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Why you Should Track Your Net Worth

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I hope those you who did not already have a monthly household budget, have now had chance to create one. If not, this post will help you, How to Create a Budget That you can Stick to. One stage on from creating a monthly budget is to create another simple spreadsheet that records your total net worth.

Calculating Your Net Worth

Net Worth can be defined as the sum of all of your assets minus your liabilities. For many of you, the thought of creating a spreadsheet with all your assets and liabilities recorded in one place might fill you with dread. If you have large student loans or credit card debts, recording your total amount of liabilities and assets might be a painful process. However, this is a necessary step to track your net worth.

Your personal net worth looks at the bigger picture, it’s not just your monthly income and outgoings. You also get the opportunity to track all of your assets as well as your liabilities. Assets include properties, savings, investment accounts, stocks and shares and businesses owned where applicable; liabilities include, mortgages, student loans, credit card debts and loans.

For the sake of simplicity it is acceptable to leave out all regular monthly expenses that are paid out of your monthly salary or wage. When thinking about net worth I always remember a quote attributed to the mathematician, Karl Pearson.

“That which is measured improves. That which is measured and reported improves exponentially.”

Karl Pearson

Improvements to Your Net Worth

This is exactly why we are doing this! Your net worth will improve. When you complete your first total net worth tracker spreadsheet, it will take some time. By the way, feel free to think of a more exciting title than Total Net Worth Tracker Spreadsheet. 🙂

When you come to update it after a month, unless you have suffered some financial calamity, your total net worth will have increased. For example, if you have made payments to student loans and or credit cards, their totals will come down slightly and your net worth will have gone up. If you are like me, you will find this incredibly motivating! As an aside, do not compare yourself to others, just track your own progress. In time, deficits will turn into surpluses. Money that was originally to pay debts can be diverted into savings accounts when those debts have been paid. Tracking your net worth is an excellent habit and will help you to transform your finances.

What Should you do Now?

Create your total net worth spreadsheet and update it each month. Here’s a downloadable spreadsheet that you can use.

Are you already tracking your net worth ? If so, what has been the improvement in the last 12 months? Let me know in the comments section below.

If you have enjoyed this post you will also like the following posts:

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Are you and Your Partner Financially Compatible?

Why Choose a Gold IRA?

What are the Best Savings Accounts for Children?

How to Teach Your Children About Money

How to get Value for Money When Buying Foreign Currency

Save up to £500 Per Year With a Sim Only Mobile Phone Deal

How Much Should You Save?

10 Ways to Make Money Now

What’s the Best Strategy for Clearing Debts?

What are the Different Types of Savings Accounts?

My aim with each blog post is to help you move to a better financial future. I believe that there is not enough financial education in the national curriculum and I intend to share anything helpful that I have learned along the way. I am by no means a financial expert. None of the information on this website constitutes financial advice and is provided as general information only. This is my personal finance blog; my marketing blog is over here and I have been blogging there since 2010. I hope you have found this information useful. Thank you for reading.

Best regards,

Mike

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How to Teach Your Children About Money

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Few adults have truly mastered money and yet it is incumbent on adults who are also parents to teach their children about money. Parents are the number one influence on children’s future financial behaviour. If parents always seemed to be concerned about money or the lack of it, this is what their children will learn. However, by being proactive and intentional about the lessons we teach our children, we can set them up for future financial success. Below I have listed six key points that you can teach your children that will help them understand money. They have certainly helped me explain money to my son, I hope those of you who have children find them useful too.

Teaching Children About Money

Making a Choice

Explain to your child that you have a limited amount of money, it could be £10 or $10. The next step is for you and your child to decide to buy product x or product y, because you cannot afford to buy both.Those of you who have studied microeconomics, will recognise this as the ‘opportunity cost’ attached to the decision. This is a great way to introduce needs and wants too.

It’ is good for children of all ages to understand the need to make a choice between the two. Use it with real world examples when you are out and about. This website is great resource for explaining money to your children. Please make use of it.

Now or Later

Slightly more difficult to explain to many children is the concept of delayed gratification. Instead of buying something now, why not save your pocket money/ birthday money and save up to buy a larger item in a few weeks’ time? If a look of incredulity comes onto your child’s face, do not worry, you’re not alone. Once again, demonstrate with practical examples from their daily life.

Managing Pocket Money and Expenditure

Another great financial lesson is encouraging your children to have some financial freedom to make their own choices. If you are able, allow them to ‘earn’ pocket money by keeping their room tidy and helping out with chores. The money they earn is theirs and they should budget, save and donate; the remainder can be spend as they see fit. Please explain that if they deposit their money into a savings account it has a chance to grow because of the interest. Money stored in a piggy bank will not of course.

Financial Rationale & Commentary

I provide my son with a financial rationale for financial choices to build up his knowledge and help him to understand concepts such as value for money. For example, I have explained why I filled up the car with fuel at the local petrol station ahead of a long journey instead of at motorway services. Today, he told me that he would buy a Ferrari if he had the money so I’m not sure if everything I’ve said has been taken on board. 🙂

Regular Saving and Compound Interest

This website is a great resource that will help you explain to you child how compound interest works over time. The great amounts that can be created by regular saving and compound interest, as demonstrated by the website’s calculator tool should excite them.

As your children get older, over 14 years of age from example, there will be many opportunities to have specific discussions around money. Some may relate to the costs of higher education or how to sensibly use credit and debit cards. I will not be able to cover them all in this post.

How have your discussions with your children about money been? Were there any areas they struggled with? Let me know how in the comments section below.

If you have enjoyed this post you will also like the following posts:

How to get Value for Money When Buying Foreign Currency

Save up to £500 Per Year With a Sim Only Mobile Phone Deal

How Much Should You Save?

10 Ways to Make Money Now

What’s the Best Strategy for Clearing Debts?

What are the Different Types of Savings Accounts?

I hope you have found this information useful. Thank you for reading.

Best regards,

Mike

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What’s the Best Strategy for Clearing Debts?

This post may contain affiliate links please read our disclosure for more info.

Image credit: https://www.bloemfonteincourant.co.za/

It’s no coincidence that debt is a four letter word. As adults, we understand that debts are something we should eradicate from our lives as much as possible. There are different forms of debt of course; mortgage and student loan debts are deemed acceptable by most, whereas credit card debts and loans are not. It’s not a mystery how debt occurs, it is simply a result of spending more money than you have whether in the short term or on an ongoing basis. Debt can have far reaching psychological effects on people and unfortunately many people struggle to cope with the pressure it brings. If you feel this way, please contact the National Debt line via this link.

Strategy for Clearing Debts

Paying debts off can be a fantastic experience, which is quite strange when you consider there is nothing tangible at the end. There is no trophy, certificate or awards ceremony for paying off a debt. What is the best strategy for paying off debts? Individual circumstances may vary of course, but broadly speaking the approach I have outlined below is a good one for most people.

Calculate the Total Amount that You Owe

Be intentional about this, create a spreadsheet with all your debts and interest rates listed. It may not be pleasant reading but facing up to the full extent of your debts is a great first step.

Work Out Which Debt ‘Costs’ You More

In most cases this will be the debt with the highest interest rate. It is likely to be a credit card, they tend to have higher interest rates and cost more. The worst of your credit cards should be your focus. Prioritise this card for any payments you make towards debt without jeopardising your monthly budget.

If Possible Make Minimum Payments on Other Debts

I know, this is easier said than done of course; you may be presented with the choice of paying more of a costlier debt at the expense of missing a payment for a less costly debt. In that situation, I would pay more of the costlier debt. Ultimately, you will reduce your worst debt quicker that way.

Communicate with Your Creditors

Be careful with how much information you communicate to your creditors for this reason, you cannot predict how each will react. ‘Radio silence’ is not an option but proceed with caution. Let’s imagine that you have been made redundant. I don’t need to imagine because that has happened to me. When you tell some of creditors they may be sympathetic and give you some additional flexibility whilst you get back on your feet. However, some will now categorise you as ‘high risk’ and this will affect your credit rating and access to money even for basic essentials.

Be Consistent and Keep up the Momentum

You may be tempted to reward yourself for making progress reducing your debts. In principle this is fine, but my recommendation would be that the celebration is extremely low cost; your favourite bar of chocolate rather than a bottle of champagne, for example.

Peer Group Support

If you know of other people who are on a similar debt reduction journey form a group with them and support each other. It will strengthen your resolve. There are also lots of online communities, websites and podcasts that will give you additional support. Make use of them.

If you follow the steps above you will reduce your debt and by being consistent you will reach the day when you are debt free. On that day, I think you definitely should upgrade your reward or celebration. You will have earned it.

One final consideration for you, in the United States there is a personal finance guru called Dave Ramsey. Rather than the approach I have outlined above, he advocates starting with the smallest debt irrespective of the interest rate in what he calls the Debt Snowball. His rationale is that your Debt Snowball builds momentum and helps you to keep going.

If you have liked this post you will also like the following posts:

How Much Should You Save?

10 Ways to Make Money Now

What are the Different Types of Savings Accounts?

My aim with each blog post is to help you move to a better financial future. I believe that financial education is largely absent from the national curriculum and I intend to share anything helpful that I have learned along the way. I am by no means a financial expert. None of the information on this website constitutes financial advice and is provided as general information only. This is my personal finance blog; my marketing blog is over here and I have been blogging there since 2010.

I hope you have found this information useful. Thank you for reading.

Best regards,

Mike