Financial stuff

Many, if not most, PF bloggers consider net worth to be the most important financial measurement.  It certainly is the most common. This makes sense because it is pretty easy to figure. Just subtract your liabilities from your assets and you have your net worth. For the most part it is probably a pretty accurate measure of one’s financial status. However, there are plenty of situations where it is not a meaningful measure of indicating one’s financial status.

My net worth is roughly -$65,000 and it will get worse before it gets better. It is negative because of the loans I’ve taken out for law school. My net worth doesn’t reflect any value I’m receiving from going to law school.  If I don’t complete law school there won’t be any value so maybe that is accurate. Right now though I have a lower net worth than the homeless guy begging for money on the street corner. Few people would think he is better off than me financially though.  It will be a long time before my net worth is positive even after I finish law school and get a job. That makes net worth not a meaningful financial measurement for me.  I’m not sure what measurement would be the most meaningful to me but I’m going to be focusing on what percentage of my income I’m dedicating to savings and debt repayment. That should give me a good idea of what progress I’m making.

The simplified formula for personal financial success is to spend less than you earn and invest the rest. Blogs like mine concentrate on the spend less part but don’t say much about the earning part. This makes sense since this is a frugality blog but I think the earning part of the personal finance formula is too often overlooked. I’m certainly guilty of it. It is one of the issues I addressed in my “I’m Frugal So Why Am I Poor” series of posts. Other personal finance bloggers are guilty of it as well. In many cases I think this is because they are already earning a better than average income and assume the spending part is what every one needs to address. If you’re only making $15,000 a year though you need to concentrate on earning more, not just on spending less. At that level if you manage to save 10% of your income it is only $1500. This is better than nothing but you’re not likely to ever become financially independent at that rate. I’m looking forward to finishing the semester so I can start concentrating on earning more money and making financial progress. There are probably plenty of others out there who need to concentrate on earning more as well. I’ve added a “Make Money with TFM” page to get the earning more started.

I disclose my income and expenses each month on this blog. There are many bloggers who disclose their online income,alternative income or passive income but there aren’t many that dispose their total income. LuLuGal at HowISaveMoney.net is disclosing her income and finances for this month at least but I don’t know of any bloggers besides myself that regularly disclose their income. There are also quite a few bloggers who disclose their net worth monthly. Disclosing your income is apparently more taboo than disclosing your net worth. I’m sure there have to be a few bloggers that disclose their income. If you know of any please leave a comment and let me know.

This doesn’t have much chance of happening but it should. The federal gas tax has been at 18.4 cents since 1993 when the price of gas was about $1 a gallon. Now that gas is over $3 a gallon the gas tax is a much smaller percentage of the price. The gas tax needs to be raised to help improve the nation’s transportation infrastructure.

That isn’t why I think the gas tax should be increased though. I think it should be increased to help change people’s gas consumption habits. Many people complain about the high cost of gas now but not that many make changes to deal with high gas prices. If gas prices go back down most people will return to their old habits and sales of gas-guzzlers will rise once again. An increase in the gas tax might help people to adopt or continue with gas-saving practices. The price of gas in the United States has long been extremely low compared to the price in Europe. The United States uses over 5 times as much gas and diesel per capita compared to Europe. Higher gas taxes would reduce consumption and help lead to greener alternatives such as walking,bicycling, and use of public transportation. I don’t expect there to be a significant increase in the gas tax any time soon but it needs to happen eventually.

In my Wills and Estates class the other day I learned of a website called Measuring Worth.com. This site lets you measure the historical worth of a dollar. A dollar from my birth year is worth from $5.01 to $16.63 today depending on what measure you use. Using the Consumer Price Index which is the most common measure you get a value of $6.21. That helps you realize the effect of inflation.

They also have several other calculators including one that lets you measure what a historical investment in the Dow Jones, S&P 500, or Nasdaq would have returned. Those returns don’t include reinvested dividends though which makes the returns lower than they should be. Also, for those from the United Kingdom they have calculators for the pound using the UK GDP, CPI, and other data.