Valuable Tips for
Increasing and Tracking Net Worth
Author:
Peyton Buchanan
Tips
to Increase Net Worth Now!!!
Common
areas users miss when completing a Personal
Financial Statement the first time:
1.
Cash
on Hand – If you have cash
at home, in a safe, or a safety deposit
box, remember to list it.
2.
Real
Estate – enter the market
value, not the price paid.
3.
Personal
Assets – Enter all personal
assets that have value. Example: wife’s
jewelry, flat screen TV, computers,
furniture, lawn equipment, boats,
jet skis, collectible items, baseball
card collection, artwork, etc…
4.
Personal
Assets - list the items above
or the amount that your personal items
are insured for on your Home Owner’s
Insurance Policy, whichever is greater.
5.
Life
Insurance – Enter the Cash
Value of the Life Insurance Policy.
6.
Budget
so that annual expenses are never greater
than annual income.
7.
Pay
off your debt – We all
know this in an intellectual way,
but do not embrace this concept emotionally.
Look at your Net Worth, and then put
a zero in the liabilities column.
The difference is life changing…
A
Financial Statement is the Road Map to Building/Securing
Your Financial Future!
In
a nutshell - mathematically your net worth
is your assets (what your own) minus your
liabilities (what you owe). Basically, if
you sell everything you own and pay off everything
you owe; net worth would be what is left over.
“Is it really this simple?” Yes
and no. The basic premise is simple; however
putting all the data together to calculate
Net Worth is more difficult. This is why the
Personal Financial Statement was developed.
In
order to begin creating a good financial plan
for your future, net worth must be determined
first. Knowing your net worth shows a snapshot
of your current financial position. This will
allow you to begin planning and setting goals
for your financial future. Every plan must
have a starting point. The development of
a financial game plan begins with determining
your net worth.
Whether
you are applying for a mortgage, looking to
get a business or a personal loan - your loan
officer will not even begin the process without
reviewing your net worth. Imagine the look
of surprise on your lender’s face when
you walk into his/her office with your personal
financial statement in hand. The professionalism
this shows puts you at an advantage by presenting
an accurate, easy to read Personal Financial
Statement.
Lending
institutions typically have a standard form
they provide for free, but it is to be completed
by hand. These forms are inaccurately presented
to the lender approximately 50% of the time.
This is not to fault the individual completing
the financial statement, because 85% of them
have never seen a Personal Financial Statement
form or calculated their net worth.
Once
your net worth is calculated - it is tempting
to file it away, forget about it, and never
use it again. This could be detrimental to
your financial future. Your financial position
and future is not something to put “out
of sight and out of mind”. Finances
are constantly changing, so these changes
need to be constantly monitored. It is recommended
to update your Personal Financial Statement
at least once a quarter (every 3 months).
This keeps you in tune with your financial
situation, and adjustments can be made as
needed. It is important to constantly reassess
where you stand personally and financially.
Tracking your progress will allow the creation
of a roadmap that will steadily lead to a
secure financial future.
You
should constantly look for opportunities to
continue growing your net worth. Take time
to analyze your financial situation and then
take the proper steps to gain control of it.
Step
1: Get Rid of Bad Spending Habits
•
Quit
Spending More Than You Earn
- This sounds simple, but do not spend
more than you earn, if you do, you
will never increase your net worth,
and your debt load will continue to
be a constant burden.
•
Don't
Purchase Unnecessary Items
- Men, that new sports car may make
you feel 10 years younger and women,
that $1,000 purse does look good over
your shoulder, but if you are serious
about increasing your Net Worth, these
things can wait.
•
Stop
Treating Luxuries as Necessities
- This can be a touchy subject, because
some people’s necessities may
be other’s luxuries and vice
versa. You know the difference, so
get rid of a few luxuries for the
time being.
•
Don't
Acquire Debt for the Wrong Things
- If you are broke, it might
not be the best decision to take that
3 week vacation to Hawaii.
•
Always
Know Where Your Money is Going
- OK, I am going to say a bad word
that nobody wants to hear –
“Budget”. This is the
best way to track your funds and where
the money is being spent. You do not
have to be on a budget forever, but
at least try it until spending habits
are under control and positive net
worth is achieved.
•
Transfer
Balances on High-Interest Credit Cards
- Transfer your balances
to a lower interest credit card. Credit
card companies are fighting for your
business, you should be able to find
a card with a better interest, or
call and negotiate with the company
you are with. If they believe they
are going to lose your business, they
will typically lower your rate. You
might even be better off consolidating
your credit card debt with a home
equity loan or a line of credit which
could offer you a lower interest rate.
Step
2: Review Long Term Debts (Liabilities)
If you have a high interest rate mortgage,
look into refinancing it at a lower interest
rate. You may be surprised at how much more
cash will be available and how much interest
will be saved over the life of the loan.
Step 3: Make sure Your Assets are not Depreciating
If
all of your assets are depreciating, your
net worth will naturally continue to decrease.
Invest in assets that increase in value instead
of decrease in value.
Step 4: Pay Off Short Term Debt
Many
know this in an intellectual way, but do not
embrace this concept emotionally. Look at
your Net Worth and put a zero in the liabilities
column. The difference is life changing.
It
is important to remember that even small changes
can make a huge difference in your overall
financial well being. Make subtle and gradual
changes in you’re spending and savings
habits, pay off debts and use an updated Personal
Financial Statement to constantly monitor
your financial well being.
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