It’s amazing how much you notice when you actually start tracking information, like net worth!
Just like when you start to build a monthly budget, you notice how much you are really spending a month, and how much of an income tool you actually have.
Imagine what would happen to your net worth once you start tracking it…
WHAT IS NET WORTH?
Your net worth is simply your wealth.
So, when you hear that someone is a millionaire, that doesn’t mean that they earn a million dollars in cash every year.
It means when you take their Assets minus their Liabilities, their Assets exceed their Liabilities by a million dollars or more.
It does not always mean that they have a million dollars in cash just lying around.
Which is great news!
Because that means, it doesn’t matter what your career is or what kind of income you have – anyone can be a millionaire with the right financial path.
Download the Net Worth Template to start tracking your net worth!
HOW A BUDGET HELPS
When you build and follow a monthly budget, amazing things happen.
Like…
- No more spending money you don’t have
- Ending bad spending habits
- Attacking your financial goals
- Preparing yourself for emergencies
- And reaching financial peace
To read more on why you need to budget, click here.
So, how does this affect your net worth?
Well, now we know to increase your net worth you need to have Assets that are greater than your Liabilities.
When you stick to a budget, you are intentional with your money and focused on your financial goals. Which naturally causes your net worth to increase.
Let’s say your financial goal is to pay off debt, and of course, you’re using a budget to reach this goal.
You have $5,000 in credit card debt, $10,000 in vehicle debt, and $85,000 in a home mortgage. And your net worth looks something like this –
| Assets | |
| Cash/Bank Account | $1,000 |
| Vehicle | $15,000 |
| House | $100,000 |
| Total Assets | $116,000 |
| Liabilities | |
| Credit Cards | $5,000 |
| Vehicle | $10,000 |
| Home Mortgage | $85,000 |
| Total Liabilities | $100,000 |
| Net Worth | $16,000 |
When you stick to a budget and focus on your financial goals, your net worth will increase as a side effect.
Once you pay off all consumer debt (everything except the mortgage), your new net worth will look like this –
| Assets | |
| Cash/Bank Account | $1,000 |
| Vehicle | $15,000 |
| House | $100,000 |
| Total Assets | $116,000 |
| Liabilities | |
| Home Mortgage | $85,000 |
| Total Liabilities | $85,000 |
| Net Worth | $31,000 |
By following your budget and attacking your financial goal of paying off debt, you’ve increased your net worth by $15,000.
Now that you’ve paid off your debt, you want to save 3-6 months of household expenses. Which, let’s say, totals $12,000.
After reaching this goal, here’s your new net worth –
| Assets | |
| Cash/Bank Account | $12,000 |
| Vehicle | $15,000 |
| House | $100,000 |
| Total Assets | $127,000 |
| Liabilities | |
| Home Mortgage | $85,000 |
| Total Liabilities | $85,000 |
| Net Worth | $42,000 |
You went from starting with a $16,000 net worth to ending with a $42,000 net worth. The more financial goals that you conquer the higher your net worth will get.
And the great thing about figuring your net worth is that you can see where you’re at, and decide where you want to be!
If you have a net worth of $16,000, and you want it to be $100,000, then how will you make that happen?
You use your budget, that’s how!
Once you’ve decided on that financial goal, make a plan of how to get there. Such as, contributing 15% to retirement or paying extra to your mortgage.
Use your financial road map, your budget, to put that plan into action.
Plus, it’s so fun to look back and see where you were when you first started!
OTHER SIDE EFFECTS
Another great thing about budgeting and tracking your net worth is that you have all of your assets in one place.
Okay, why’s that matter?
Well, when you start estate planning you will need to know all of your assets, so you can make a plan for them.
Building your asset list is one of the hardest tasks of estate planning because it’s very difficult to think of all your assets on the spot.
Tracking your net worth will help you build this asset list and having a monthly budget will help you think of every asset that you have.
You may not be able to think of everything right away, but just starting your list will help you get the ball rolling. Then your assets will randomly start coming to mind.
Like when you’re taking your jewelry to the cleaners. You’ll realize you don’t have any of your jewelry on your asset list! Then it’s easy to just add the values to your already started list.
Once you start budgeting and tracking your net worth you will begin to realize that everything you do with your finances is connected!
How you handle your finances impacts everything from your marriage to your estate plan, and much more!
All that you have to do is start, that’s the hardest part. From there, you just have to make everything better than it was yesterday!
Follow along for more budgeting tips!
All videos are made with Animaker, sign up for free today!
