Why Your Net Worth is Sexy

Let me ask you something. What is your goal for building your career? If you’re like me, it’s a means to an end. I work to maintain a life where I can provide for my family, and live in comfort. I save up to travel, or buy cool shit. The ultimate goal, however, is to build up a healthy nest egg so that I can actually enjoy a stress-free retirement… at least one where I can have peace of mind where I won’t outlive my money. We all know that the days are over where we can rely on employers (if you’re an employee) to provide your retirement fund. We’ve seen countless companies that have cut the pensions of its hard working, employees who have been contributing to for a long time. Come retirement, gone. All gone. This has happened all over North America. I think it would be foolish to put all eggs in that one corporate basket, and to expect a payout at the end of your tenure. Definitely, it could be one avenue, but it would silly not to have alternate means of retirement income. And if you’re self-employed, well, it’s no surprise. You’re on your own.

Let’s get real, though. Working in IT, as either self-employed or employee will never build you a fortune. To build a fortune, you need to have a revenue stream other than your semi-monthly or monthly paycheque. And, you need to pay attention to actively build it. To that end, I have a philosophy that applies very well to this topic: what you focus on, expands.

what you focus on, expands

That is to say, if you focus on tracking the progress of your net worth, the universe will respond in kind. It will deliver you more opportunities to expand your net worth. Likewise, if you neglect to track your net worth, you’re essentially telling the universe that your net worth is not important to you. Hence your wealth will remain stagnant, or worse will deteriorate. It’s like anything, really, right? Anything to which give your attention to care and maintain (marriage, children, garden, money) will be beautiful and abundant. Left neglected, though… well, you get where I’m going with this.

 

What is Net Worth Anyways?

If you’ve ever had to apply for a loan at the bank, you’ll likely know what your net worth is. Simply put, it’s all of your assets (property, investments, cash) minus all of your liabilities (anything on which you owe money – mortgage, credit cards, etc).

net worth = assets - liabilities

If this calculation is greater than zero, you’ve got a positive net worth. If it’s less than zero, you owe more money than you own. Not cool. Not the end of the world, but unless you have a plan to get out of the red, it’s never going to sort itself out.

 

Tracking your Networth

When’s the last time you checked your net worth? I check mine monthly, at the very least. There have been stretches over the last few years where I have left my net worth untracked. Guess what? It either fell or went stagnant. Since my goal is to have a net worth of significance this lifetime, I am now religious about tracking it periodically, and frequently.

How Best to Track?

photo-1433170897235-615700336230There are a couple ways to track your net worth. The CPA in me says to start simple: Have a simple list in Excel that lists out all of your Assets, and all of your Liabilities. The IT geek in me says to go with an application, preferably online, preferably free that could track all of your assets and liabilities real time, chart and graph them. You can then monitor the progress that you have made over the course weeks, months, and years. Fortunately for you, I am going to illustrate both options for you. I’m also going to give you a template that you can use to start tracking your own net worth. Trust me, as time progresses, and as you start to see the amount of wealth you accumulate over time, the more exciting it will be to update it.

124H-min

 

Step 1: Assets: What do you own?

In the interest of not boring you to death with financial speak, assets are, quite simply, all the shit that you own: your house, your car, investments, cash in your bank account, your dunny collection… anything that would fetch a price on the open market if you were to sell it. So step one, list all of your assets. Do a brain dump of everything you can possibly think of. I personally don’t include any of my furniture, computers, jewelry, clothes etc. I prefer to include only ones with significant value: my house, my car (I’m contemplating even taking this one off the list.)

liquidity

Next, organize it in terms of liquidity. Liquidity refers to how quickly you can turn the asset into cash. Cash in your bank account is obviously most liquid, followed by investments that are easy to sell like stocks and investment funds. These go at the top. Down below, list all the stuff that would take longer to sell: your house, your car, everything else. Total them up.

assets

 

Step 2: List your Liabilities (What You OWE)

Liabilities is all the stuff you have to pay: your mortgage, credit card debt, student loans, lines of credit that you are tapping into… List all of these underneath the assets, and total them up. Again, separate them between what can be paid off in the short term, like credit card debt, as opposed to your mortgage.

liabilities

 

Step 3: Calculate your Networth

Now you have totaled everything you own.  You also have everything on which that you owe money. The difference between the two is your net worth: Assets – Liabilities. Do you rejoice? Are you in tears?

laughing or crying?

 

Step 4: Update Monthly

Where it can be tracked, it can be bettered… which is the entire point. I started calculating my net worth since 2006. I’ve seen it go up and down, but mostly an upward trend over the last 10 years. Looking back over the years, it’s really quite fascinating to see how far I’ve come. I’m sure it would be the same for you. I actually do more than tracking a monthly net worth. I track my net worth according to my lifetime financial goals. For example, in 10 years, how rich do I expect to be? Never mind the how. Just focus on the what. I have a yearly net worth goal, in addition to a 5-year milestone, and a 10-year milestone. Over the years I compare the actual points to the yearly and milestone goals. In one of my previous blog posts “How to Achieve the Crap out of your Goals,” I talk about the importance of having both milestone and execution goals. Certainly, you could apply this measuring your net worth as well.

Milestone Goal = yearly net worth, 5-year net worth goal, 10-year net worth goal

We’ve already established that our milestone goals would be the net worth numbers at the end of each year, 5 years, 10 years, etc.

Execution Goals

The execution goals could translate out to a monthly savings goal every month. Or setting budgetary goals:

  • 10% of total income, set aside for training
  • 10% of total income, for fun stuff
  • 25% total income, long-term savings
  • whatever else is important to you.

My friend Perry Lai, in Singapore, has a site Transform Your Kid (http://transformyourkid.com). He applies this exact same philosophy when teaching his kids about money. He didn’t invent this concept, though, I bet he wishes he has. It came from T.Harv Eker’s Secrets of a Millionaire Mind.

The full concept is this:

Your total (after tax) income for any given month should be allocated as follows:

  • 10% for long term savings for spending (all the big ticket stuff you want to buy)
  • 10% for play (sports movies, etc)
  • 10% for education (personal development, courses, books, coaching, etc)
  • 10% for financial freedom (streams for retirement income)
  • 5% for giving (giving toward causes that better the community)
  • 55% for necessities (living expenses)

Source: http://www.harveker.com/

I personally don’t follow his exact percentages. I do, however, set aside money for each of areas as prescribed. It’s served me well. I think I’d probably do better to follow his allocations. I think I might actually…Anwyays, if you’re looking for execution goals to contribute to your net worth milestones, this is an excellent way to divvy up your money.

 

But, But, But…232H-min

I know what you’re going to say.. but Cat, how do I even start this thing? I don’t even know the first things about putting this stuff together. To this, I have but two things to say to you:

  1. Shut up.
  2. Fortunately, I like you. And I’m going to share what I built with you. Take it, modify it as you wish. Track your net worth.

If you’re already receiving my weekly newsletter, you’re going to get it in your email, in the next couple days.

 

Let’s Make it Even Easier

If you hate spreadsheets, the IT geek in me recommends mint.com. I discovered mint.com back in 2009 when it was only available to the US. I was pining for it, and then a couple years later, they expanded to Canada. I’ve been tracking my numbers using both my spreadsheet and mint.com. They give me the same results, which means… they both work.

I love mint.com. Started by Aaron Patzer, mint is a hub that makes personal finance easy. It connects to all of your banking, credit info, etc. Here is a quick tutorial intro on the benefits of mint.com. It’s totally free to use. It’s owned by Intuit, a reputable company that has dominated the market as the authority on tax and financial software. (They are also located in the same tower as my current client and their organizational culture seems super-cool.) Here’s a quick overview of how it works.

There is another worthy site that does something similar. Wave is a close second.

I do love how they are Canadian. Hence, they understand Canadian and US accounting and tax guidelines. However, their reporting isn’t quite as developed as mint.com. They don’t have (not yet at least) a net worth statement. They’re also younger than Mint, and hence I find that they are comparably limited in functionality. I use Wave to manage my payroll, and they are amazing. Every time I run my payroll, or when it’s time to do my T4’s, I want to send them flowers, they are so good. (More on that, in a future post) But as far as net worth is concerned, I say, give Mint.com a dance.

I use Wave to manage my payroll, and they are amazing. Every time I run my payroll, or when it’s time to do my T4’s, I want to send them flowers, they are so good. (More on that, in a future post) But as far as net worth is concerned, I say, give Mint.com a dance.

 

What you Focus on, Expands

In addition to tracking your net worth periodically, learning about money, and how money works is another way to focus on net worth. To that end, here are some delightful resources that I have gained a lot of wisdom in the arena of money:

I will Teach You to be Rich   Ramit Sethi wrote this book a number of years ago. This was my first and still most noteworthy introduction to the world of saving (not to be confused with finances). He illustrates awesome hacks to save, invest, and even earn money to build your net worth. The part I love most is that he does it in a manner that any idiot (like me) can understand. Don’t let the CPA letters fool you. Accountants are not automatically good savers and net worth builders. (Most of us can’t even add in our heads.)

Smart Passive Income – Pat Flynn, one of my personal heroes. I listen to this guy every day on my commute to and from work. This guy was an architect who was laid off, and then proceeded to build an online empire.  Pat has a podcast where he talks about how to get into the online space, and building your passive streams of income, particularly online.

JenTurell.com – I recently met Jen on twitter. I love what she’s creating. Focused on women, Jen runs a podcast where she interviews female Illuminati in the areas of saving, investing, self-employment and creating financial freedom.

 

There are so many amazing resources out there. These are but three with which I have had very favorable first-hand experiences. You just have to look around and learn from them whatever you can. What you focus on, expands. Focus on your net worth. Really put pen to paper, or digits to keys, and track your numbers. Learn about how net worth works. Gradually you will see the fruits of your labor. You will gravitate toward your goals. There’s no question about it.

Happy Net Worthing!

PS. I invite you to reach out to me below if you want support in any of this.

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