little bit like this…

Ah yes, those were the days. A “good month” back then meant a credit card bill under $100. Nowadays, I would call that a “good day.” Life was simpler. No car or car loan, no house or mortgage, no 401k or IRA, no employer stock, annuities, or flexible spending accounts. It was just a man, a checking/savings, and a lonely Capital One credit card with a $500 credit line.


My Balance Sheet Today…

Fast forward to today, and the balance sheet looks like this:

Holy hell, what happened?!

Life got more complicated, that’s what. A lot more complicated. But, complicated isn’t necessarily bad. Sure, it takes more than one username and password to update this sonofabitch at the end of the month, but the added complications of those retirement accounts, the house, and some of the leverage provided by those interest-free credit cards allowed the bottom line to increase at over 20% per year over the last 13 years.

So, let’s break this down. Rather than just the top line number, maybe we both can learn something by getting into the weeds and seeing how this $547,000 sausage is made.


A household balance sheet has two sides, assets are resources that are probable to provide economic benefit.


Cash requires little explanation since we all have it and we all know what it is. I keep two checking accounts. One is strictly for my mortgage, the other is for everything else. I do some downright ballsy stuff with my money, often drawing down one checking account to near-zero. However, I never want to run the risk of missing a mortgage payment (my marriage depends on it). So, I don’t mess around with that one.

“Cash” also refers to cold, hard coins and bills. This amounts to about $1,100 and doesn’t change much. I used less than $20/month in cash for years. Now that babysitters are part of the equation, that has gone up a bit, but is still not much. Most of the “cash” line is a few kilograms of rolled coins that will probably never get to the bank, the money in my wallet, and some leftover Bahamian currency that will get spent when we take another cruise who-knows-when.

Current Investments

Current investments are monies held in accounts that I can access without significant tax implications or penalties. In other words, this money is earning a return in completely liquid, market-based assets.

Annuities are contractual financial products taken out with financial institutions that are created with deposited funds and will pay out proceeds later on. The reported balance you see is the current cash (surrender) value of the annuity. These annuities act as a high-yield “emergency fund” (<— Read That Article). They yield a guaranteed minimum 4% with no principal risk. These annuities were thankfully taken out back when interest rates were much, much higher than today, so I’d be foolish to sell them today with interest rates in the cellar.

I just started contributing to my employer stock purchase plan, and am now deferring 5% of my gross pay each month. My employer stock is put in a taxable brokerage that I receive at a slight discount to market, and can sell at any time without penalty.

Any net wages that don’t go toward living expenses, debt or retirement accounts are placed in a taxable brokerage which is 100% invested in ticker JPS, which is a great preferred stock ETF managed by Nuveen Investments. It yields about 7.5%, which provides a nice dividend check of over $300 per month (and that check grows by about $2 per month through reinvestment alone). Preferred stock is a tranche of corporate financing that is higher than common stock, but lower than bonds. As such, it is safer and more stable than common stock, but more volatile (and higher yielding) than corporate bonds. This suits my risk appetite just fine.

You’ll also notice that the three amounts in current investments don’t add up to the total in the graphic. That’s because the deposit portion ($38,500) of my Roth IRA (shown below in retirement accounts) is current. I can take that $38,500 out whenever I want with no tax or penalty. Of course, my total retirement investments number is reduced by the same amount.

All of my investments, both in current accounts and retirement accounts, are kept in real-time on my Portfolio page.

Retirement Investments

Two-thirds of my net worth is locked up in retirement accounts, which come in several types.

I am actively contributing to my traditional IRA at the yearly maximum (currently $5,500 per year). I’ve maxed out my IRAs since 2005 and have no plans to stop. I moved from contributing to my Roth to contributing to my traditional in 2013, after realizing that my tax rate in retirement would be much lower than my tax rate while working. I wrote a pretty controversial article that was syndicated on SeekingAlpha on the Roth vs. Tradition IRA debate. My traditional IRA is also my dividend growth portfolio. All stocks in this account pay a growing dividend.

My first IRA was a Roth IRA, but I stopped adding new money to this account in 2012. Back in those days, I still benefitted from the Retirement Savers Contribution Credit. So, even my Roth contributions gave me a tax benefit. I make too much to qualify for that credit now, and for aforementioned reasons a traditional IRA is more appropriate for me. The Roth IRA is still an exciting portfolio to watch, though. My Roth is more geared toward growth stocks (Tesla, Netflix, Apple, Google, Texas Roadhouse, and a few others). I let these positions ride, for the most part, making very few sales and using a DRIP on those positions that do pay a dividend.

I’ve maxed out my 401k every year since I left the military in 2009. I even maxed in the year I lived in New York where expenses were vastly higher than income. Thanks to the tax benefits and employer match, the 401k vehicle is an absolute beast in increasing your net worth. In 2014, I rolled my 401k into my traditional IRA, hence the low balance you see today. My 401k is 100% invested in the S&P 500.

A zero-coupon bond is a bond you purchase at a discount that pays the face value at maturity but makes no interim coupon (aka interest) payments. Last year, my wife and I purchased a vacation membership to our favorite resort, which is a little like a timeshare and something that is completely out of character for me. While we are sure to derive some benefit from the membership itself (which we bought at half price), the only reason I bought it was because we will get the entire membership price returned to us at the end of the membership term (19 years from now). To boot, we are able to pay the membership fee in 24 monthly, interest-free, installments. In short, we pay about $37k over two years, wait 18 more years, and get $89,900 back. That amounts to a 4.5% annual return. I think of this bond as a way to pay for my kid’s college, assuming they don’t go the route that mom and I went. The carrying value of the bond is its present value (PV). The formula in the spreadsheet is set up so that on the day it matures, it will be at face value.

Real Assets

These are physical assets that are material enough to consider for purposes of net worth. It’s also worthwhile including assets like a house or cars if you have liabilities (liens) against those items. It would go against accounting recognition principles to include the liability and not the asset (or vice versa). I could rightfully include other real assets if I chose to, like: my Amazon inventory of household goods, expensive electronics like phones and cameras, furniture, or tools. I choose not to include these items because there’s either a remote chance I ever sell them, the value is difficult to determine, or the value is immaterial.

I value my house at cost and appreciate the value at 1.5% per year via an automated excel formula. As a mark-to-market check, I keep an eye on my Zillow Zestimate, and my carrying value is lower than the Zestimate. I value my cars at cost and depreciate (using an automated excel formula) by 15% per year. The carrying value of the cars are also below Blue Book. We don’t drive our cars much, so my depreciation rate has historically been conservative.

Accounts Receivable

Most folks that maintain a balance sheet do so on a cash basis. They don’t accrue receivables like I do. Receivables are assets representing money owed to you. Receivables will become cash or other assets at some point in the future. I like tracking my receivables for two reasons: first, it increases my net worth ;-), and second, it helps me with the sometimes-difficult task of tracking money that is owed to me. Within receivables are my Earned Unpaid Net Wages. This number is my net pay divided by 30 and multiplied by the day of the month—this is all automated in Excel. At the end of the month when I get paid, this number becomes zero and my asset account balances (checking, 401k, etc.) increase. Also included in this number are consulting invoices submitted to clients but are not yet been paid.

Accrued PTO hours is a little shaky, but I include it because I can sell PTO back each year. Payments of excess PTO at my hourly rate are both probable and measurable, so I include them.

I also include in my receivables Dividends that have passed the ex-date but not reached the paid date. After the dividend ex-date, the investor is entitled to the dividend, thus recognition is appropriate.

I include my flexible spending account balance more so because it helps me keep an eye on how much is left.

Last is other miscellaneous receivables. Most of this is incurred reimbursable expenses that my employer will provide to me at the end of the month or whenever I request reimbursement. This also includes random stuff owed to me, like a $70 Lowes rebate that I’m waiting on, or a pending Paypal or Amazon seller balance.

If all of this is just too accounting-heavy, then just leave receivables out. Like I said, receivables will eventually turn to cash, and you can recognize them then. I’m an accountant by trade, so I like this stuff, but I don’t expect many others will.


Liabilities are monies owed to others, and I owe a lot of money to others. I have credit cards, a car loan, investment financing, a mortgage, and custodial assets. While I have a lot of debt, outside of my mortgage I pay almost no interest. In fact, of the ~$60k in Consumer and Financing debt I currently owe, I only pay around around $22 in monthly interest—entirely on my car loan. That’s a weighted cost of debt of 0.44%.

I look at debt as a tool in the early retirement toolbox. It’s not a four-letter-word for me. Debt provides leverage and, if used wisely, can augment growth in net worth. It’s a simple decision, really. If the after-tax cost of debt (currently, 0.44%) is lower than the after-tax, risk-adjusted return on an investment, then it makes sense to take out the debt.

Unfortunately, debt has a way of enticing people to spend money they don’t have (aka “spending tomorrow’s dollars today”). That’s obviously a recipe for disaster. So, debt is a usually a bad idea for young people or fiscally undisciplined. But, if you’re a level-headed, financially-wise adult, then debt can be used to your advantage.

Consumer Debt

Consumer debt is comprised of credit cards and my car loan. I love credit cards, and I use many of them each year to maximize rewards, cash back, and travel bonuses. This yields many thousands (like, over $5k) each year in cash and travel, which we use to travel without spending real money.

Having this much credit card debt can be a little intimidating, but I have a pretty good plan and adequate cash flow to pay it off without incurring any interest charges. It currently represents about four months of net income, but adjusting for some one-time items that are on the horizon, I expect the debt to be cut in half in the next four months. Most of this debt is the result of finishing our basement, a couple car repair bills, and a interest-free cash advance that I threw into preferred stock (aka, “free money”).

Financing Debt

Financing debt is the remaining payments I need to make on that zero-coupon bond that sits in my retirement assets. I have another 16 monthly payments on this and it should never come up again.

Mortgage Debt

This is the mortgage on our home. This means we have around $90k in home equity, and that number increases by about $1,500 per month. The 2.45% interest rate is the after-tax rate, which is less than a year into a 5/1 ARM. I don’t expect to own this home for more than five more years since we’ll be living elsewhere during retirement and our home/area is not a great rental candidate, so the ARM makes the most sense for us.

Custodial Assets

Most people probably won’t have custodial assets on their balance sheet, which are simply monies held for others. These custodial assets are dollars I’m holding or managing for other people that I have to pay out in the future. These monies are also part of my asset ledger (under Cash and Current Investments), but because those assets don’t really belong to me, I need to offset those assets with this custodial liability.

Can’t You Automate All of This?

There are a lot of services that exist to automate the tracking of net worth; Mint and PersonalCapital are the two most popular. I’ve tried them, but continue to revert back to good ol’ MS Excel. I’ve formula’d all the difficult stuff, and it has become so second-nature to me that I can update my hard-keyed numbers (credit card and investment balances) in two minutes. The benefits of having a handy, offline, and customized balance sheet outweighs the meager costs of having to do some logging in and manual updating once a month.

What’s more, most of the hard stuff (the receivable accruals, home/car values, etc.) are automatically updated with formulas. In fact, every italicized number and summation cell in the balance sheet is never manually updated. So, it looks a lot harder than it really is.

To Include, or Not to Include?

When you complete your own balance sheet, it will undoubtedly and rightfully look different than mine. It’s meant to suit you and your needs. I’ve seen some people who don’t include car or home values. I’ve seen others who insanely do the opposite—include the house value but not the mortgage. I’ve seen people that include cameras, furniture, and educational savings accounts. There’s nothing wrong with any of that; these things don’t need to be GAAP compliant.

The basic recognition principle for assets is that you control it and you will derive future economic benefit from it. Liabilities is the opposite–you have a future economic obligation. There’s a lot of sway in those definitions, so use your best judgment. If you feel like it should be included, then include it.

What Say You?

I’m eager to hear your questions and comments on what I’ve presented here. I imagine that how I live my financial life is riskier and more complicated than most. But, I am comfortable with it–and that’s really all that matters.

Until next time,



  1. Custodial Asset for $1500 = Fantasy Football Commissioner?

    Great to get an update from you! You’re my PF Doppelganger, so you’re my favorite blogger to see net worth updates from!

    Did you ever get in touch with the guys from ChooseFI? I told them I’d love for them to get you on their podcast at some point

    • Thanks, PJ. Yeah I do use a fair amount of leverage. No-interest credit cards, short puts, and covered calls all offer a form of leverage (buying things with somebody else’s money). Same with a mortgage, which is still leverage just by a different name.

      I’ll throw something together.

  2. Thank you for the careful breakdown! I wonder, since you are so careful about accounting, if it makes sense to re-estimate your housing equity. In particular, since you have a “definite” point at which you are going sell it, and you are very likely to incur a large transaction cost when you do, would it make sense to book that cost against your equity? For instance, if you have a house appraised at $500k with $400k left on the mortgage to the bank, it appears like $100k equity. But, in reality, you’ll probably have to pay ~5% commision on the sale, which in this case would be $25k and hence your effective equity is $75k. In the likely event that you don’t want to go this route, how are you planning on bookkeeping that in the future?

    • Hey Darren,
      I’ve thought about doing that before. You’re referring to valuing assets at Net Realizable Value (NRV). That’s not applied to capital assets (PP&E) like a home, usually, which are valued at cost and depreciated over the useful life (27.5 years for residential real estate, per IRS). NRV is based on the principle of conservatism, so your heart is in the right place :-). However, I’m already being a little conservative in my valuation, which is like over $40k below Zestimate. There’s a house four doors down from us, exact same floorplan, on the market for $459k. So, I’m wayyy below that even though it’s the same square footage and everything.

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