Category Archives: Net Worth

Path to Financial Freedom

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“Real wealth is not about money. Real wealth is: not having to go to meetings, not having to spend time with jerks, not being locked into status games, not feeling like you have to say ‘yes,’ not worrying about others claiming your time and energy. Real wealth is about freedom.” James Clear

Financial freedom is about taking ownership of your finances. You have a dependable cashflow that allows you to live the life you want. You aren’t worrying about how you’ll pay your bills or sudden expenses. And you aren’t burdened with a pile of debt.

Financial freedom and wealth can mean many things to many people. But a cornerstone of your  personal financial freedom is your ability to financially support yourself and your family now and in the future.  Thus, financial freedom has to be personal. So, dream big and get specific about your goals.

Consequently, money and accumulating wealth aren’t everything and they won’t make you happy and financially free on their own. Money is a tool that, depending on how we use it, can bring much joy to your lives or it can bring destruction, according to Jim Rohn. You need to be aware of all the possibilities it offers as well as the pitfalls.

Some of the most amazing things have been done because people had the financial resources to fund them—businesses have been built, schools started and philanthropic charities founded that have accomplished much good. On the other hand, friendships have been ruined, illicit gains profited and lives destroyed—all over money.

If you had the financial resources you needed to take control of and improve your life, how would you live your life? Reaching this kind of financial freedom is a respectable and admirable goal, but first you must understand what that really means to you.

What does financial freedom look like. According to Dave Ramsey, it can looks something like:

  • Freedom to choose a career or venture you love without worrying about money
  • Freedom to take an international trip or a bucket list vacation every year without it straining your budget
  • Freedom to purchase or pay cash for a new luxury sports utility vehicle or beach residence
  • Freedom to respond to the needs of others with outrageous generosity
  • Freedom to retire a whole decade early from a job and career that no longer provides enjoyment and reward

When you have financial freedom, you have options. You don’t have to wonder if your bank account can handle replacing your hot water heater or buying groceries for a someone who just lost her job.

Real financial freedom isn’t just about getting out of debt, doing what you want or reaching an specific amount. It is about the number of days you can survive without you earning income from your hours of labor, and still maintaining your standard of living. According to Forbes, the levels of financial freedom are:

  1. Not Living Paycheck to Paycheck. The first level of financial freedom is building up an emergency …
  2. Enough Money to Quit your Job (for a bit) Financial freedom is all about making work an option. …
  3. Enough to be Financially Happy and still Save. This is a bit more about enjoying your life and having …
  4. Freedom of Time. What many people desire is more flexibility with their schedules. Freedom of time …

Living below your means is a key step in financial freedom.  Even some of the wealthiest people in the world started out by living below their means, that is, not having a new car, not having the biggest house or condo in the best neighborhood, and cooking at home a lot more than eating out. It’s a time-honored millionaire secret. Living below your means isn’t a permanent state; it’s intended to allow you to put more money aside into savings or into investments that will make you more money.

There are important actions that serve as building blocks for your financial freedom and economic well-being:

  1. Understand Where You’re At–You can’t achieve financial freedom without knowing your starting point. Looking at how much debt you have, how much savings you have, and how much money you need is an important first step.
  2. Look at Money Positively–You deserve to achieve financial freedom. And, money is simply a tool that helps you buy the things you need and live the life you want. To experience financial freedom, you have to accept money as a tool that helps you achieve your dreams, fuel your energy, and live a stress-free life you can enjoy.
  3. Write Down Your Goals–To achieved financial freedom, it must be tied it to an emotional goal. Make sure your goal is tied to a specific number that you want to hit. Believe it or not, you’ll start working towards those goals without even realizing it. Knowing exactly what you want to achieve makes achieving financial freedom a million times easier.
  4. Track Your Spending–An important step toward financial freedom is tracking your spending. You can use a tool like Mint, which will let you know how much money you’re spending, which categories you’ve overspent in, how much money is in all of your accounts, and how much debt you have.
  5. Pay Yourself First–“Pay yourself first” means putting a specific amount of money in your savings account before paying anything else, such as bills. And the act of paying yourself first has helped countless people inch closer to achieving financial freedom. By paying yourself first, you guarantee that you’re always putting money aside to invest in yourself.
  6. Spend Less and Save More–By spending less and saving more, two things work in your favor. One, you’ll have more money to put aside for your financial freedom. Two, you’ll learn that you actually need a lot less stuff to survive, which also helps you put aside more money.
  7. Buy Experiences Not Things–Life’s short. It’s not about hoarding all your cash, you’re allowed to enjoy life while you’re alive. Ultimately, the things that’ll help you live a more fulfilled life will be the experiences you have, not the stuff you own. Life is made up of moments. The best ones come from quality time spent with friends and family. And, don’t spend money you don’t have to pretend that you have money.
  8. Pay Off Debt–Paying off a debt lifts a massive weight off your shoulders. After paying off your debt, it will leave you with more money to save and invest. There are two main methods of paying off debt: snowball and avalanche. Snowball is when you pay off the smallest debt first. Avalanche is when you pay off the debt with the highest interest rate.
  9. Create Additional Sources of Income–Some experts recommend having seven streams of income. If you have a 9 to 5 job, congratulations, you have one, only six more to go! Now, you can look at your sources of income in two ways: active income (trading time for money) or passive income (money that can keep coming in, even while you sleep). If you only trade your time for money, you’re limited by the hours of the day. And remember: you don’t need to start with seven streams, you can build up to it over time.
  10. Invest in Your Future–The last financial freedom tip is an important one. What if the unexpected happens? Will you be prepared for it? It’s important to set aside money for rainy days, retirement, and to help ensure your family doesn’t drown paying for your debts, and taxes if you die. Save money for an emergency fund. The emergency fund is only for unplanned emergencies like a tree crashing onto your house, a car accident you need to pay for out of pocket, or a visit to the hospital. By setting aside money for rainy days and retirement, you’ll be less likely to end up back to where you are now: wishing for financial freedom.

There is freedom in not having to worry about paying your bills, taking care of your family or planning for unexpected expenses. But most Americans don’t have an unlimited supply of money. That doesn’t mean you can’t enjoy financial freedom–you just need to plan and think carefully about how best to use, grow and safeguard the wealth you have.

Good financial practices and habits can be learned, and small regular steps can move you along your path to financial freedom. The good news is that every step you take can help build long-term wealth for you and your family.

According to federal government website “mymoney.gov”, making the most of your money starts with five building blocks for managing and growing your money. The “MyMoney Five” are:

  1. Earn – Make the most of what you earn by understanding your pay and benefits.
  2. Save and Invest – It’s never too early to start saving for future goals such as a house or retirement, and even small amounts can add up.
  3. Protect – Take precautions about your financial situation, accumulate emergency savings, and make sure you have the right insurance.
  4. Spend – Be sure you are getting a good value, especially with big purchases, by shopping around and comparing prices and products.
  5. Borrow – Borrowing money can enable some essential purchases and help build credit, but interest costs can be expensive. Remember that if you borrow too much, you will have a large debt to repay.

It is important to ensure your own financial freedom.  So, it is up to you to take charge of and responsibility for ensuring your financial freedom. Financial freedom can help you take ownership of your finances and, more importantly, your life. It’s about living within your means, being a bit frugal, and making sure that money is spent on things you really need like food, shelter, and even vacations (relaxation is important too, you know). By following the financial freedom tips, you’ll inch closer to achieving the financial freedom you deserve.

References:

  1. https://blogs.va.gov/VAntage/53310/53310/
  2. https://www.oberlo.com/blog/financial-freedom
  3. https://www.success.com/rohn-5-money-principles-you-need-to-know/
  4. https://www.forbes.com/sites/davidrae/2019/04/09/levels-of-financial-freedom
  5. https://www.daveramsey.com/blog/what-is-financial-freedom
  6. https://www.success.com/10-meaningful-quotes-about-achieving-financial-freedom
  7. https://www.moneywise.com/a/millionaire-habits-you-should-be-copying

What Every Woman Needs To Know About Her Money

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“The lion’s share of wealth, two-thirds of wealth in the United States, is going to end up in the hands of women by the year 2030.” Jean Chatzky

The women that Jean Chatzky, New York Times Bestselling Author and financial editor at the NBC TODAY Show, has talked with “share a lack of confidence” regarding managing and investing their money. “Whether we’ve got one hundred, one hundred thousand, or one million dollars, we don’t always feel equipped to manage it, even when we’re doing exactly the right things,” she explained.

In order to create a better world, Chatzky suggests women should, “…use this power that’s coming our way to improve not just our lives, but the lives of the people that we love and care about, and the causes that  we believe in. We really do have an opportunity through giving and investing to create the world we want.”

Women…”have an opportunity through giving and investing to create the world we want.” Jean Chatzky

Chatzky offers 15 tips to help you get a handle on your finances and to create the financial future you want for yourself.  A future that aligns with your goals, values and purpose in life.

1. Talk openly about money

Chatzky explains, “We gather groups of women who don’t make a habit of talking about money with the specific purpose of talking about money…and it’s really freeing.” One open ended question she asks is, “What do you want your money to do for you?”.

2. Track your spending to see what you really value

Do you want a clear picture of your spending? More so, do you want to uncover whether or not what you say are priorities are aligned with your expenditures?

3. Determine what your ideal life actually costs

“What do you want from your life?” This is a question Chatzky believe you need to consider so that you can determine what your ideal life actually costs. Write down what you want and next to each item, list the price to do or have it.

4. Use money as a resource to buy you more time

Money is a tool which creates freedom of time and choice. Chatzy shares, “The most important thing to realize is the opportunity that you’re wasting. Money we can get more of. Time, you absolutely can’t get more of…But by moving around some of our money, we can restructure our time in a way that feels much better, much more fulfilling, and much less stressful. We are so stressed, and using our money to swap for a little bit of extra time is one great way to reduce some of that stress.”

5. Identify your money scripts

“We all have stories around money which became ingrained as children. In some cases we mimic them, in others we rebel against them. In order to know where you’re going with your financial future, it’s helpful to identify the scripts that are overtly or subliminally impacting your views and habits around money,” advises Chatzky.

6. Find financial harmony in your primary relationship

Chatzy suggests, “Listening is the key to success within a relationship. You have to understand why your partner needs what they need as much as they need to understand what you need.”

7. Don’t let money injure your friendships

“Listen and read between the lines. We know an awful lot about our friends’ financial situations, even if they tell us not one thing. We see how they spend. We see how they manage. We know if they’re stressed financially. We just have to be a little bit empathetic and open-minded about the fact that they may not have the same choices or priorities that we have. And that doesn’t mean that we can’t be great friends,” shares Chatzky.

8. Teach your kids early

It can feel scary to talk to your kids about money, especially if you feel tentative about your own financial skills. Fortunately, it doesn’t have to be challenging: “Kids have to have money in order to learn to manage money.”

9. Get paid what you deserve

To charge or get paid what you deserve, “First, you must know what you deserve and once you know what that number is, you have to ask for it:

10. Negotiating won’t hurt your outcomes

The person on the other side of the table, they are waiting for you to negotiate, according to Chatzky. They’re not going to punish you for negotiating. You may not get the money. But asking is not going to hurt you.

11. To be or not to be (an entrepreneur)

30% of US businesses are women-owned, and that number is rising steadily.

12. Spend on others

Studies show that when you do for others, you’re guaranteed to feel happier. This includes when you spend on others. “There’s no sense in feeling guilty for spending money that’s not sabotaging our financial life”, says Chatzky.

13. Talk with aging parents

“If you haven’t had a conversation with your parents before you’ve hit age forty or they hit age seventy, it’s time”, she comments

14. Have a little fun with your money

Chatzky comes from a judgment-free zone when it comes to how you spend your money. But, “know how much it costs” since you earned that money and yours to do with as you want.

15. Consider your legacy

“You have to think about what’s important to you. That’s where a lot of us fall down when it comes to charitable giving”, Chatzky says.

Building wealth

If you want to build wealth, you need only do four things, according to Chatzky:

  1. Make a decent living.
  2. Spend less than you make.
  3. Invest the money you donʼt spend.
  4. Protect the financial world you build so that a disaster doesnʼt take it all away from you.

Building wealth sounds easy, so why is it so hard, particularly for women?  “Because women according to Chatzky, “make excuses”. We tell ourselves that we’re “just not good with money,” or that our husbands “like taking care of the finances.”

In short, “what successful women want from their money are: independence, security, choices, a better world, and–oh yes–way less stress, not just for themselves but for their kids, partners, parents, and friends.”

To read more: https://www.vunela.com/jean-chatzky-on-the-top-15-things-every-woman-needs-to-know-about-her-money/

References:

  1. https://www.vunela.com/jean-chatzky-on-the-top-15-things-every-woman-needs-to-know-about-her-money/
  2. https://www.jeanchatzky.com/books/

Net Worth Statement

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The process of calculating personal net worth may well be the only exercise in financial planning that savers and investors actually enjoy. It, with a personal cash flow statement, provides savers and investors with a financial scorecard of where you stand along the path of financial security.

“A personal income and expense statement [cash flow] goes hand-in-hand with a net worth statement because it allows you to see sources of income and expenses while working and retired,” David Bizé, a financial professional in Oklahoma City, Oklahoma, said. “It helps you determine how much can reasonably be saved for financial goals as well as project whether your financial goals will be satisfied long term.”

Calculate your net worth

A net worth statement is a list of what you own (assets) and what you owe (liabilities).

Your assets would include any possessions of value, including:

  • Bank and brokerage accounts
  • Real estate
  • Retirement accounts (IRAs and 401(k))
  • Pension plans
  • Stock options
  • Cash value life insurance
  • Other property, such as artwork

To estimate the value of the personal property in your home, a good rule of thumb is to use 25 percent to 30 percent of its fair market value.

Into the liability column falls any debt you may have, such as:

  • Mortgage
  • Car loans
  • Student loans
  • Credit card balances
  • Child support
  • Alimony
  • Back taxes
  • Medical debt

To calculate your net worth, simply subtract what you owe from what you own. If you own more than you owe, your net worth will be positive. If you owe more than you own, it’s negative.

Appearances can be deceiving, the numbers never lie. Your neighbor with the big house and the luxury cars, for example, may exude a high net worth lifestyle, but if they’re up to their nose in debt, or not saving for their retirement, they may have a smaller net worth than the family next door who lives more modestly.

As a rule of thumb, your net worth should be roughly equal to six times your annual salary by age 60, or that your net worth by age 72 (the new age at which required minimum distributions from your IRA must begin) should be 20 times your annual spending. Other financial pundits suggest that you should aim to be net worth positive by age 30, and have twice your yearly salary socked away for retirement by age 40.

According to the U.S. Federal Reserve, the average net worth of all families in the U.S. rose 26 percent to $692,100 between 2013 and 2016, the most recent year for which data are available.  But the average net worth by age group breaks down as such:

  • Younger than age 35: $76,200
  • Ages 35-44: $288,700
  • Ages 45-54: $727,500
  • Ages 55-64: $1,167,400
  • Ages 65-74: $1,066,000
  • Ages 75 and older: $1,067,000

The ideal net worth differs for everyone and depends on your lifestyle, geographic location, income potential, and investment returns. The age at which you plan to retire also plays a role. The longer you work beyond your full retirement age, the less you need saved.

At the end of the day, all that matters is that your net worth is appropriate for your future financial plans, your financial goals and your lifestyle.

References:

  1. https://blog.massmutual.com/post/net-worth-calculate?utm_source=facebook&utm_medium=social_pd&utm_campaign=brand_traf_contentsyndication&utm_content=static_election_6200129223294_learn&utm_term=demo_fin_int_all&fbclid=IwAR1x-0otWLiM1UTNrFC5pLTEcXYkRr-wls4qucKmW6VfVjCjSry1dZr4Frg
  2. U.S. Federal Reserve, “Changes in U.S. Family Finances from 2013 to 2016: Evidence from the Survey of Consumer Finances. Table 2: Family median and mean net worth, by selected characteristics of families, 2013 and 2016 surveys,” September 2017.