Chapter 7 – Week 2
“When your self-worth goes up, your net worth goes up.”
– Mark Victor Hansen, author of The One Minute Millionaire
Congratulations for coming back. I want you to acknowledge yourself for the work you did last week. After this week’s coursework, I want you to find a way to celebrate yourself. This may be going out for a night with your girlfriends, taking a bubble bath, getting a massage, taking a little extra time for yourself in the morning before work or getting the kids ready for school. Whatever it is, it is important to acknowledge yourself for the work you are doing. Acknowledging yourself is a vital step in creating new habits.
This week we will be focusing on your net worth. Do you know what that term means? If not, don’t worry. I will walk you through step by step.
First, please don’t let the term net worth intimidate you. In the world of money and finance, there are many terms and names that may sound foreign to you at first. For some women, they may even seem frightening. You may want to stop. Put the book down. Tell yourself that this work isn’t for you. But the truth is that this work is for you. There is a reason you picked up this book in the first place.
I want you to know that these money terms are actually quite simple and can be learned easily. Think about the industry you work in now. Did you know what everything meant right from the start? All industries have their own terminology, and it just takes a little exposure and some use of the terms to master them. We all have to start from somewhere, right?
So let’s get moving. Here is the definition of your net worth – Net Worth is everything that you own minus everything that you owe.
If you prefer the formula, here it is:
Net Worth = Everything That You Own – Everything That You Owe
If you are feeling any fear about calculating this – whisk off that fear because remember I am going to walk you through the process.
Some of you might be wondering why it’s important to figure out your net worth. As long as I am comfortable, then I’m okay, I can hear you saying. I know this because I used to say the same thing. But I am here to tell you today that how much money you earn every month or how much money you have in your bank account is not a true indicator of how you are doing financially. The true indicator is your net worth. Some of you are saying now, Okay, but what if I really don’t want to know how I am doing financially?
The main reason you probably picked up this book was because you wanted to improve your own financial situation. Now, if this is your goal, you need to know where you stand. Just like when you take any journey, you need to know the starting point – otherwise you will get lost and waste a lot of energy going nowhere.
Getting to know your net worth is getting to know the starting point for your financial journey. Many of the people that have done the Financial Freedom Intensive with us found out that they had much more money than what they thought they had when they calculated their net worth!!! One woman even found out that she was very close to becoming a millionaire. All she had to do was change the type of bank accounts that she was using! That’s what happens when you start thinking in terms of net worth and not in terms of how much money you have in your bank account.
Remember, this book is about taking an honest look at what is going on for you financially. As a result of doing this, you will be able to take responsible actions to grow your wealth, become financially independent, and move toward financial freedom.
Calculating your net worth will put you in touch with all of your accounts. It will help you be honest about your financial health, motivate you to increase your net worth, and measure your financial progress over time. Since you are reading this book, I am assuming you are fairly new to this, so I recommend calculating your net worth every three months to get the hang of it. Eventually you can move track from year to year.
Remember, we are going to work together on this one step at a time. Please don’t skip past this week of exercises in the course, or put this book away never to return. Any discomfort you feel during this exercise, just breathe through it. Being uncomfortable in this work is quite common. You are not alone.
As we work on the exercises. I want you to focus on one item at a time. When you don’t know the answer, I want you to pick up the phone and ask the person who does have the answer. Remember – it’s your money – and you have the right to get clear, precise information. Please don’t be put off by the financial terms that you may not understand at first. Keep asking the person who you are on the phone with until you get the answer in a language that you can understand. This is an opportunity to take charge. Your money is your business.
Let’s get started!
Calculating Your Net Worth.
Exercise One – Calculating Your Total Assets (Everything You Own)
Take out your notebook and on a fresh page write “Assets” across the top. Assets are everything that you own. Let’s take this slowly. We are going to break this section into parts. Let’s begin
Part 1: Calculate your non-liquid assets
On the left side of the paper, write “Non-Liquid Assets.” Non- Liquid Assets are those things you own that would take some time to sell and turn into hard cash. List the following headings and fill in the information. Please do not worry if your answer is “0” to some or all of these. You are not alone.
Real Estate – Write down the current market value of any real estate you own (not including your primary residence – we’ll get to this further down in the exercise). If you own more than one piece of real estate, list each separately with its value.
Investments in a Business – Write the current market value of your investments.
Partnerships – Write the current market value of any investments you have in partnership with someone else.
Collections: Art, Cars, – Write the current market value of any collectible items you own. (This does not include your personal vehicle. We will list this further down in the exercise.)
Time to Calculate – Add the values of 1-4 together. This is the total value of your “Non-Liquid Assets.” Circle this number and call it Total A.
Part 2 – Calculate your liquid assets.
On the same piece of paper (or a fresh one if you need it) write in the left column “Liquid Assets.” Liquid Assets are the things you own that can be easily sold and converted into cash. List the following headings and fill in the information. Again, it’s okay if your answer to some or all of these is “0” – keep breathing and moving forward with this exercise.
Money owed to you – List the people who owe you money and how much they owe. (This category is also known as ‘debtors’ or ‘accounts receivable.’)
Pension Plan – Write down the current surrender value of your plan. If you don’t know this number, pick up the phone and call your pension plan company and ask them for the surrender value. If you don’t have a pension plan, acknowledge yourself for recognizing this –- and then make a commitment to yourself to take care of this. If you don’t know if you have one or not – again, congratulate yourself for becoming aware of this and go and check it out with either your employer or your husband/partner.
Life Insurance – Write down the current surrender value. Again, if you don’t know the answer, call up your insurance company and ask them for the surrender value.
Stocks, Bonds – Write down the current value of any stocks or bonds that you own. If you do not know, call up your broker and ask them for the current value of your account. Remember to keep asking until you get the answer in a language you can understand.
Time to Calculate – Add the values of 5-8 together. This is the total value of your “Liquid Assets”. Circle the number and call it Total B.
You’re doing great! Let’s take a few more steps…
Part 3 – Calculate your current assets (Capital currently available).
On the same paper (or a fresh one if you need it) write in the left column “Current Assets.” This is the amount of money that you have in cash or an easily accessible account. List the following headings and fill in the information.
Cash – Count all the cash you have in your pockets, purse and piggy banks and write down the total.
Cash Equivalents – This is money you have in bank accounts (checking and savings), credit unions, and money market accounts. Write down all the money you have in each one of your accounts.
Time to Calculate – Add the values of 9-10 together. This is the total value of your “Current Assets.” Circle this number and call it Total C.
Part 4 – Calculate your fixed assets.
On the same paper (or a fresh one if you need it) write in the left column “Fixed Assets.” These are assets that you plan to hold onto for awhile.
In other words, these are assets that you are not planning on converting into cash in the upcoming year. List the following headings and fill in the information.
Principal residence – Write down the current market value of your home.
Personal property – Write a list of your personal property such as your car, jewelry, furniture, computers, etc. Estimate what you would receive for them if you had to sell them today.
Time to Calculate – Add the values of 11-12 together. This is the total value of your “Fixed Assets.” Circle this number and call is Total D.
You are almost there. This is the last step to this exercise…
Part 5 – Calculate your total assets.
Finally, add together Total A + Total B + Total C + TOTAL
This number is the value of your “Total Assets.” Circle it and call it Total X.
Take a break before you move onto the next exercise, but make sure you COME BACK. We’ve got more important work to do.
If you sold everything you own today (your assets) and had the money in your pocket, before you could go on a spending spree, you would have to pay anyone you owed money to first. This next exercise is about figuring out that number. Let’s begin.
Exercise Two – Calculate Your Total Liabilities (Everything You Owe)
Take out your notebook and on a fresh page “Liabilities” across the top. Liabilities are everything that you owe. This exercise is much shorter than the previous exercise. Let’s begin.
Part 1 – Calculate your current liabilities.
On the left side of the paper, write “Current Liabilities.” This is the amount of money that you owe if you had to pay everything back today. List the following headings and fill in the information.
Accounts Payable – This refers to bills such as electricity, telephone, car payments, or medical that you have received but have not yet paid. List each one and their value.
Business Loan – Write down any amount of money that you were loaned in order to start or grow a business.
Credit Card Balances – List your credit cards and their balances.
Lines of Credit – This includes any lines of credit you have at the bank, on your home, or at any stores. List these lines of credit and how much you owe each one.
Mortgage – Write down the amount outstanding on your mortgage today.
Time to Calculate – Add the values of 13-17 together. This total is the value your “Current Liabilities.” Circle this number and call it Total Y.
OKAY, NOW WE ARE AT OUR FINAL STEP. HOW ARE YOU FEELING?
Stick with me. I want you to know that you are doing a great job. It takes courage to do this work and I want you to take a moment to acknowledge yourself for your courage before moving on to the last step.
Exercise Three – The Final Step: Calculate Your Net Worth
If you were to pay all of your debts, sell everything you own, and walk away with all you possess in your pockets – this is the amount you would come up with. The number we are about to calculate will show you your net worth.
Part 1 – Calculate your net worth.
Take your total Assets (Total X) and subtract your total Liabilities (Total Y) to give you your Net Worth.
If you prefer the formula, here it is:
Total Assets – Total Liabilities = Your Net Worth
Part 2 – I know My net worth
Write down the number you came up with. My net worth is: …………………….
NOW TAKE A FEW DEEP BREATHS.
I’d like you to know that sitting there with your net worth value in front of you, you are the owner of something that only a small percentage of the population has in their possession. Becoming aware of this number is a process that only 5 percent of the population is willing to do – and that gives you an advantage over the other 95 percent of the population.
If your net worth was negative, please do not panic or give up. You have just taken a big step toward improving your net worth. Remember, nothing can be fixed unless you become aware of it. In other words, nothing can be improved without the awareness that it isn’t working as well as it should.
Knowledge is power. Now that you have the knowledge of where you are, you will be able to move much faster and with more confidence to where you want to be. By doing this work, you have taken a HUGE step in the process of Taking Control of Your Money. By sticking with the exercises this week, you have shown your deep commitment to your financial future. Your ability to follow through is vital to changing any negative habits. You did it!!!
For The Week.
Whether your calculations showed you that you have a positive net worth or negative net worth, congratulate yourself for your commitment to completing this exercise. Please do something nice for yourself to acknowledge and enjoy your accomplishment! Now that you know your net worth, let’s have a look at how we can improve it.
Next week we will be taking action steps to grow your net worth and help you reach toward the goals you dream about.
So until then, have a great week!