Your Net Worth-The Tool for Measurement
Growth always involves some risk.
DAY 4
To Think About: One of the first steps in developing your Money$ense profile is to determine what your net worth is. You do this by adding up your assets and subtracting your debits and liabilities.
Ideally, you have more assets than liabilities. If you don't, don't give up. You and your family will always be the single best asset you have. Your ability and efforts will create your future net worth. Your material assets may be on the lean side today; next year, the picture can be totally different. The deciding factor depends on what you do over the remaining thirty days and the rest of this year.
Your net worth has two components: the material side-assets minus liabilities-and the emotional side. It's usually straightforward to gauge the material side; the emotional side's components are more difficult to weigh, if not impossible. Between spouses and within families risk-taking attitudes and abilities may be on opposite ends of the spectrum.
An investment option that may be fine and comfortable for you may give your spouse nightmares. The key is to identify these differences and discuss them openly. You may very well need to avoid some investment areas. You and your spouse need to determine which fears and concerns are valid and how they can be overcome or modified to satisfy both of you.
To Do: The only way to create a net worth statement is to do one. You can find one in one of the zillions of financial planning and money workbooks in book-stores today, get a blank loan application, or use the Money$ense Quik Net Worth Statement below. Whichever method you choose, the important thing is to do it now. During the preceding days, you will have gathered most of the information you need to fill in the blanks below.
You will need to know the value of any investments and retirement plans you own and participate in. Don't use the new car value for cars-figure a minimum reduction of 20 percent when you drive off the lot. Investments, art, antiques, and jewelry values are what you would get for them if you sold today. Take the latest statements for bank, savings, and any insurance accounts. The true value of your home is what you know you could sell it for today, not what you bought it for. Your true debt balances are what each account balance is if you paid it off now versus at the later date you contracted for.
Part I: Assessing the Situation- Getting Started
Where Does the Money Go?
Everything costs more when you don't have any money.
DAY 5
To Think About: You may think there is a money sink-hole out there. Your money just disappears, usually never to be seen or heard from again. It doesn't matter if you are single or if you have a spouse and kids.
Do you write checks for everything? Or, do you like the feel of the green stuff, paying for everything from entertainment, eating out, clothes, and gasoline with cash? Do you try to charge everything on your credit card(s), or do you hit the ATM whenever you need cash, not using checks or credit cards?
Today, we are not throwing the "B" word at you yet. Budgets and Spending Plans will surface soon enough. The reality is that you can't do any planning until you become aware of how you spend the money you are already getting. You may be a saver, but others in your family may not be. After all, we dance to different drummers; this includes our relationship with money.
To Do: So where does your money go each day-week-month? Let's find out. Beginning today, every member in your family becomes a sleuth. Every dollar, dime, and penny is tracked for the next twenty-six days. If you already know the amounts spent the previous four days, great, include them. Ideally, you should track your money for an entire quarter so that all expenditures are included, such as quarterly insurance payments.
Get a spiral pad or notebook and label pages for different items-meals out (note which ones they are), clothing, sundries, insurances, car and transportation expenses, groceries, entertainment, credit card and debt payments (not mortgage), household repairs and maintenance, mortgage or rent, gifts, health care, utilities, savings, taxes (don't forget to count the amounts withheld from your paychecks), child care, child support, alimony, educational, pets, and of course, investments, retirement, and other. Make sure you include a category for unaccountable cash-it happens. As you do this, you will probably come up with a few categories of your own.
If you have a computer and don't have a finance program such as Quicken, this is a good time to invest in one. The cost is approximately $30-put in a Miscellaneous or an "Other" category. At the end of the day, a designated family member inputs everyone's expenditures. If you have older kids, eleven and up, this is a great exercise in creating awareness of just how much it costs to operate your household.
Part I: Assessing the Situation- Getting Started
Income Sources
Don't ignore the small change, it adds up.
DAY 6
To Think About: Identifying where income comes from is a lot easier than accounting for where it goes. Do you ever think in terms of "gross" income versus "net" income? Your paycheck is a good example. Gross is what you start with before all the deductions are taken-federal and state taxes, Social Security (FICA), contributions to charitable causes (such as United Way), health care insurance premiums, retirement account, contributions, loan payments, and savings payments.
What's left over is the amount you usually deposit into your checking account-the amount you have left to pay for all the other items you need and want.
You probably pay little attention to all the withholdings that normally occur. You may be surprised to find that you really don't know why certain amounts are being withheld or what percentage they represent of your monthly gross income.
To Do: Get your paycheck stubs for the last month. Most companies routinely detail the amounts withheld each pay period on an accompanied stub. Each pay period should show an accumulated amount from the preceding period.
TOTAL Income from Salary(s) $ How much is withheld for taxes? $ How much is withheld for retirement accounts? $ How much is deducted for other purposes? $ TOTAL Amount Withheld $ NET Moneys Available (total salary minus total withheld) $
Apart from your salary, what other sources of income do you have? Categories such as gifts, inheritances, trusts, investments, savings, money market funds, annuities, capital gains, dividends, interest, bonuses, retirement and pension accounts, rental property, refunds, and selling stuff you don't want or need all come to mind. Identify your other sources of money:
Part I: Assessing the Situation- Getting Started
Uncle Sam and You
Pay your taxes, but only what's owed when it's owed.
DAY 7
To Think About: Most people pay more taxes than they owe and they pay them before they are due! This doesn't sound too smart, yet it is repeated in millions of households annually. In the old days (the 80's), if you received a refund after you filed your annual federal tax return, the IRS would send you a notice. It suggested that you change your withholding status to declare more withholding allowances. Why? Because you would reduce or possibly eliminate a refund the following year.
What a novel idea. Get your money back within each paycheck so that you can save, invest, earn interest, pay off bills, or spend it! Today, the IRS no longer notifies you that it would be a good idea to change your withholding status. After all, it gets an interest-free loan from the taxpayer-you.
To Do: Enough-it's time to halt the practice. You need to get over refunditis, a chronic condition that afflicts millions daily. Do not think of refunds as savings accounts-savings accounts pay interest. Refunds don't. If you do receive refunds, your homework is to increase your withholding declarations (allowances) when you go into work tomorrow. If you basically have withheld what you owe at year's end, then you get to do a spot check to make sure you are on target for the current year and claiming all your deductions. Just like an annual checkup.
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Overview