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Firstly, welcome and thank you for joining me on this 5 day financial detox challenge.
For the next 5 days, I am going to give you some short, snappy actions to help you get money fit. We’re talking getting your financial house in order and being organised! They won’t take long and for the most part, once you have taken action on them, you have done the hard work. (Today’s is the longest task but worth it!)
Today’s topic is all about your baseline. We’re going to pull together your net worth statement so you have a snapshot of where your finances are now.
With most things in life, we need a baseline to measure improvements against. When we start a fitness regime, we register our weight and take measurements of different parts of our body – and check in over time. It’s the same when you approach your finances. You need to know your starting position to be able to set goals and measure how you are improving.
This task gives you clarity on helping set any goals you may have around your money for the year ahead. Every decision you make around your money should be aimed at increasing your net worth; either increasing your assets or decreasing your liabilities.
This exercise will help you to understand your current financial situation and measure your financial health by seeing what would be left over if you sold all your assets to cover all of your debts.
It gives you a reference point for measuring your progress towards any financial goals you have in place e.g. building an emergency fund, or even paying off your mortgage early.
What is your net worth?
Your net worth is simply a list of all your assets (things you own) less all of your liabilities (everything you owe).
By tracking your net worth over time, it acts as a huge motivator to increase your assets and decrease what you owe so that your net worth builds. A positive net worth (when your assets are worth more than your debts) brings an enormous sense of financial security and positive mental well being.
Setting up a net worth statement
Grab yourself a pen, paper and a calculator. Or a spreadsheet – whichever you prefer.
Firstly, list all of your assets (things that you own) and the value of each of them. Your list could include:
- Your home (market value – use something like Zoopla for this)
- Any investment property
- Money in your bank accounts or easy access accounts such as premium bonds
- Investments (eg ISAs, share trading accounts)
- Any business interests
Then list all of your liabilities (things you that owe to other people). Your list could include:
- Mortgage on your home
- Mortgage on any investment properties
- Credit card balances
- Car loans
- Student loans (if you are currently earning enough to be paying it back)
Deduct the total of your liabilities from the total of your assets to give you your net worth. Ta da!
As I said at the beginning, every decision you make around your money should be aimed at increasing your net worth; either increasing your assets or decreasing your liabilities. Both of these will increase your net worth.
Use this exercise as a starting point to then frame any financial goals that you have for the year ahead.
Working through net worth trackers on a regular basis with clients brings me huge satisfaction. Creating one is so simple and the regular updating provides a meaningful, tangible way of seeing how the goals and processes we put in place have an impact on their financial health as a whole. We talk about:
- Increasing the value of the cash you hold by exploring ways it could earn more interest
- The value of investing – to make money work even harder than leaving it in the bank
- Increased payments towards targeted debt balances to reduce liabilities
- Spending plans – instead of buying ‘everyday things’, could the money be spent on your mortgage to decrease your liabilities and increase your net worth?
- Is it more sensible to use spare money to pay off your mortgage or use the money to invest?
Can you use these prompts alongside your own net worth statement to set yourself some meaningful targets for your money for the year? Could you do anything differently?
I suggest doing this task once a quarter, on the same day each time eg payday. It’s a great feeling to watch your net worth improve and a significant milestone when you tip from negative net worth in to positive net worth, where your assets are worth more than your liabilities.
Join me tomorrow for the second part of your financial detox where we will be talking about your credit score.
If you like this challenge and want to work more deeply on improving your financial knowledge and have accountability to make some real changes for the better, find out how to join my affordable monthly membership community here. With the help of monthly training sessions, expert guidance and packed full of practical guidance and accountability, I’ll help you to take action to improve your relationship with money and put more money in to your pockets.
Alternatively, if you would like to work with me 1:1 to build on the principles we have worked on during this challenge, I offer FREE 20 minute discovery calls to discuss your needs. Please make a booking directly here: http://www.calendly.com/emmamaslin