THREE REASONS WEALTHY PEOPLE KNOW THEIR NET-WORTH
I write my annual goals each January, including Net-Worth target. When I started calculating and setting an annual net-worth target, I took better control of my wealth creation. Calculating your 2019 December, net-worth is like taking a picture of a house you are rehabbing. From that picture you determine the improvements you plan to work towards for the next 12 months
THREE KEY REASONS
- Net – worth is the most accurate measure of wealth and simple to calculate. 2. It enables you to measure your financial progress from one year to the next. 3. A growing net worth is the best sign you are moving forward.
CALCULATING YOUR NET-WORTH
There are numerous free spreadsheets you can find using Google. Here is a free sheet in Excel. For Apple users Numbers has one as well.
Net Worth = Assets – Liabilities
Add up all your assets and liabilities, then subtract your liabilities from your assets.
Most years I grew my Net-Worth. In 2008, my net worth declined A DANG LOT! That happens, so do not panic any more than Tom Brady does in the first quarter when he is down by nine points. We are playing a long game.
TWO MEANS TO GROW YOUR NET – WORTH
-
Increasing the value of your assets, and/or;
-
Decreasing your liabilities/debts.
In 2019, I grew my Net-worth by paying off four rental property mortgages and increased value in my stock portfolio. My largest holding, Apple, gained ~85%.
INCREASING YOUR ASSETS & NET-WORTH
PAY YOURSELF FIRST
If you have not done so, set up your 401(k) through your employer with automatic contributions each pay period. The Federal government increased 401K contributions for 2020. You can contribute a maximum of $19,500 and if age 50 or greater you can make an additional catch up contribution of $6,500 for a combined $26,000 annual contribution. Your goal is to contribute maximum contribution levels!
I paid my last car loan off about 15 years ago, I diverted the ~$300 from my loan payments to my Fidelity Savings Account. Assuming 8% returns in an S&P 500 ETF, over $104,000 in that account came from that painless savings.
https://wealthbuildingpowers.com/2019/07/01/create-wealth-by-paying-yourself-first/
Increase your 401(k) contribution
At a minimum, if your company offers a match, contribute enough to get it. Increase your contributions minimum annually. I would increase my contribution each time I received a raise. Keep pushing your contributions toward that $19,500 or $26,000 maximum. I guarantee you when you retire you will be a happy man or woman.
If you can afford to after reaching the maximum contribution in your 401K open an IRA or ROTH IRA. KEEP GROWING YOUR NET-WORTH!
https://wealthbuildingpowers.com/2019/06/10/401k-millionaire-club/
ASK FOR A WELL-DESERVED RAISE
When is the last time you received a raise/promotion? I was talking to an employee one day at an operations site I was visiting and he informed me he had been passed over for supervisor several times. He was angry. I asked him “Have you informed your boss you are interested in becoming a supervisor?” He said no. Managers cannot read your mind. If you believe you deserve a promotion, raise or better BOTH- ASK HER. Let’s face reality, companies’ goals are to pay competitive (minimum) wages and ZERO more. If you are a GREAT employee, who puts in long hours and delivers results – you deserve a raise. Ask for it. Just like your spouse did, your boss just might surprise you.
Go into the conversation prepared. Know when your last raise was and the percentage. List your key accomplishments since that raise. Ask for the amount you DESERVE and then negotiate. {Hint: Use this data to update your resume and LinkedIn profile.}
“You need to sit there and talk about your value. Talk about what you have done that has increased revenues, increased engagement, or how you’ve been working from nine to nine, even though you are only supposed to be working from nine to six. … You don’t need a raise, deserve a raise.” Tyra Banks
CHANGE JOBS
I changed jobs several times during the course of my career and would receive on average 10-20% increases each time. Compared to a typical 0 to 3% annual raise. When you asked someone out and they said no, I assume you moved on or asked again. If you are undervalued and under paid, {unless you have a pension} why are you still there?
HIGH YIELD SAVINGS ACCOUNTS
My Uncle would keep tens of thousands in his checking account. I have no idea why, but he could afford it. I keep about a month’s salary in my checking account. I put my other cash to WORK, earning income, increasing my net worth.
SIX MONTHS EMERGENCY SAVINGS
Start building up at least six months’ worth of expenses in an emergency fund. Place this in a high yield savings account where you can earn > 1% interest, rather than the 0.01% earned in a traditional checking or savings account.
INVEST IN THE STOCK MARKET
As I have said multiple times, my favorite stock market investment is the S&P 500, which increased ~28% in 2019. I guarantee you, 28% is NOT the norm. Some years you will lose money in the S&P/Stock market, but overall, the S&P 500 averages about eight percent annually.
https://wealthbuildingpowers.com/2018/07/19/its-time-to-invest-in-equity-sp-500-etf-index/
DOWNSIZE YOUR HOUSING
Look for a place that costs you 25% or less of your pretax income. If single consider a roommate? Make sure you find an honest person you at the minimum will not mind living with.
INVEST IN RENTAL PROPERTIES
If you have cash to invest, rental properties provides a great way to grow your net-worth over the long term and save money on taxes annually. Consider commercial properties as part of your portfolio.
CONCLUSION
Reviewing your net worth statements over time can help you determine 1) where you are, and 2) how to get where you want to be. This can give you encouragement when you are heading in the right direction and provide a wake-up call if you are not on track.
By knowing where you stand financially, you will be more mindful of your financial activities, better prepared to make sound financial decisions and more likely to achieve your short-term and long-term financial goals.
To Join Wealth Building Powers BLOG:
PLEASE SIGN UP TO FOLLOW THIS BLOG by providing your email in the subscribe box.
To follow my daily posts on Instagram click:
http://instagram.com/wealth_building_powers
Thank you to my followers and readers, for your likes and comments. All comments, recommendations and feedback are welcomed and utilized to improve this blog.
ABOUT ME
I am a proud nerd (as my beautiful wife and daughter have told me) investment and finance blogger, with a NC State, Chemical Engineering, University Rutgers, MBA and Harvard University, Advanced Management education.
I left a corporate career because I had a desire for making a difference as a speaker and writer, to help others. I was blessed to be coached and mentored by strong women and men in both my family and professional life. It is my time to serve and give back.
DISCLAIMER
I started my first business at ~13 years of age (small but brilliantly created plant nursery). I am a successful investor in stocks, options, real estate and happy to share my personal finance and investment lessons learned with you.
However, I am NOT a licensed financial advisor. Please do not construe my suggestions on this blog, as recommendations for your personal situation. For individual finance advice please seek your own licensed CPA or fiduciary financial advisors.
I write this weekly blog to make an impact by reaching an audience and demonstrating the need for financial literacy. I will help you get there.
1 thought on “THREE REASONS WEALTHY PEOPLE KNOW THEIR NET-WORTH”