Before I dive deep into my net worth changes, lets take a moment to be thankful the 1st quarter of 2020 is over. It was the worst first quarter since the 2008 financial crisis! The S&P 500 closed this quarter down 20%, ouch! I hope to never see my numbers drop like that again. Thankfully my net worth bounced back a bit in April, thanks to a hefty tax return.
2019 Tax Return
April is a great time of the year. Flowers are blooming, trees have buds, and our anticipated tax return typically hits our accounts. Many people debate on the best way to fill out your W-4 for withholding money for tax filing at the end of the year. There are varying situations for everyone, but for the sake of time I will discuss my own. As you know, I am a father of two (2 dependents) and husband to a amazing wife. We choose to withhold quite a bit throughout the year on our paychecks, so we both have a withholding status of single with 0 dependents.
You may be asking, why would you do that? You could be holding that in a high interest savings account accruing interest, or allowing it to make returns in you IRA. This goes to the old saying, "you won't spend, what you don't see." I find it as a way of managing the urge to spend money on frivolous items that are not needed. If I kept the amount additionally withheld I would have built more wealth, and felt more financially secured. This would then allow me to feel more secure about spending money on something my family or I did not need. I find it as a way to prevent lifestyle creep.
I am sure you are wanting to know the juicy details of the return, and could really care less about the why. My wife and I received $7,534 from the Feds and $796 from the State. This was a hefty return that further cushions our financial status during a time of uncertainty.
What to do with the Tax Return?
This is a substantial amount of money that we look forward to receiving each year. I am sure you all are asking the typical question, "What will you spend it on?" Last year we used it on a home improvement project, but this year we plan to do so much more. Part of it will be used to place a down payment on our real estate investment, but a majority of it will go to pay off my wife's student loans used for her MBA. All but $2,330 will go towards paying off her student loans. We will make the student loan payment as a recovery further progresses. I believe we are in a solid financial situation to afford a discounted purchasing price for the short-term rental property by the end of the year as we begin recovering.
April 2020 Actual vs. Budget:
This month's spending was an interesting one. I invested in a deep freezer, as we have a new addition to the family. A future engineer was born mid-March during the start of the Coronavirus frenzy. My family wanted to minimize the amount of times we went out into the world after we received a shelter-in-place order. This allowed us to stock up our meals in the freezer for the month of April. Below are summaries of the variance in my Actual vs Budgeted Spending:
I am sure your eyes went to 2 or 3 line items under the Flex Spending Variance. The $6,000 has been allocated to the wife's student loans. The huge shopping number came from the roughly $650 deep freezer purchase, or was it the toilet paper? That was a joke, it was definitely the freezer that cost $650. I did spend more on groceries this month to prepare for the shelter-in-place order.
April 2020 Net Worth:
The good news is the stock market didn't continue to plunge in April. I also continued to put money into the 401k and IRA accounts, which helped the net worth increase. I am staying the course and resisting the emotional decision pressing me to reallocate the investments. Resisting the urge to take the losses and flee is tough, but I am into my early 30's. I have quite a ways to go before retirement. I am looking at the significant drop in the market as equities on sale, and will continue to contribute my 8% into my 401k / IRA.
The Financial Engineer's April 2020 net worth is now roughly $123,550. This was an increase of $9,294 from March. The change was driven by an increase of $4,443 in my 401k; $1,000 in my IRA; and the tax return funds that will have $2,330 allocated to the Real Estate investment savings. The remainder of the changes were driven by paying the mortgage and my car loan.
Everyone's net worth will continue to bounce back and forth until the Coronavirus becomes a memory and the panic calms.