NET WORTH: YOUR FINANCIAL SCORECARD

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Financial goals are a common goal set at the beginning of a new year. But how do you know you are actually reaching your goal. Enter net worth. Understanding it can help skyrocket your financial success in the coming years. Benefits include

  • Understanding the flow of money
  • Understanding why investments are good or bad
  • Knowing exactly where you are so you know where you’re going
  • Giving you a scorecard to see if you are progressing or regression and explain why.

WHY MONEY ISN’T A BAD

People carry a lot of negative energy around money. Think about what you’ve heard and said about money. Do they sound like this?

  • Greedy as a pig
  • Money is the root of all evil
  • Rich people are jerks
  • Money doesn’t bring happiness
  • More money, more problems

Holding these beliefs will stymie you from achieving wealth and riches, but these beliefs aren’t necessarily true. I’m not going to dive into this subject as it can fill books. I will briefly address this and provide some links to resources on a wealth mindset.

ADDRESSING YOUR MINDSET

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Think about what you most consistently think or say about money. Do you say any of the things above? Now think about what your life could be like with twice what you have now. What could you enjoy? Who could you be? Who could you help? And when you think about your vision of yourself, does it actually embody any of those thoughts?

Now think about money and riches as if they were your significant other. If you constantly said those things about your wife or husband would they stick around? Well, the universe will treat wealth in your life the same way.

See the Resources section below for some of my favorite resources around wealth mindset.

WHAT IS FINANCIAL WEALTH?

If you died today and your estate was settled, what would be left? That is your net worth. The equation is very simple

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Net Worth = (All your assets) – (All your debts)

Net worth is not your income!! Let me repeat that again…

NET WORTH IS NOT YOUR INCOME.

Think of it this way. If you died who is around to work for that income? However, if you derive income from a business or investment that pays unearned income you can determine a value of that business or asset-based off its Yearly Net Revenue.

WHY TRACK YOUR NET WORTH?

IT IS HOW THE RICH KEEP SCORE

The quickest way to achieve something is to model someone who already has what we want. So why not model someone who is already rich?

Ask someone who is truly rich and I’m confident they will talk about their net worth. The rich are rich because they have multiple assets making them money. This makes it difficult to just give a number. They have to take everything into account. Not just a number in a bank account.

LEARNING HOW TO BUILD WEALTH

The flow of money

Understanding the flow of money is the key to becoming rich. Learning how to take cash reserves and invest it. Then, seeing how the investments grow is part of learning the flow of money. Seeing this in action reinforces the behavior of investing and keeps it in our mind. Learning shows us we don’t just invest because we were told to, but helps us understand the why and how.

Diversification

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One of the key things we learn from listing all our assets into one sheet is to see how diversified we are. Diversification allows us to spread out our investment risk.

Every major asset class will take a major hit in our lifetime.

I forget who actually said this, but take a look at asset charts over a 100-year history and see if it’s not true. Go ahead… I dare you.

Seeing how we are actually invested helps steer us in the direction of diversification.

What you measure grows

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Where focus goes energy flows. — Tony Robbins or Jim Rohn (take your pick)

By measuring our financial results we put increased focus on it. This helps us build energy around our wealth. Where we spend our energy we grow in that area.

The Map

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Imagine getting ready to travel someplace you’ve never been. What do you do?

  • Open Google Maps
  • Input your current location (GPS)
  • Input your destination
  • Click start navigation

Well, a key step in getting to where you are going is to know where you are. If you wanted to get to New York, would you just start driving? NO! Because if you’re in Baltimore you need to travel north. If you’re in Boston you want to travel south (If you’re from Boston you probably are trying to avoid New York). Hence you need to know where you are.

Tracking your net worth gives you the “where you are”. Get it!

Knowing where you currently are might actually be a hard step as some of us aren’t in great shape. But take heart its the start of the climb out.

CELEBRATE

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The best way to reinforce good habits and our happiness is to celebrate our victories. Visually seeing our financial victories is a huge reason to celebrate. By celebrating we feel pleasure reinforcing the behavior of investing.

WEEDING THE MENTAL GARDEN

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It is naive to think that we will only have positive growth. Markets fluctuate, asset classes take hits. Seeing this will cause negative emotions and thoughts such as anger, frustration, and overwhelm. What an opportunity!

Dealing with negative emotions and feelings allows us to weed our mental garden. Facing and removing those negative emotions and energy allows space for new positive emotions and energy.

So how do we deal with them?

A negative emotion is a trigger to us that something is wrong. This should be a trigger for you to ask yourself different questions about the situation. Some great example questions to ask are

  • Why am I feeling this way?
  • Am I focused on money from a place of fear or love?
  • Is money the measure of how I view my self-esteem?
  • Why is this situation good?
  • Is this an opportunity to get in on the cheap?
  • How can I learn more about investing and strength my investments?

How did you answer these questions? Did you learn anything?

MONTHLY WEALTH HEALTH REPORT

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Checking your financial accounts regularly is an excellent habit to get into. When doing so you might

  • Find bank accounting errors
  • Save yourself myself from being overdrawn
  • Find instances of fraud
  • Find new investment opportunities

IT’S FUN!

Every month make checking your accounts something you love doing. Make it a ritual that you’ll look forward to. Pour yourself a glass of wine and watch yourself get rid of debt or grow to new levels. Realize that you’re a badass and the decisions you’ve made have created this increase.

If you have fun, it will become easier to attract more positive results.

HOW TO TRACK?

Tracking is easy, but it takes a little leg work. Lucky for you Gary Keller, author of The Millionaire Real Estate Investor, has done the hard work for you.

  • Add up all your assets including
    • Retirement accounts
    • Cash
    • Checking/Savings
    • Real Estate
    • Collectables
    • Insurance
    • Businesses
  • Add up all your debts including
    • Mortgages
    • Student loans
    • IOUS
    • Car Loans
    • Outstanding taxes
    • Personal business debts
  • Take the difference

How to make the task winnable?

  • Do your net worth tracking the same time every month?
  • Make it a ritual. Sit down with a glass of wine or coffee and relax.
  • Don’t sweat the small stuff!
    • Small collectibles
    • Cash in the couch cushion
    • Factoring taxes and commissions
    • The more accurate the numbers the better, but spending hours calculating the commission or taxes on each item doesn’t add much value. Tracking down the value of each of your 5000 baseball cards takes to much time. Just throw in a fairly accurate estimate or leave it out. Remember the exercise is to understand how money flows not a ranking or balance sheet to get a loan.
  • Use a service like Mint to aggregate your accounts.

FREE WEALTH MINDSET RESOURCES

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