I like to track my finances every month; I like knowing not just how much money is in my accounts right now, but also where exactly my money went. I use a new Excel spreadsheet for every new month, with a tab for each individual account, as well as a budget tracking tab and a summary page. It sounds like a lot of work, and it is, but it’s worth it for me to know where my money is being spent on. It gives me, at the very least, some illusion of control over my finances.
But, for all of 2008, I was frustrated. Frustrated because of the one number I looked at most month to month, my net worth. This number is easily calculated as my assets minus my liabilities. In previous years, starting in 2004, I saw this number gradually rise from a negative number (thanks student loans) to a positive one. And then to grow further from there. At the end of each year I could see how much this number increased on average per month. It was very reassuring. But not in 2008. Despite my best efforts to save money, my number didn’t budge.
As you know, 2008 was a bad year for the stock market. But I didn’t actually realize how bad it really was. Take a look at this graph:
Between Dec. 28, 2007 and Dec. 31, 2008, the S&P 500 index dropped from 1478.49 to 903.25. That’s a reduction of about 38.9% in a single year, which is a lot more than I realized. Furthermore, in the beginning of January 2008 I had money invested in my 401k and Roth IRA to the tune of about 52% of my yearly salary. I won’t tell you how much I make, but I will say that this means I lost money totaling around 20% of my salary in the stock market, just from money that I had in January. Not to mention all of the money I invested up until October, when the market started really going south.
In a weird way, I find this information comforting. The reason is that I was beating myself up over not being able to make any headway with my net worth over an entire year. But I failed to realize just how strongly I was trying to swim against the current. The fact that my net worth didn’t move much over a year is actually a good thing; it could have been much worse. And with prices as they are right now, my new 401k and Roth IRA investments have a lot more purchasing power for the same amount of money. Perhaps I should care less about the net worth itself, and worry more about how many new investment shares I acquired over the course of the year. Someday, when the market bounces back, I will be glad I continued to invest even in such a year as 2008 ended up being.
What about you? How were you affected by the Economic Storm of 2008?