Relationships are Wealth

I'll keep this one short: it's important to develop your relationships with other people, even if it means spending your money. Relationships are wealth.

Getting a bunch of money feels like scoring a bunch of points in a video game. Like, good job. But if you do it by increasingly strangling your life and sacrificing your relationships, then what's the point? Good relationships can't be bought, and they can't be easily found either.

Anyway, I'm feeling lonely tonight. Saturday was net worth calculation day, and so while I was feeling lonely, I was staring at my newly increased net worth in the spreadsheet. And I felt like a fool.

Net Worth Update: July, 2019

Our net worth in July rose 7.3% and 9.73% to $51,451 and €46,228 respectively. We cracked $50k for the time being.

The big drivers behind this upward move were my summer bonus and the stock market. With the bonus, we were able to pay for our tax advisor as well as immigration fees from cash flow rather than dipping into savings, while still having a positive savings rate. I also earned some extra money from some extra side work.

Meanwhile, the stock market really went on a tear. Some of my laggard positions started to recover, and some of the German stocks finally had some small rebounds. I'm finally at an overall unrealized gain in the portfolio, which is reassuring.

Trip to U.S.A.

I'm currently in America, and although I'm trying to be judicious, I'm spending more money than I wish I were. Part of it is just social: if friends and family want to do something fun together, it's hard to say no when I only have limited time with them. To be honest, I don't really want to say no, and I don't want them to feel like they need to support me while here.

More surprising: America is really expensive. I'm always shocked by this, but Germany has maintained lower prices pretty well, so everything feels like a price shock when I come back. Beer, for example, is priced absurdly high relative to Germany. I find food in general more expensive. I'm sure there are some areas where there's a less of a difference or even a slight tilt towards lower prices in America, but so far on this trip, I'm getting killed by the high prices.

I'm not looking forward to updating the budget spreadsheet when I get more time for that. But I am having fun, and I'm glad I made the trip.

Net Worth: October 2018

Our net worth spreadsheet gets updated on the 26th of every month. I chose this date because it's deep enough into the month that we've likely made most of our payments for the month, so that whatever remains is the accumulated surplus. I could inflate the numbers by doing the calculations right after my pay period, but that seems self-defeating to me.

For October 2018, our combined total net worth was $36,070.18 or €31,612.78.

Composition

Since this is the first of these posts, I should describe what makes up our net worth spreadsheet.

There's a U.S. dollar section and a euro part. Each one contains the following:

• Bank accounts, including checking and savings accounts.
• Credit card accounts.
• Investment accounts (currently USD only).
• Loans and other lump-sum liabilities.
• An "Other" sections, which includes rounded petty cash as well as the estimated value of loyalty programs.

These are added together, and along with the prevailing EURUSD exchange rate, I calculate the value in dollars and euros. Since this spreadsheet has data from 2013, some accounts are closed, but the rows remain in the spreadsheet in order to maintain their data. Some things that aren't there that may eventually make an appearance are:

• Physical Assets. We currently don't have any physical assets that are worth adding to the spreadsheet (cars, houses).
• Pensions et al. I haven't added my pension from my German job. I haven't figured out a good way to do it yet. Likewise Social Security or the German Rentenversicherung.

This is a complete net worth spreadsheet and not a true FIRE net worth spreadsheet, but it's easy enough to calculate those numbers with a few clicks in the spreadsheet. Just Control/Command click the necessary accounts, and I'm good to go.

Up top, I have a couple of interpretations of the data in discrete cells. Namely, what is 4% of our worth? If it's lower than $40k, then it's shaded red, and if it's higher, then it's shaded green. It's definitely shaded red. I also have a sheet that calculates the Millionaire Next Door categories "Average Accumulator of Wealth" and "Prodigious Accumulator of Wealth" values for us and how much we're below/above those amounts. If our wealth is below the "Average Accumulator", it's also shaded red, which it definitely is right now.

Those two items are purely reminders of long-term goals and reminders just how much needs to be saved rather than being explicit thresholds.

Factors Affecting Current Net Worth

The biggest factors that affected this month's net worth change is the stock market. I'm a long only investor, and October has been pretty rough on us. Additionally, most of my portfolio is value stocks, and those prices have been getting crushed. The "growth" stocks also suffered but not nearly as much. I also have some positions in German companies, and Germany's stock market has been lagging for about a year.

Because of this volatility, my tax deferred retirement accounts and my taxable brokerage account fell several percent. We saved a good amount of money this month, but the market mostly netted the change to zero.

Funnily enough though, because the euro fell against the dollar, the value of these accounts rose in value in euros, even as they fell in dollars. Silver lining?

This month, I began to calculate the estimated value of loyalty programs. I'm calculating the various points as being worth ¢1 a piece. It doesn't add a lot of value to net worth, but those points have some kind of value, so I'd might as well add them. I'm not sure if it's worth adding them in for past months, since it's such a small value (around $1k).

Regarding credit cards and loans, none of that costs us interest. We currently never carry a balance, and the one "loan" is an installment plan from a dentist that doesn't charge any interest. In the beginning of the spreadsheet, we did have interest-accumulating accounts due to student loans and the cost of moving abroad, but those are long gone.

So there's the first of hopefully many updates.

How Our Current Budget is Constructed

For the past few years, we've been using Google Sheets for our budget, and it's worked very well. The original idea came from Dave Ramsey's Total Money Makeover, but as with anything you work at over years, we've made it our own.

I'm in the process of doing some alterations, so I wanted to document how we're doing it now before I  take too many next steps away from the current system.

The basics are as follows:

• We use Google Sheets because it's easily shareable, it's extensible, and it's actually very feature-rich. Plus there are lots of people writing about it and sharing spreadsheets to steal ideas from. 
• The budget tracks our spending cash amounts in Germany. It's all in euros. If you added up the German credit cards, Girokonto and cash, it should basically equal the Remainder amount in the active budget month. 
• One sheet is a master list of transactions. In my last post I discussed the kinds of information stored there. We use "Date", "Vendor", "Budget Month","Category", "Amount" (with minus signs for expenses), and "Notes" in case there's non-repeating useful information. Both income and expenses are listed on the transactions list. 
• Following that are individual sheets for each month with the following structure: 
• On the left-most column are the categories with headings for "Income", "Saving", "Expenses", and "Totals". 
• The second column has expected amounts. Some of these are recurring expenses such as rent, and some are unique, such as "Travel" and "Household". The latter refers to general expenses that my wife and I agree on. 
• In the income section are our jobs and other occasionally recurring income sources in addition to the remaining or deficient money from the previous month. A month of frugality gives us money in the next month while a month of spending leaves us with less. Ideally though, there's neither a deficit or surplus because we don't overspend, and we try to save everything that isn't earmarked for something else ASAP.
• A special sub category is "BLOW". We each get the exact same "BLOW" each month, and it's just the leftover amounts after everything else is accounted for. "BLOW" is basically money one of us may spend without asking the other person, and we tend to put clothing purchases, restaurant visits, coffee, presents, etc. into "BLOW". Basically, there's a subtotal added up of the other categories, and then the blow cells are that amount divided by two. The exception is when we know we're going to spend more in a month than we bring in, in which case "BLOW" goes to zero. More on this later. 
• To the right of this column is "Actual", which contains the amounts as they're added to the master "Transactions" list. When building your spreadsheet, the =SUMIFS() function is your friend. The idea is to SUM everything from the "Amount" column of the "Transactions" list, if it matches both the "Category" and the "Budget Month". 
• To the right of that is a simple subtraction function that shows the remaining amount. Subtract "Actual" from "Expected", and you get a number. Multiply that by -1 to get something a bit more useful. For example, if you expect -100 but only spend -50 you'd have 50 remaining following this approach.
• At the bottom are the various totals and subtotals. One cell represents the actual remaining money after everything is accounted for. That gets referenced next month. 
• One sheet looks just like a month sheet, but it adds up everything from the year. This lets us plan out yearly spending and check our progress as the year goes on. 

Not too crazy, right? It takes awhile to build the spreadsheet, but it's pretty easy to manage once it gets going. It kind of looks like this:

Category	Estimate	Actual	Remainder
INCOME
MyJob	A number	SUMIFS calculation	=SUM(B2-C2)*-1
HerJob	etc.	etc.	etc.
Last Month Leftover
Other
SAVING
Retirement
Tagesgeld
DEBT
Credit Card
Student Loan
Car Loan
EXPENSES
Rent
Electricity
Groceries
MyBLOW	=IF(B24<0, 0, IF(C9>0,0, SUM(B24/-2)))
HerBLOW	=IF(B24<0, 0, IF(C9>0,0, SUM(B24/-2)))
TOTALS
Total Income	These	cells
Total Expenses (with BLOW)	are	full
Total Expenses (no BLOW)	of	SUM
Remainder (before BLOW)	functions	and
Remainder (after BLOW)	basic	math.

Saving/Paying Off Debt

When saving any money, it looks like an expense. When drawing from savings, it looks like income. Both get the same category, so that at the end of the year, it's easy to tell whether a net amount was saved vs. drawn from. So if we save €2.000 in February but withdraw €1500 from savings in April, we have a net €500 savings amount. 

You can have several sub-categories of savings, such as Retirement, Tagesgeld (basically the German low interest savings account), Emergency Fund, or whatever you want. Same rules apply for each. 

We are out of debt, but when we were paying it off, payments were an expense like any other.

Credit Cards

We use credit cards, but they are paid off every month automatically. Therefore, a credit card purchase gets added to the transaction list like a cash or a direct debit transaction. 

More about BLOW

A bit more about "BLOW". This can only work if you and your spouse are on the same page and are pretty frugal. Since BLOW is the remainder, and any savings appear just like spending earlier in the budget, there's an incentive to under-save earlier in the budget to give yourself extra BLOW. "Hey, if I don't save anything this month I can buy the new phone/bike/camera/console/computer/dress/coat/hat/etc." This is why deciding on a standard amount of monthly BLOW ahead of time is important. We budget around €200 per person per month as BLOW. Honestly, I'd like to even lower this number further because it really adds up, but that amount is low enough to not allow giant expensive purchases while allowing a fair amount of freedom, and BLOW covers a lot of stuff.

At the end of the month, BLOW is treated differently. This took me a while to figure out, but there should be some incentive to saving BLOW. Before I figured it out, unspent BLOW just became unspent money for the next month's total household budget, which meant you couldn't save up for anything in the BLOW category. It also meant that overspending on BLOW just got erased into the overall household budget, and that's unfair to the thriftier partner. 

So now, the BLOW amount is zeroed out at the end of one budget month and added into the next budget month. To do that, I add some transactions to the master list. The first makes the current budget month BLOW remainder equal zero. Basically, if the remaining amount is greater than 0, it gets subtracted from the current month and added in a separate transaction to the next month. If the remainder is less than 0, it gets added back to the current month and subtracted from the next month. This happens entirely in the BLOW category cells and doesn't appear as income at the top of the month sheet. 

In this way, BLOW surpluses and deficits follow you from month to month. In a way, it becomes a quasi-separate fictional account that's entirely tracked through the budget spreadsheet. One consequence: the Remainder cell at the end of the month will not include the BLOW remainder once the month is closed out. 

Split Transactions

This system allows for split transactions pretty easily. Just create two transactions from the same vendor on the same date and for the same budget month. Use SUM to show your work in the Amount column to show how you extract part of a transaction from the total.

=SUM(x-y)

Why do this? Sometimes I'll buy something as part of a larger transaction that mixes categories. My wife, for example, doesn't drink any alcohol, so if I buy a bottle of wine as part of a grocery spend, I will split that out to be part of my BLOW spend. This helps discourage us from underhandedly saving on BLOW while nominally spending on a shared category. 

Last Stuff

It works for us, but there's no guarantee that it will work for anyone else. Maybe the BLOW incentive is too much temptation. Maybe this seems like too much work. Maybe your significant other is unwilling to help. In any case, budgeting has been worth it for us.

Tracking Spending Overview

"Track your spending" has a better chance of helping than hurting. I've been tracking my spending for years, and I vouch for it. Thankfully my wife is on board, so we've gotten very good at it.

Some people who have really honed their habits don't need to because they have trained themselves to habitually avoid overspending. But if you are trying to change your financial life you probably don't have those habits yet, and it can only help to write things down. Plus, if you like gathering and manipulating data, writing down data about years of transactions can provide lots of possibilities.

Here are the things that are absolutely necessary to write down:

• Transaction date. You need this to know how much is coming in and out in a given time-period. 
• Vendor name. If you don't have one, then just make one up that's memorable. "Toilet" and "Kiosk" and "Apotheke" are common European stand-ins for fairly generic vendors.  
• Category. I personally think it's better to start simple and add complexity in response to necessity than start with dozens of sub categories. The categories that are necessary for you to track will reveal themselves over time. If you want to keep it really simple, just use categories for housing, transportation, utilities, food, and everything else (we use David Ramsey's "Blow" to cover a wide variety of things). If you have debts, add those in. 
• Amount. Obvious, right? I personally list expenses with a minus sign in front, since that makes it easier to add to spreadsheet formulas. 

Those are the biggies. Here are some others that might be useful:

• Budget Month. I use "budget month" because it lets me stick things that happen in one month in a different month. For example, if you get paid at the end of the month, you want that money for the next month and not the one that just happened. 
• Account. This might be useful or it might not be. If you're doing things with credit cards, it may be useful to know if some spending happened on a credit card rather than coming out of a cash account. 
• Notes. Maybe there's something unusual about the transaction that you want to easily recall. 
• Tax-Related. If you want to deduct something, it may be good to write it down at the time of purchase. I don't do this
• Project. This is a new idea for me. Basically it lets you categorize certain spending as part of a larger effort. So, for example, if you go on a vacation, there may be costs that are categorized as "Travel", "Food", "Lodging", "Blow", and on and on, but a project tag (in this case something like "2018_SummerVacation" or "2018_SavingsGoal") lets you track the entire extended spending for the effort. You could really go off the deep end on this if you start viewing your life as a series of larger and smaller projects. 

I personally write everything down in a spreadsheet. You could also use paper if you want, but spreadsheets have the advantage of being easily modifiable, and the data can be easily analyzed as you get better at using the spreadsheet. 

I use Mint additionally, but I don't rely on it for budgeting or contemplating my cash flow. It's great for seeing transactions pop up from all my various American accounts, but their budgeting tools are too stiff for my purposes. It's better than nothing, but I think the time devoted to developing one's own system is superior. 

Once you've been doing this for awhile, it becomes second nature. I won't lie: it can take some time to build the habit. Some ways to make it easier:

• If you carry a smartphone, write down every petty cash transaction in some kind of notes app. This is for when you don't get a receipt. I've used some automation apps on iOS to add these notes to the spreadsheet once I've written them down.
• Keep every receipt and then add them to the list later. Insist on receipts if it looks like the vendor will supply them. 
• Spend less and have fewer transactions so you have to do this less often.