Warning: Reading this post will give you homework. But you are not phased by that! You are here because you are ready to do the work in order to build wealth for you and your family!
You build wealth in your family by doing two things:
You have to do both in order to build wealth but you can only start with what you’ve got so you need your own balance sheet. Thus the homework. I have a template for you here but feel free to build your own!
Your balance sheet is your financial report card. It tells you where you’ve put your efforts and how well you’ve done. It will change year to year and as you look at the changes, you will know how and why it has changed. This is the story of your life in numbers. So let’s do it!
Step 1: List your assets
What do you own in this world? A house? A car? A patent on wireless charging? Write it all down and do your best to estimate market value, or what you could get for it if you sold it. Use the Internet to research the value of your things but try not to obsess about it. Your best guesstimate will do.
Now add all of these assets together in your Total Assets cell to look like this:
Step 2: List your liabilities
What do you owe? This list typically includes things like a mortgage, a car payment, student loans, medical bills, a personal loan to your parents, and credit card debt.
Now add all of these liabilities together in your Total Liabilities cell. It should look like this:
Step 3: Subtract your total assets from your total liabilities
This is your net worth. It is what you are worth on paper. It is what you would have left over if you had to sell it all off and pay back all of your debts.
Don’t get too caught up on this final number. It is less important than the components that make it up. It does not tell you who you are as a person, it only tells you about the choices you have made, consciously or unconsciously. Now that you are equipped with this, you are going to make conscious decisions and explode this number little by little.
Step 4: Explode the Assets, Implode the Liabilities
Let me hit that point home again: Explode Assets! Implode Liabilities!
Start with either thing. Choose one line item from either your asset or your liabilities list and say to yourself “How do I learn to do better with this thing?” Focusing on that thing will lead you to the next line item that you can work on. Like Santiago in The Alchemist, once you make it known to the universe that you intend to build wealth, the universe will conspire to help you and show you the way.
When I first did this in 2011, I started with stock investment accounts. I wanted to learn to evaluate those assets and see if I could do better. Around the same time my husband got hooked on rental real estate. So we went back to the balance sheet and found assets that were not performing. We decided to change them into Performing Assets by buying investment properties.
Real estate is our Performing Asset. It doesn’t have to be yours. We can teach you to be real estate investors but if you have a different way, power to you! The point is: Do your assets PERFORM? Can you pay bills with them?
Once you learn to see your assets as either Performers or Nonperformers you are in charge! We have used all manner of tricks to switch our duds out for work horses! Not one trick – all the tricks! We borrowed from our 401k. We bought real estate inside of self-directed IRAs. We used a Home Equity Line Of Credit. We learned to make educated decisions with our own personal road map.
As you turn your attention to your liabilities column, you learn how to make sure you are not – as my father puts it – paying too much money for money. What unfavorable debt do you have that can be switched out for more favorable debt? Can you take from your asset column to pay off bad debt in order to free yourself?
More importantly, how much life does your liability column suck out of you? Does your entire monthly income go towards paying for liabilities that are for non-performing assets? Woof! That’s exactly where you do NOT want to be. You must figure out how to change that. Remember this important quote from Robert Kiyosaki’s Rich Dad, Poor Dad: “The rich buy assets. The poor buy liabilities.” It is important that your money is going towards buying Performing Assets, not paying back someone else money for money.
Of course each of these strategies is a tactic in and of itself and I strive to help you identify all manner of tactics here. I am not telling you to actually do all of them. I am telling you to educate yourself about them and find the ones you are comfortable with. Because despite with Dave Ramsay says, there is no one way towards financial freedom. There is only YOUR way. It is laid out in front of you. You just have to start to travel it.
I will end with this: Do not be afraid. You were not given money to hold onto like a life preserver. Money flows through you when you are financially free. You are given money to grow and to thrive. You will not do so if you are force fed the company line from big banks. You will not do so if you do not do the work for yourself. You will only do so once you start carving your own path. My husband Clayton and I hope that we can inspire you to do just that!
Disclaimer: Natali Morris is not a certified financial planner. This blog is an effort to inspire others to be in charge of their finances. Consult with your team of experts about your choices and make sure that team is the best suited to defend you in the van guard!
Let’s talk about net worth! I want to make this as fun as possible so you don’t get stressed out so here goes!
Donald Trump’s net worth has been much discussed lately so let’s use him as an example. When The Donald says he’s worth $10 billion that does not mean that he’s got $10 billion worth of gold coins in a vault that he can swim in like Scrooge McDuck. It means he would have $10 billion if he sold all of his assets and paid off all of his debts.
Your net worth is what you and your family are worth based on what you own and what you owe. You calculate this with a document called a Balance Sheet. Here’s the calculation:
Your Assets – Your Liabilities = Your Net Worth
This number may not mean a whole lot to you today but if you track it every year like a good CHO, then you will become aware of the slow and steady growth of your family’s wealth. That’s why we do this: to monitor and ensure progress!
And do I have a spreadsheet to share with you to calculate your net worth? Baby, you know I do! I (heart) spreadsheets! Click below and I will email you a template to create your very own Balance Sheet! Get the download, pour a glass of booze, and let’s get all number-y!
And now for a funny net worth story. I have been tracking my net worth since I was 12. My father, a small business owner, was a firm believer that what gets measured gets done. Every summer he required me to create a Balance Sheet and submit it to him. Back then, my net worth looked something like this: Please don’t be impressed that a 12 year old had $15,000. My parents were great savers and that money was technically theirs but my name was on it too so my dad let me count it. Over the years, my liability rows have swollen considerably. Mortgage payments, car loans. You know. Thankfully my assets have swollen too. (There’s a good dirty joke in there somewhere…) I’d love to tell you that my net worth has grown steadily over the years and that is mostly true but not always. Finances follow the natural rhythms of life: peaks and valleys. But the point is that I can track and usually explain to myself when we are up and when we are down in the net worth department and I can compare to years past to get a sense on general growth and portfolio performance. So, dear CHO, your mission, should you choose to accept it, is to calculate your net worth using the Balance Sheet I have provided. You do this for yourself if you’re single or for the entire family if you’re in one.
For Extra Credit, you must revisit your Balance Sheet at regular intervals. The SEC requires public companies to disclose net worth quarterly but thankfully CHOs are unregulated so you can do this whenever you want. I do mine 2-3 times per year because I’m obsessive but I advise you to do it at least once per year.
Now before I leave you, a a few tips for filling in your spreadsheet:
Okay now! How was that? Any questions? You know how to find me! I’ll gladly help you get started because we’re in this together!