Get an idea of your Networth

 

 

This is step 2 of my 10 recommendations, for a financial tune up. This one is easier than sitting down and setting up a budge but is still very important.

 

Before I start on this step, I wanted to mention that the new Excel 2013 has tons of different budget templates. I recommend people to take a look at the family budgets, they are easy to use. There are also templates to budget for a wedding, a renovation and much more. I love it!!

 

Figuring out your Net Worth is pretty easy. You take all your assets and minus all your debts. It is how much money you would have, if you sold all your assets and paid off all your debts. If you Google Net Worth calculator, you can find many calculators online.

 

Assets = Cash in hand, funds in bank accounts, Retirement savings, Vehicle, real-estate, stocks, bonds, life insurance (if it has any cash value), personal items (jewelry, artwork, furniture, collectables etc.).

 

Liabilities = mortgage, credit lines, installment loans (for vehicle or other purchase), credit cards, student loans, home equity loans, back taxes etc.

 

Even though you most likely will never sell all your assets and pay off your debts, knowing your net worth will hel0p you make better decisions on how to accomplish your financial goals. It will also help you be prepared, when you go into the bank and ask to borrow money, as Net Worth is one of the many things they will review with you.

 

Be prepared that this number may be low or even negative, especially when you’re young. A large mortgage, student loans or steep credit card/credit line debt could send you into negative territory. A negative net worth isn’t always bad. For example if you just finished school and started your first job, most likely you will be negative. This is expected and doesn’t reflect on bad finances.

 

USUALLY your Net Worth will be low when you are young, as MOST young people will have a lot of debt and little assets. We acquire student loans, car loans, mortgages and much more in our younger years. The goal is to track your Net Worth and for it to increase overtime. As you pay down your debts your Net Worth will increase and as they are fully paid off, it will free up cash flow to put towards other purchase of other assets or invest.

 

Tips to increase your Net Worth:

 

Pay off your debt quicker. Avoid debt if/when you can

-          Change your debt payments from monthly to bi-weekly, if possible. Bi-weekly payments allow for more money to go to principal and will have the debt paid off faster, with less interest.

-          Increase your debt payments. Same as above, it will help your debt to be paid off faster, with less interest. Even if you can afford to increase them by just a small amount, do it, it will add up and have them paid off faster.

-          If you have a debt with a large payment, then look at possibly selling an asset, you are not using. This will free up cash flow to go to other expenditures.

-          AVOID using a credit card, unless you can pay it off in the short term. Credit card interest is usually high and the minimum payments are so low that you are usually paying mostly interest and fees. Many people use a credit card as an emergency reserve account, ahhhhh, don’t do that. Please try to avoid this and instead pay a certain amount each month to a savings/emergency reserve account and use that money when an emergency arises. Not to say, I haven’t had to do this before, I have, but have learnt from it!

 

Increase your income/cash flow

-          Get a second job for the short or long term (depending on your situation) to help you pay off some debts and/or save

-          Get the kids to help out. If you have teenage working kids, have them help out towards phone, internet bills and possibly rent (depending on your situation). I have had clients in my office that wanted to buy EVERYTHING for their child, their education, vehicle, etc. This would be great, but this particular client I am thinking of came in to borrow the money every time and was getting largely into debt. This was not helping her situation

-          Take on a roommate or live in student. Use the extra income to pay down some debts and/or save

 

Decrease unnecessary expenditures

-          Look at your monthly budget and see if there are expenses you can cut back on and use those savings to pay down some debts and/or save. I  touched on this in my last blog

 

Make good decisions. Wait till you’re ready and do research, before making big purchases

-          Be careful when buying cars. They can be a money pit. Buying a car with a large monthly payment is going to take away from your money being saved. If you buy new that car, it will most likely depreciate to next to nothing in 7 years. I am not saying don’t buy a car, if you really need one, just be careful. The monthly expense of the car payment, insurance, gas, maintenance can really add up. Try to buy a vehicle that is going to last a long time and that will fit into your monthly budget, while still allowing you to put money towards savings.

-          Don’t buy a house until you are really ready! Look at renting vs. buying and make sure you know that with that mortgage payment will also come property taxes, utility payments, maintenance and much more.

-          If you are going to buy a house try and save as much as you can to put towards the down payment. Many people put 5% down just because that is the lowest they can do, but with that will come extra mortgage insurance fees and if you need to sell in the short term, your mortgage may end up being more than the property price.

-          When shopping around for a mortgage make sure to find out all the features/benefits of the mortgage you are choosing. Many people go with the lowest rate, but I also recommend look at the pre-payment options and other features. Going for a  mortgage with a SLIGHTLY lower rate won’t do you any good if there comes a time you want to make extra payments and can’t. Increasing your mortgage payments by $100/month and/or making a lump sum payment every year and/or choosing bi-weekly payments vs. monthly can save you way more than an interest rate that is marginally lower.

 

 

Start Early

-          Get on track EARLY. Learn about money, set up a budget and track your Net Worth from a young age. Focusing on debt repayment and starting to save at an early age can really pay off HUGE!!! I recommend for people to look at some calculators online i.e. take a look and see if you were to save $100/month form age 20 to 65 vs. from age 25-65 and see how much a difference it makes. You can Google and find all sorts of different calculators to help you with this

-          Take a course on investing. I had to do this before becoming banker obviously, but I truly feel that everyone can benefit from taking financial courses.

 

Invest

-          Invest in your future. Put money towards your short term and long term savings each month. I.E your savings account, Tax free account, RRSP etc.

-          Put a monthly amount of money towards your child’s education as soon as they are born. If you hope to pay for some/all of your child’s education, then start early. Tuition and other fees can be expensive and will most likely continue to increase. If you can do this, it will help you/them in the long run to not have to borrow as much later.

-          Look at investing in income producing assets. I.E dividend paying stocks. Talk to an investment professional about this one.

 

All the best in your ventures towards tracking and increasing your Net Worth!!