YOUR NET WORTH AND STEPS YOU CAN TAKE TO INCREASE IT

By: Barry Williams

 A Financial Statement is the Road Map to Building/Securing Your Financial Future

 Simply stated – your net worth is your assets (what you own) minus your liabilities (what you owe). So, it could look like this:

 Sell everything you own

- Pay off everything you owe

Your Net Worth

 Is it really this simple? Well, 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.

 To begin creating a good quality financial plan for your future, first determine your net worth. Your net worth shows a snap shot 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 plans begins with determining your net worth.

 Whether applying for a mortgage, looking to get a business or personal loan – your loan officer will begin the process by reviewing your net worth. Presenting an accurate, easy to read Personal Financial Statement immediately shows professionalism which puts you at an advantage.

 Lending institutions, like First State Bank, typically have a standard form they provide. These forms are inaccurately presented to the lender 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. Here are some common areas that users miss when completing a Personal Financial Statement for 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 ski, 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.

 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. I would recommend you update your Personal Financial Statement at least once a quarter. This keeps you in tune with your financial situation, and adjustments can be made as needed. It is important to systematically reassess where you stand personally and financially. Tracking your progress will allow the creation a roadmap that will steadily lead to a secure financial future.

 Conventional wisdom will tell you that you should 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 loan will continue to be a constant burden.

· Don’t Purchase Unnecessary Items – Men, that new sports car may make you feel 10 years younger, ladies, 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, check to see if you can refinance 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 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

 Again, you may know this intellectually, but you must embrace it emotionally. I challenge you to look at your Net Worth and then put a zero in your liabilities column – THAT difference is life changing.

 Remember, that even small changes can make a huge difference in your overall financial well being. To sum it all up, start making subtle and gradual changes in your spending and saving habits, pay off debts, and use an updated Personal Financial Statement to regularly monitor your financial well being.