By now, you have read the first few posts and you’re thinking to yourself, “I am ready to make a change. I am ready to change some habits and focus on a plan to make myself wealthy and generating enough money to retire.” AWESOME. You are changing your mindset to put out in the universe that you are going to create a goal and make choices to reach that goal.
SO WHAT’S THE NEXT STEP?
You can’t start an expedition or a journey if you have no idea where you’re starting. Every expedition has a starting point and your starting point is your current financial situation. Some of you might be further along than you think and some already understand that it will be hard work to get out of debt and will take time to get on a path to success. The most important aspect is that you ready to make the leap and focus on a better outcome.
The next step is to find an online resource you can use to organize and update your financial status as you move along the journey. There are a number of personal financial applications you can find online, but I personally use Mint.com (www.mint.com). This is a web site that ties in all of your accounts into one place and will organize your finances, accounts, loans and spending habits.
If you can imagine that your life and your family is a business, you need to know some simple things to be successful:
- How much money does the business generate (on a monthly basis)?
- How much money does the business spend (on a monthly basis)?
- How can we limit spending and increase the money coming into the company?
- What are the things the business owns and what are the business debts?
If your business makes $100,000 a year but you are spending $110,000 per year, that business has two options, 1) it will go out of business because it spends more than it generates to pay the bills, or 2) it will have to borrow money to cover the additional expenses. A business is just like your life. If you are spending more than you are making, odds are you are borrowing money from credit cards to cover the increased spending. In this scenario, you will not only hurt your chances of being wealthy, but more likely you will head for bankruptcy.
What a personal web site like Mint will do is give you an overview of your current financial situation:
- How much money do you have in the bank?
- How much money do you have in investments like stocks?
- How much money do you have in retirement accounts?
- How much is your house worth?
- How much do you owe on credit cards, mortgages, car payments, etc?
- How much are you spending each month and in what categories?
Overall, when you subtract what you owe (your debts) from the things you own, you will get a big, giant number called NET WORTH. This is one of the most important (if not the most important) number you will follow when it comes to your wealth. Basically this is the number that adds up all of the money you have, the value of your property and your investments and then subtracts all of the money you owe and that is what you are currently worth. The following is a very small example:
CASH/INVESTMENTS
- $15,000 in the bank
- $10,000 in investments like stocks
- $350,000 house value according to Zillow
- $15,000 current value of car
- $5000 – bitcoin value
- TOTAL ITEMS OWNED: $395,000
MONEY OWED
- $5,000 owed on credit cards
- $280,000 owed on home mortgage
- $10,000 owed on car
- $25,000 – School loans
- TOTAL DEBTS: $320,000
NET WORTH
$395,000 – $320,000 = $75,000. In the example above, this person’s net worth is $75,000.
This is the starting point on this person’s journey!
WHY IS THIS SO IMPORTANT?
In my previous posts, I outlined the importance of putting your goals and dreams out into the universe. By creating a system to track your current situation and your progress, some things will start to happen. You will start to put $5 from that Starbucks coffee you didn’t order into savings or investments. You can have your bank account or other investment company automatically take some money out of your paycheck and put into investments that will grow. Then, the really cool thing starts to happen. The Net Worth number will start adjusting up.
On your expedition, your upward climb in your net worth mirrors your upward climb up the mountain. The one thing I will tell you is that seeing your numbers increase will give you more and more incentive every day to change your choices, save more and climb the mountain faster. It’s simply human nature and the biggest incentive at all to see the progress you are making and want to succeed even more.
After you have signed up for a personal financial software platform, go through and connect your accounts and see where you stand. If you have a ton of credit card debt and no house and your net worth is negative, DO NOT FRET. Does it suck? Yes. The goal here is to change your attitude, your choices and your financial situation to move the negative to positive and then through the roof and over the moon.
