What’s Your Net Worth?

Have you ever asked yourself that question? What’s your net worth? If you haven’t, then you probably should. Your net worth is a good way to tell if you are winning with your finances or not, and it’s kinda fun to do.

What is “Net Worth”?

Have you ever played organized sports? Baseball? Football? Basketball? Soccer? Something else? No matter what game you’re playing, there’s usually a score involved. That’s how everyone knows who is winning and who is losing. And make no mistake, the goal is to win. However, so many of us don’t have a goal for our finances, and as a consequence, we end up losing the game of money. We don’t know what the score is, and we don’t know what the goal is. It’s sad. It doesn’t have to be that way.

Your net worth is a financial calculation you can and should do annually to keep score on your finances. It takes your current assets (things you own) and subtracts your liabilities to give you your “net worth score”. Your assets are the things you own like cash, investments, cars, homes, boats, jewelry, and if you’re in the southern United States, probably a collection of guns. Your liabilities are your debts and money you owe. Subtracting your liabilities from your assets gives you your balance or net worth. If you are in heavy debt, it is quite possible to have a “negative net worth” meaning your finances are worth less than “0” and so is your net worth. While that sounds absolutely horrible, it’s better to know what the score is than to not know. Otherwise, you won’t know if you’re losing the game and what you need to change to “change the score”.

It’s important to check your net worth. I recommend calculating it and tracking it at least annually. This can help to hold you accountable on how you are handling your finances. It’s way too easy to make a lot of money and end up with very little progress by comparison to your net worth.

Way too many people make huge amounts of money and live the rich lifestyle, but never accumulate any wealth. Why? One of the reasons is they didn’t keep watch on their net worth. It doesn’t mean anything if you make a lot of money, but fail to manage it well. It doesn’t make a difference if you make $500,000 a year of $500,000 a month, if you don’t grow your net worth. I know it sounds crazy, but you can make $500,000 month or more and still have a net worth of $0 if you spend all your money and go into debt.

Knowing your net worth can give you a goal to aim at. Do you want to be a millionaire? Do you want to be a multimillionaire? How do you know how close you are to your goal? How do you know how far you are away from your goal? Knowing your net worth can inspire you to stay on track with your financial goals.

I really like this tool from CalcXML for calculating your net worth to help calculate your net worth.

Growing Your Net Worth

As you track and grow your net worth, it’s important you do the right things with your money. Just stuffing it into a savings account isn’t going to cut it. You need to look for good investments that help you grow your net worth. Rental property investments, mutual funds, well selected stock investments, and even small business opportunities like franchises can all be good ways to increase your net worth outside of the traditional J-O-B.

So many of us get stuck in the single mindset J-O-B. I’ve been fortunate to have awesome employment for over 20 years, but I still wish I had spent more time looking into developing multiple income streams. It’s only been in the last few years that I’ve begun developing multiple income streams. Traditional 401k investments have been in my toolbox for 17+ years. I began acquiring rental properties over the last 3 years. I wish I had started sooner. Now I’m looking at small business and other opportunities to grow my net worth.

$0 or Near $0 Net Worth

I have several family members that really don’t get finances and money. If fact, one of them has attended the same financial class 3 times over 15 years. That’s once every 5 years! Want to guess their net worth? -$50,000. Age 42. That’s a very bad situation to be in.

If you owe a ton of money on your house, it can take a huge chunk out of your net worth. Let’s say you have a $300,000 home, but you also owe $250,000. Your net worth is essentially $50,000. But wait, that’s not all. You owe $25,000 on a $30,000 car. You have $40,000 in student loans.

So now we have ($300,000 home + $30,000 car) minus ($250,000 house debt, $25,000 car debt, $40,000 student loan debt) for a net worth of $15,000. On the surface, this person could feel pretty good about their finances. They are living in a nice house, driving a nice car, and the student loan debts are under control. In reality, they’re very poor.

This is the reality for the average American.

Unless you have a number like net worth to keep score, it’s easy to think too broadly as “I’m poor”, “I’m doing okay”, or “I’m rich.” You can have a net worth of $30,000 or -$70,000, both are poor. It’s easy for someone who can pay all their monthly bills to think they are doing okay, but if their net worth is low, they’re really not doing okay. And some people even think they are rich because have a huge income and some nice toys, but their net worth could be $250,000. They’re not rich.

Net Worth Mindset

Developing a net worth mindset can help you keep your finances on track and headed in the right direction. It’s a simple way give you goal to help you cut out the waste. If you know you are shooting for a goal to become a millionaire that’s a net worth score of $1,000,000. It’s a lot easier to make good decisions with your finances. A good financial decision is one that gets your closer to your goal. A bad financial decision is one that keeps you from your goal.

Last night, our family went out to eat. I have 6 children. It’s expensive to eat out. It cost me $80 to eat cheeseburgers from Five Guys. On the way to Five Guys, my wife and I discussed that we can feed our family at home for $25. Eating at Five Guys did not help me build my net worth, but it sure was tasty.

Net Worth Target

I’m a believer that every American can become a millionaire, so your absolute minimum net worth goal is $1,000,000. I was a millionaire at age 40. Many people do it sooner than I did. I’ve met many people who become millionaires in their 20s and 30s.

As you get smarter and more confident in building your finances, your number should be higher. Since becoming a millionaire at 40, I now have aspirations of reaching the $10,000,000 mark and beyond.

Without being too scientific or getting caught up in the retirement planning game, set your net worth target between $1,000,000 and $10,000,000 to start. Sure some super aggressive types will want to set their goal higher. That’s okay, but the average everyday American can achieve a net worth target between $1,000,000 and $10,000,000 if they get serious about their finances now.

Make wise decisions with your money. Build your net worth. Build your wealth. Help others.

 

Debt Free Lifestyle. Going from Debt to Debt Free.

Debt Free Lifestyle

What does it feel like to live the debt free lifestyle? Simply stated in one word. Amazing. Now if you want a more exhaustive description, I need a few more words. Let’s see. Amazing. Freeing. Liberating. Inspiring. Empowering. My list could go on, but maybe you should hear the story to truly grasp what living debt free is really like.

The Debt Free Journey

My journey to the debt free lifestyle started in my mid-twenties. I was a freshly minted college graduate and had just finished my first year out of college. Still at home with mom and dad, I was paying a modest amount of rent, and I had racked up a bit of credit card debt while looking for a job. A little later the same year, I picked up a car loan, $13,500. My Saturn SL2 four door Sedan…after all I would be getting married and having kids, so I might as well spring for the four door. Yes. I was that kind of kid. Always thinking ahead. I confess I did regret letting go of the hot rods I drove in my teen years. Along with the credit cards and car, I financed my first computer…I needed it to be successful at work. In all, it was around $20,000, and I was 24. Luckily, I avoided the student loan mess that many college graduates are dealing with today. So like any good son, I followed in my parent’s footsteps. Credit cards, car loans, etc.

It was spring 1996, when my debt wake up call came, and thus my quest to become debt free began. In all, it took me 2 years to pay off my debt, but I also invested during that time. Hindsight being 20/20, I should have focused on my debt 100%, but I was young and didn’t have a coach or guide to help me. Once I paid off that $20,000, it was time to start paying on my fiancee’s $20,000 debt. Yes. The double debt whammy. Unfortunately for me, my spouse had gotten into the same mess I had.

Along the journey to pay off my wife’s debt, we encountered a few other snags. Well, actually, they were just stupid mistakes. We all make them. Right? In a stroke of utter genius, I bought my new wife a Kirby vacuum cleaner on credit. After all, it’s the perfect gift for a new bride. That was mistake #1. Then, mistake #2 hit. The meat delivery service…complete with a freezer on credit to store your meat in. Now that was more her than me, so I don’t take credit for both of our mistakes. Those two mistakes set us back 1 year on our debt free life journey.

Now I know this is supposed to be about the debt-free lifestyle, but to truly appreciate the living debt-free, you need to know the journey. Knowing and remembering the journey is critical to never going back into debt. I’m routinely surprise when people finally reach their goal to be debt-free, but then choose to go back into debt believing they can handle it. It’s a lie. Never go back.

The Debt Free Lifestyle

My wife and I paid off our consumer debt in 2002. Just 10 short months after I began working for Dave Ramsey. We were 31 years old. That was 16 years ago. No credit card debt. No car debt. No student loans. It was amazing.

In 2004 or 2005, my wife’s car had a meltdown. For you motor heads out there, her engine blew a head gasket. Yes. It was as bad as it sounds. Rather than making that expensive repair to a 1997 Plymouth Breeze, we paid $3,500 cash for her aunt’s used white Buick LeSabre. She was asking $5,000, but I worked in the family discount. It was the first car we purchased with cash, and it felt goooooood! Since that time, there’s been the silver 2001 Honda Odyssey ($7,000), the red 2004 Honda Odyssey ($11,000), the green six speed 2007 Acura TL ($23,000) (that I purchased after my green 1994 Saturn SL2 started smoking at a red light), the 2007 Honda Odyssey ($21,000) (purchased to accommodate our sixth child), the 2003 Chevy Avalanche ($12,000) I purchased in 2012 when we sold the Acura, my wife’s black 1969 Corvette ($20,000) (she loves that car), and our latest addition my 2012 Grand Sport CE Edition Corvette ($50,000). All paid for with cash. Yes you can do that when you don’t have debt hanging over your head. Oh, and we’ve passed on the debt free cars lifestyle to my son who purchased his 2004 Honda CRV with cash.

I have to say, it’s a lot of fun to get good deals on cars when you pay cash.

Once we were out of basic consumer debt in 2002, we took a short break due to family growth which required us to move into a new home. Once we settled into the new home, it was time to turn our attention to paying off our house. Without consumer debt, its easy to pay off your house early. We paid and extra $15,000 off on our home in about 12 months, then we started paying double house payments. As my income increased, we poured more cash onto “home mortgage fire” while at the same time doing some home expansion. We were able to pay our new home off in around 5 years!

Having your house paid off is a major part of the debt free lifestyle. Let me tell you, the grass really does feel greener in a yard that has a paid off home mortgage. I will say that one thing did shock me a little. When we sent in that last payment, things didn’t feel very different right away. It took about three months to really sink in. When you don’t have debt and you don’t have a mortgage, you’re bank account grows really really fast. Before you know it, you’re looking at your checking account balance going “wow. that’s a lot of money. What do I do with it?” You see. You are now totally, 100% debt free!

I won’t lie. Becoming debt-free is a tough journey. It’s worth it, but sometimes do yourself a favor. Bend the rules. Take your wife out to dinner. Enjoy life just a little. It’s nice to have an oasis or two to refresh yourself in the middle of the journey. It’s okay as long as you don’t abuse it, and lose track of your goal to become debt-free.

Now, one of the most exciting parts of the debt free lifestyle is vacations. You enjoy them more. You get to pay cash. You get to take more vacations, and you get to take almost whatever vacation you want. We like to break ours up a bit. My wife and I decided we liked to take vacations without the kids. I know. Don’t judge me. If you haven’t tried it, you should. You’ll love it. So, I’ve gotten addicted to traveling once per quarter, so four trips per year. My wife and I sneak away two times a year, and two times a year we take the kids. We actually travel a bit more than that, but now that we’re debt free, we can afford to take four bigger trips per year while doing smaller less expensive weekend trips throughout the year. Adult trips to places like New York, the Florida Keys, and Sandals Resort in the US Virgin Islands. Kids trips to Disney World, Sea World, Bush Gardens and more. It’s one of the most enjoyable things we get to do as a family.

We’ve been 100% debt free and living the debt free lifestyle for 5 years now. It changes how you think. It changes how you dream. It changes what you aspire to do with the rest of your life. Now, I’m on a journey to figure out how to pass wealth on to my children and grandchildren as well as whoever I can help.

I was a 24 year old when I realized there had to be a better way and set out on my quest to live the debt free lifestyle. That’s the time I set out on my goal to become a millionaire, and now at forty six, I believe everyone who wants to become a millionaire and is willing to work hard enough and do the right things can be one. Aspiring to become wealthy is a good thing if it is done with the right heart. It’s a noble goal and worthwhile. Wealth is having enough money to meet our needs and wants while leaving enough left over to help others.

Tools for Your Debt Free Journey – Financially Fit Step 5, Becoming Debt Free for Life

 

Get Out of Debt. Live Free.

Well, I was thinking today about the fact that I spent 15 years from March 2001 to May 2016 working for Dave Ramsey, the debt free king, but I’ve never written anything about money or debt on my blog. What a shame! Now I’m working for Steve Down, who has a very similar story to Dave’s. After leaving Dave’s, I thought I was done with the personal finance world, but God had other plans. In early December 2016, all that changed. Now I find myself working to build a new personal finance company to help people say goodbye to debt and re-imagine wealth. Why “re-imagine wealth”? Let me tell you. For most Americans wealth is something they will never have and for other Americans wealth is evil. I’m here to tell you that both of those concepts of wealth are lies. It is my belief that you and everyone else can be wealthy. What is wealth? Wealth is having enough money to meet all of your needs and wants while leaving enough left over to help others. The path to wealth starts with good money habits, and one of those money habits is living without debt. Here is where my story began.

So you want to know how to get out of debt? You’ve come to the right place. Personal debt destroys your ability to build wealth. It’s just that simple. I was 25 when the lightbulb first came on for me. I was fresh out of college and enjoyed what I considered a good paycheck. I worked as an engineer for a local manufacturing company making more money than I had ever made before. I had risen through the compensation ranks of my high school minimum wage jobs to an amazing $13/hr manufacturing engineer. My rent was cheap…very cheap, and life was good. I had a nice reliable car, my green four door Saturn SL2 sedan. I had a 75Mhz Micron computer, a real powerhouse for the time. My other belongings included a 27” Sony TV, a Harman Kardon stereo system, a bed that I made out of wood from Home Depot, and a desk my father built for me. Life was good, or so I thought.

It was tax time, and for the first time in my life, I actually had enough money to be taxed. Along with millions of other hard working Americans, I received my annual W2. I cut open the envelope, pulled out the W2, and then stared in amazement. I was shocked not at the taxes I’d paid, but at the amount of money I had made. $39,000 give or take a little. $39,000…wow. That’s like 10x more than I’d ever made in my life annually. Where did it all go?

I looked around my apartment. I had a paid for TV. I had a financed computer. I had a paid for stereo with some kickin’ speakers. Suddenly, that bed I built and was so proud of didn’t look as good. In the driveway was my financed car with a $315/mo payment. That was my wake-up call. That was the day I realized debt steals your ability to build wealth, and I changing the way I felt, thought and acted about money. I had to discover how to get out of debt.

That’s the first step to getting out of debt. You have to have that wake-up moment where you realize that debt isn’t helping you. It’s hurting you. It’s hurting your ability to find financial security. It’s blocking your opportunity to become financially free. It’s destroying your ability to become wealthy, and it’s preventing you from helping others. Personal debt is not your friend and that’s why it’s important to know how to get out of debt.

Knowing how to get out of debt isn’t the hard part. The hard part about getting out of debt is the doing.

When I had my wake-up moment at 25, I set out on a mission to be a millionaire by age 40, and the first step in my plan was to get out of debt…fast. Unfortunately, there’s no silver bullet to getting out of debt. You didn’t get into debt overnight and you’re not going to get out of it overnight either. Getting out of debt requires a plan and hard work.

How to Get Out of Debt

  1. Create a Debt Checklist. Unfortunately, many people just pay their bills as they come in and don’t keep track of all their debts or where they stand on their balances. This is a disaster for your finances and not to mention a disaster for your health and life. The first step to getting out of debt is to make a list of all your debts including interest rates and payments. Make sure you include any student loans, your mortgage if you have one, and even debts you owe your grandma.
  2. Organize your debts. Create Your Debt Waterfall. Now that you have your list of debts, it’s important to organize them into a payoff schedule. At Financially Fit, we call this the Debt Waterfall. Your Debt Waterfall is the order of your debts that allows you to accelerate your payoff speed with each debt you pay off. Once you pay off your debt, you use the money you were using to pay it off and use it to accelerate the payoff of your next debt.There’s a lot of discussion on how to organize your debts to pay them off quickly, but the truth is, just stay focused and pay them off. If you get distracted or discouraged, you lose. Stay focused and you’ll eventually become debt free.
    (1) Highest Interest Rate to Lowest Interest Rate: In many cases, paying the highest interest rate off first can get you out of debt the fastest and save you the most money. However,
    it can also be one of the hardest ways to stay motivated to execute. If you don’t finish, you don’t get out of debt.
    (2) Calculate the Priority Quotient: The priority quotient is a special method developed by Financially Fit. The priority quotient uses your minimum monthly payments to help order your debts into the fastest payoff method. The debt with the lowest Priority Quotient is the debt you payoff next. The debt with the lowest number of months to pay it off is your highest priority debt. Attack it first, then move on to the debt with the next lowest number of months to pay off. To calculate your Priority Quotient use this formula:
    (Balance / Minimum Monthly Payment = How many months to pay off that debt)
    (3) Lowest Balance to Highest Balance. Ordering your debts and attacking them with the lowest to highest balance can offer you the highest satisfaction giving you little wins along your debt payoff journey. By using this method, you can help keep yourself motivated along the way until you reach the finish line. Many times by attacking the lowest balance first, you can get your first debt paid off in 2-3 months, then use the money you’ve freed up to attack the next debt.
  3. Assess your cash flow. How much excess cash do you have each month? Use it to accelerate your debt payoff plan. We call this building your Focus Fund. A Focus Fund is cash that you are using to focus on accomplishing a financial goal. In this case, you are using your Focus Fund for paying off your debts. It’s important to build your Focus Fund to a sufficient level to attack your debts and pay them off as quickly as possible. If your debt payoff drags on for too long, it’s possible for you to get discouraged and quit only to return to your old lifestyle. Keep your Focus Fund attacking your debts, and you’ll make it through.
  4. Pay Off Your Debts. Once you have your list in order and your cash flow plan, you can begin your debt waterfall. The debt waterfall is what Financially Fit calls your payoff plan. As you pay off each debt, you take the cash you’ve freed up by paying that debt off and attack the next debt. As you pay off more and more debts, you’re Focus Fund grows larger and larger until you have all of your debts paid off.
  5. Never go back into personal debt. Personal debt is a trap that will rob you of your ability to build wealth. Sadly, many people who finally become debt free return to debt believing they are more mature now and can handle it. Once you become debt free, the trick is to put your money to work for you. That’s how you can become financially free where you no longer
    work for money because your money now works for you.In most cases, your consumer debt can be paid off in two years or less. For those who are even more aggressive, you can become debt free including your mortgage in 5 years or less. yes, that’s right, 5 years or less including your mortgage! Now that you’ve learned the principles of how to get out of debt, it’s important that you tell others how to get out of debt.

I’ve personally been free of consumer debt since January 2002, and a little later we paid off our mortgage. I can honestly say the grass is greener when you’re debt free.