Tiana Clewis: Are you building wealth or are you going broke?
I've come across a way too many people that think they're doing the former. Maybe they have a high salary. Maybe they own a lot of stuff. Maybe their bank account is just really sexy, but what they don't realize is that a big fat salary, a bunch of fancy stuff and a bank account that looks like a phone number doesn't mean you're actually becoming wealthy.
The truth is a lot of those folks are dead broke.
Now on the flip side, there's a surprising number of people who, when you look at them, it looks like they have nothing, but actually they're getting pretty darn wealthy.
So how in the world do you know which one you are: going broke or getting wealth? By knowing a little number called your net worth.
And no, I don't mean the fake net worth shared by magazines before you hear about a celebrity filing for bankruptcy. No. I mean your real net worth.
If you're not sure what I mean, don't worry, cause I'm about to break down what your net worth is, how to calculate it and why it's the only way to really know if you're actually on your way to wealth or about to lose it all.
Hey Dreamers and welcome back to my channel, where we break down all things money so it can stop being an obstacle and start being what it is: a tool to help you create a life that you truly find worth living.
Before we start talking about your net worth, let me first introduce myself to the newbies in the crowd. I'm Tiana B. Clewis, a coach, author and speaker who has dedicated her life to helping women entrepreneurs grow their income, dump debt and hit those money goals without having to sacrifice all things fun. And believe me, when I say that you can invest in real estate and get monthly massages at the same time. I've done it and so have many of my clients.
If you want to join me on this journey, like this video and follow my channel below. Then hit the bell to make sure you're notified when I drop new money tips and strategies each week, that'll help you hit your financial goals while still enjoying a lovely life.
The first thing we need to tackle is what is net worth...really? And why does it matter so much?
Net worth is defined as the amount of value you have left in your assets after all your liabilities have been deducted. Yeah, I know, for all my accountants out there you're like "I know what you're talking about," but here's how I like to break it down for all of my clients.
If you took everything that you owned and sold it for what it's worth, then went and paid off every debt that you have, how much money do you have leftover? That is your net worth.
It's a measure of how successful you've been at keeping your hard earned money. That's why it's the ideal tool for measuring whether you're building wealth, because true wealth isn't about how much money you've made. It's about how much money or in the case of your stuff, value, you were able to keep. The more money or value you've kept, the more wealth you've built.
No a problem with network is that it's simply a snapshot. It's this one time number that changes daily, even hourly as your family spends money, earns money and faces off with interest calculations on either your bank accounts or your debts.
That means to know if you're building wealth or losing it, you have to watch the snapshot over time. If you calculate your net worth, say once a month and plot it on a simple line graph, you can see if your net worth is going up or down. The more the line moves up, the better off your family is for the long haul.
Now, there are money management apps out there that will calculate and track your net worth for you on a nearly real time basis. But since I typically hate the budgeting features on those apps, I steer clear of them as do my clients.
For that reason, I encourage them to calculate their net worth once a quarter, if they're doing the calculation by hand. It's not so often that it becomes a pain because some of us have a lot of line items in the calculation, but it is often enough that you always know how you're trending and when to course correct.
Speaking of the calculation, how do you calculate your net worth? Well, it's surprisingly simple math. You add up all your assets, which is everything you own. Then you add up all your liabilities, which is everything you owe others. You subtract your liabilities from your assets and boom, you know, your net worth.
What can get a little tricky is figuring out what to include on those lists and how much they're actually worth, so let's get into a little more detail here.
As I said, assets are everything you own. That includes your house, car, bank accounts, investment accounts, retirement accounts, or like equity in your business. It can also include jewelry, collectibles, and antiques land cattle that you own. It technically even includes the stuff in your house.
Now typically what people do is list out everything they own that's worth more than maybe a couple of hundred dollars. So while you may include your Apple watch, you probably wouldn't include clothes or that seven year old TV.
Then you look up their values, which can be a little tough since value is always based on what someone else is willing to pay for it - not what you paid for it. That's why to make it easier, many people will leave consumer goods like the Apple watch and that TV off their list completely because the value is just too tough to confirm.
Finding the value of your liabilities is typically easier. That list and its values are simply the principle balances of what you owe to someone else. So for student loans, all you have to do is log into the account, see what it says the principal balances, and that's the number you use.
The issue here is usually completeness as some people have debts on their credit report that they forgot about, or they'll exclude money owed to family and friends. Now my rule of thumb is if you owe it, even if it's to your own mother, include it on the list.
Once those two lists are complete, just do the math. Add up assets, add up liabilities, subtract liabilities from assets, and you're done. That part is quick. It's just putting together the list that can take some time. At least I know it does for my family.
How about you? Does it take you a lot of time to pull together your lists? Let me know in the comments how long it took you. And if you haven't calculated your net worth before what's been stopping you? Share that too. Either way, I'm pretty sure you're not alone.
All right, so we know how to calculate net worth, what it's telling us, but there's one more thing that I want to share.
Okay, it's really four things, but I felt like I had to say something just in case you do all that work only to discover that your net worth is going down or is straight up negative. So let me quickly run through four ways that you can improve your net worth before your next quarterly calculation.
The first way is to pay off your debts.
When you pay off your debts, you're actually reducing the liability side of the calculation. And before you say something, yes, I know that the asset side also went down when we used the cash to pay off the debt. But here is what folks tend to miss with that argument.
When you pay off the debt, as long as you don't add more debt to it, you've permanently reduced the liability side. However, the asset side is going to go back up when you get your next paycheck or withdrawal from your business. So the decrease in liabilities becomes permanent while the reduction in assets is temporary resulting any long-term net worth growth as long as you're bringing in income.
The second way, which I recommend doing after you pay off your debts, is to just save more money. As your bank accounts and investment accounts grow, the asset side of the equation grows with it.
Pretty straight forward. Yeah, I know that's super easy.
The third way is to invest in appreciable assets. An appreciable asset is something that either always, or at least typically, goes up in value over time. So the longer you own that asset, the more likely it is that it's going to be worth more when you finally sell it. These are typically things like real estate stocks, jewelry, antiques, and even unique collectibles.
It's the exact opposite of what most people "invest in," which are depreciable assets. These are things we buy that, over time, lose value like cars, boats, clothing, and other consumer goods.
So if we cut back on buying consumer goods - i.e. depreciable assets - and focus on appreciable assets, we will typically find the assets the side of our net worth going up over time.
The fourth and final tip is that you want to own your home instead of renting it?
Yes, I know, having a landlord responsible for the grass and the plumbing and the roof, like it's super convenient. Believe when I say I miss those aspects of apartment living. However, you're not gaining anything over time.
Every month, you hand them a big fat wad of cash and have nothing to show for it other than a roof over your head. Once you leave the place, the only thing you're getting back is a refundable deposit - maybe - that you paid when you moved in.
Your wealth hasn't gone up one iota.
On the other hand, when you own your home, you're living in an appreciable asset. Yeah, you'll have to hand over that big fat wad of cash when you move in and every month for, say, a couple of decades to pay off the mortgage, but you're gaining this beautiful thing called equity with each payment you make.
Equity is the difference between what the house was worth and what you owe on the mortgage. Every mortgage payment is making the liability side on the house decrease and increasing the equity, which to you is an asset. So the more it grows, the more your net worth is growing also.
So now you have a roof over your head and more wealth. Definitely a big win.
So that's my list of four ways to grow your net worth over time: pay off your debts, save more money, invest in appreciable assets, and own your home instead of renting it.
Alright, I'm done. You are officially ready to figure out whether you're on the path to wealth or the poor house.
Now... now that you know how to determine not only your net worth, but how to improve it, there's another tool that you need in your arsenal to make that easier: a budget.
I know. I know. That's the last thing you want it to hear, but how else are you supposed to figure out how to dump those liabilities, create money to buy some assets and get that net worth moving in the right direction? Well, without a budget and you have no idea what to change to make all of that happen.
So help yourself out by grabbing my Beginner Budget Checklist, a super simple guide that will walk you step by step through how to create a budget that matches your actual life and helps you discover what you need to change to get that net worth in the black.
So to get your copy, simply head to my website at tianabclewis.com/beginner budget, let me know who you are and then check your inbox. It's probably the easiest thing that you'll do today.
Now that you know how to discover whether you're building wealth or going broke, let's get connected on social media. You can find me on Instagram and Twitter with the handle tianabclewis. Or head over to Facebook and I'll be there under selahfinancialcoaching.
Also, let me know you found this video useful by hitting that thumbs up and following my channel. Don't forget to hit the bell so you're notified when I drop brand new money tips and insight every single week.
Finally, if you're looking for more information that'll help you start building up that net worth, these two videos are exactly what you need.
With that, I'll see you on next Wednesday. Bye bye.
Do you know how to become rich? Too many are trying to gain financial freedom by growing their income, but that’s not wealth creation. Personal finance basics tells you that to build wealth, you have to understand your net worth! So if you want financial independence and to leave behind wealth for generations to come, check out this video on how tracking net worth will tell you if you’re going broke or if you really know how to get rich.
Ever tried to budget and felt like you didn’t know what the heck you were doing? Let’s make budgeting easy! Download my step-by-step Beginner Budget Checklist today at https://www.tianabclewis.com/beginnerbudget
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