In an earlier article, I asked you to calculate your net worth by subtracting your liabilities from your assets.
What is an asset? The simplest definition is an object or financial product that can be converted (sold) into money.
But the question is more complicated than that.
Take your vehicle, for instance. While it may be sold, you won’t ever get what you paid for it. Every year you own and drive it, the value depreciates.
Your personal residence is another example. Without constant upkeep, repairs, and renovations to keep it current, its value may wither. If you sell it, will you really pocket the profits while you downsize, or will you be tempted to get a different home of equal or greater value?
Cash is king.
One definition of an asset is anything in your life that generates positive cash flow with minimal or no effort on the owner's part.
In an earlier post, I discussed taking stock of our current financial lives by setting up an annual calculation of net worth.
This week, I want to encourage you to glimpse at your financial future.
There are many ways to do it, but the simplest is to use a compound growth calculator to determine whether your investments (rates of contribution and returns) are sufficient to help you achieve your financial goals by a certain date.
There are many great articles covering compound growth because it is a central tenet of wealth creation. However, the best way to understand compounding is to simply explore a calculator using figures from your own life and then play with combinations.
Retirement at different ages: 55? 60? 65? 70?
Annual contributions: $50,000? $100,000?
Different investments: stocks (~7%) or real estate (~12%) or bonds (~2%)
Have some fun exploring the different options!
One of the most fundamental exercises in personal finance is an annual calculation of household net worth.
Typically, in the summer following our household’s corporate year ends, I stop and reflect on how the fiscal year has been.
Did we thrive or just survive?
Are we getting ahead financially and closer to our dreams?
While the calculation of net worth during a credit application can be tedious, it is important to reflect on your current financial state. And doing it takes just a few minutes.
Like information we review in our practices, a single data point holds little value. It is the trend that matters.
So, with that, go ahead and document your net worth. It can be as complex as a spreadsheet or as simple as a sticky note on your office wall.
Next, set a reminder in your online calendar to prompt you to repeat the exercise annually.
Doing these simple steps every year can be one of the most powerful tools in helping you reach your financial...