Category Archives: success

Road to Success: Calculating your Net Worth

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On my last post, I talked about the importance of setting your goals and as with any road maps, before you can determine how to get from here to there you need to know where “here” is. In other words, where do you stand financially? This is where the net worth statement concept comes into play.

The net worth statement is a very simple concept, it is a snapshot of your financial health. To break it down, your net worth is the difference between all the things that you own of value and all the debts you owe. In other words, it is your total assets minus your total liabilities.

So why do we need a net worth statement?

Net worth statement gives us a snapshot of your current financial condition, basically, tells us how we are doing financially at this moment in time. This is important and you need this information in order to effectively set the financial goals that you want to work towards, determine your progress along your way, and make adjustments, also why it’s important to update your net worth on a regular basis. Your net worth will also come in handy when you decide to apply for a mortgage, credit cards or any types of loans.

How to prepare your Net Worth Statement.

Not having a strong grip on your financial situation can really hurt you in times of need, like a job loss or health emergency. It’s really hard, if not impossible, to plan for your future if you don’t know where you are today. So lets start making you your Net Worth statement today.

You can begin by taking out a piece of paper and start listing all the things of value that you own. Include everything, even those you still owe money on like your house or your car, etc. You want to use their full values as of today. Don’t worry about the balance of the loans related to these assets, they will be included in the liabilities section so your equity in the assets you list will not be over looked. However, for your bonds, stock options, and retirement accounts, use your current value and not the value at maturity or the value on the date you’re fully vested. For this portion, you should talk to your broker/employer and ask for statements showing the current value of these accounts.

For life insurance policies, you should only list those that have a cash value. Majority of life insurance policies are provided through the employers and are terms policies good only for the time that you are working for that company, so these are not considered assets.

For cars and all other vehicles, use the Kelley Blue Book value, which is the estimated price of the vehicle if the car were to be sold to another consumer or a car dealer. For every other assets, use your best estimate of the fair market value.

So here is a general list of some common assets sorted by category:

Cash Equivalents: Banks and money market accounts, CDs, and Cash on hand.

Investments: Stocks, Bonds, Mutual funds, Index funds, Savings Bonds, and Stock Options.

Retirement Funds: 401(k)/Pension funds and IRAs.

Real estate: House, Land and Rental Property.

Personal Property: Vehicles, Campers and RVs, and Boats.

Household Goods: Furniture, Jewelry and Electronic Equipment.

Money Owed to you: Rents due to you, Rental Deposits, Utility Deposits.

Other Assets: Life Insurance, Privately owned business.

So now that you’ve listed everything you own that has a monetary value, in order to get a true representation of your financial net worth, we’re also going to have to list money you may owe banks or other finance companies, also known as liabilities.

Some examples of Liabilities include the following:

Loans: Mortgages, Home Equity Loans, Vehicle Loans 401(k) Loans, Student Loans.

Credit Cards: Visa/Master Card, American Express, Discover, Department Store Credit, Gas Credit Cards.

Taxes Owed: Real Estate Taxes, Unpaid income taxes, Quarterly Estimated Taxes.

Other Debts: Unpaid Bills, Alimony, Child Support, Miscellaneous.

After you have listed everything you can think of, then you have to total up all your assets and liabilities. Now subtract your liabilities from your assets and that is your Net Worth. If your number comes out to be positive(assets are greater than your liabilities) then congratulations, you have a positive net worth. If your number is negative (liabilities are greater than your assets) then you have a negative net worth. If you have negative net worth, don’t let this discourage you. At least now you know exactly where you stand and can finally map out your route to a positive net worth. Now that you have your Net Worth, our next post will concentrate on deciding what your goals are and how to get started.

(This is the second article of the three part series)

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Road to Success: Setting your Goals

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Okay, so we all know that goals keep us focused on a purpose. The truth is, all successful businesses and organizations have short term and long term goals and a written plan for reaching them. The first thing you need to do is to determine your financial situation and then decide what you want to achieve for your future also how you’re going to accomplish this task.

“Most people don’t plan to fail, they just fail to plan”

Writing out your goals is like saving, everyone knows they should do it but most don’t.

So why are financial goals so important?

Just like you wouldn’t leave on a long road trip without a road map, still many people go through life without a real solid plan for their future. The road to success can lead directly to your destination or to a dead end. Making specific financial goals and witting out plans for meeting them will help you focus your efforts on the end result.

Think of goals as your wheels on your car, they steer you in the direction you want to go and you will not get very far without them. So if you have not started planning for your future, then now is the best time to begin no matter how old you are. The earlier you start however, the more advantage you’ll have. Time is THE most important tool when it comes to saving and investing. If you wait too long to start investing and saving, you’ll have to work at it a lot harder than if you start as soon as possible. The best/smartest thing you can do in your twenties is to invest and to save. When you start at an early age, you’ll ultimately have to save and invest much less of your money and will still come out far far ahead of anyone who starts investing ten or twenty years later.

For example, someone whose twenty years old and invests $5,000.00 and earns an average of 8% a year, at retirement ( age 67 ) will end up with $186,160.06. Now the same amount invested at the age of forty would total less than $40,000.

Without a good solid plan, you can have the best intentions but lead nowhere. Start mapping out your financial route now, because your future depends on it. Be sure to come back to read my next post on how to calculate your financial net worth.
(This is the first article of the three part series)

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Overcome your worst fear: Learn How to Save

Raise your hand if you think saving is a good idea? Now out of everyone who raised their hand, keep your hand up if you actually save. Here is where almost everyones hands go down.

When you ask anyone to save a certain amount of their pay check, they will most likely agree that it is a great idea but they claim they can’t because they’re already pushing their limit within their budget. To save money from your current income will mean reducing your standard of living and that may be moving into a smaller place, not driving a fancy car, eating cheaper foods, or not able to enjoy your daily morning Starbucks. But because peoples lifestyles are all built on habits, even if they can agree that saving may be a great idea, the actual thought of reducing ones lifestyle is so unacceptable that they are not able to discipline themselves to take the first step.

Believe it or not, saving has always been a part of your life. When we were all growing up, we were given allowances and also were encouraged to save our money. Back then, we looked upon money as a tool to buy happiness whether it be in forms of toys, candy, ice cream, or cookies. Therefore as a result, we also naturally begin to look upon saving a way of punishment, which means depriving ourselves from the toys, candy, etc. At an early age, people begin to associate savings with pain, sacrifice, loss of pleasure, satisfaction and happiness. Now as adults, this habit is manifested in our desire to want to spend money as soon as we receive our checks.

Well instead of telling you how you can overcome this habit or cutting back on your current lifestyle, heres a different route. From this day forward, you need to save 75% of every increase in pay you receive from work.

How does this work?

This is something that you can do because it does not require you to lower your current standard of living, in other words, you don’t yet have the money built into your daily lifestyle. It is easier for people to commit to saving money that they don’t have than for people to agree on saving by cutting down on their current lifestyle. In order to become wealthy, you need to develop these habits.

So starting today, commit to save at least 75% of future raises in income. The earlier you start, and the rate at which your income grows, saving 75% of your future increases in years to come will allow you to acquire an enormous amount of money. Developing this habit will eventually make you financially independent.

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How to Determine Financial Success

Personal Finance is such a big fuss in our blogosphere, there are so many articles on how we can save more for our retirement, how to reduce debt, how we can live more frugally, how to not spend your money, and the list goes on and on. I love to read about all the different aspects of finance, because the truth is the more you think about finance the better you’re gonna do financially.

But after applying all the neat hacks and tricks on how to be more financially independent, what’s next? How do you determine financial success? How do you gauge your performance? It’s simple. It’s not how much credit card debt you were able to pay off this month, its not how much you were able to save up, it’s not how much you were able to put away for retirement.

What it comes down to is, your net worth.

You can put away $500.00 for retirement one month but in that same month treat yourself to a nice Iphone (which is somewhere around that price range) and not improve your overall net worth. You can pay off $200.00 off your credit card this month but you keep using the same credit card for all your purchases, again, you’re not improving your situation.

The way you can gauge your financial performance and know that you’re doing good is this, ask yourself, “Did my net worth improve from last month”? If you can say yes, then you’re doing wonderful, if not you might want to rethink your strategy.

What you don’t want is for you to have the same net worth month after month. As long as you can say that your net worth has increased by ‘x’ then you’re in good standings because you know that your making progress. As opposed to someone whose net worth is the same each month and not making any improvements, which is the most case. If you spend just as much as you save, then you’re really not making anything. Wouldn’t it be great if you can see that your net worth is getting better and better each month, each year? Instead of being in the same financial scenario for 5 years? This is why keeping track of your net worth is very important because it also allows you to keep track of your financial progress.

The big picture is aside from all the frugal living, putting away for retirement, investments, and all the financial goals one might have, what it comes down to is are you improving your net worth.

The key points is, you should concentrate on improving your net worth month after month. This is the only way to rate your performance. If your net worth is improving, then you know your financial situation is improving. :)

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6 Ways to get Rich

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Lately, I’ve been listening to this audio book called the “Automatic Millionaire” by David Bach, and let me tell you that it’s awesome. I recommend this audio book to everyone, it’s a great read/listen, whichever you prefer. So while I was listening to it, I noticed some cool things that I thought I wanted to share with you.

When it comes down to it there are 6 approaches to wealth. Here they are.

  1. Win it. For example, the lottery. Did you know that over 500 Billion dollars have gone into the lottery business since the early 70′s when the lottery was first started? Imagine if all that money was put into an investment account, there would be over trillions of dollars right now. This is not a realistic approach but it happens to the very few. Do you know anyone who has won the lottery? Probably not, so I wouldn’t recommend waiting around for this one.
  2. Marry it. Wouldn’t it be great to marry your self into wealth? But lets face it, it’s not that easy to marry for money. Not only is it not easy to marry for money but “when you marry for money you pay for it for the rest of your life”. Good luck with this one.
  3. Inherit it. Now inheritance is actually a real approach to gaining wealth. Within the next 15 years, we’re going to see over 15 trillion dollars transfer from one generation to the next. But I mean, who wants to rely on their parents to past away so that they can get their money. No one I know, hopefully no one you know either. If you are fortunate enough to have your parents or family members leave you something after they pass, you can be grateful but don’t depend on it. Not a good way to live and you don’t want to rely on this for your retirement.
  4. Sue for it. Why work when you live in a country that pulls in 90% of all lawsuits made in the world? Just sue your way into wealth, right? Wrong. Again, you don’t want to rely on something like suing someone to get rich. This is not a real approach to wealth.
  5. Save for it. For all the little things we spend our money on like fast food and starbucks, this alone over a long period of time could end up to be a considerable amount. Say you spend on average roughly $10 for lunch and starbucks. Over a year it’s $3,650 and over thirty years it comes to 109,500! Now imagine you put this money away in the stock market in some kind of an index fund, which historically averages about a 10% return. Using this compound interest calculator, you would end up with 660,443.50! Isn’t this amazing? So yes, your daily fast food and starbucks is costing you over half a million dollars. This is also known as the Latte factor.
  6. Earn it. Yes, you can earn your way into wealth. Although the automatic millionaire has many great tips on how to accumulate wealth, the main concept of the audio is to pay your self first. What does it mean to pay your self first? It means that when you get your paycheck, before you pay anything or anyone, including the government, you make sure to pay your self first. When you automate this process electronically, it’s very easy to do because you don’t have to do it manually and the great thing is it doesn’t require motivation or work once its all set up. This is why out of all the 6 approaches, this is the most promising. As Bach mentions in the audio, you can start paying yourself as low as 1% of your gross income. Then over time, slowly start to increase your percentage and you won’t even notice it.

Just to let you know, I’m not getting sponsored or getting paid for saying any of this, I just want to share with you how much this program works.

So ever since I started listening to this audio, I made everything automatic and so far it’s doing great. As of now, I am automatically paying myself 20% of my gross income each paycheck. I stated out with 10% but then realized that I can afford to do 20%.

Having this process automated is the main key. Since it’s automated, you don’t have to worry about keeping your self motivated and that’s a huge factor, especially for me. Lets face it, it’s really hard to stay motivated 24/7 and thinking about finance day in and out. Another thing is when you have this process automated, once you have everything setup, you don’t have to work at it. Everything is automatic! It’s working for you while you’re not thinking about it.

The thing is, most of us know the concept of paying yourself first, but no one ever executes them. In his book, he pays down solid principles and honestly tells you that it’s not a get rich scheme. That it takes years for it to work. But its a solid plan that I think is guaranteed to work. What I like about the book is that it’s really simple to understand and easy to follow. If you have the chance, go check the book out for your self. It’s definitely worth the investment.

Tips for Proper Receipt Handling

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I have a friend who has been keeping his receipts for as long as I can remember. I guess you can say that he’s a receipt freak. He keeps them to enter into his money tracking system to keep track of his budget.

This is all very understandable and some what commendable for being so organized but I asked him, “why not just use your debt card like I do and keep track of your spending that way”. He replied ” because I like paper and I like to organize them!”

Apparently, he keep them filed away in a very organized folder on a monthly basis. I was amazed.

What did I learn? I guess there are people who just likes to keep their receipts and hold on to them.

So for all you receipt lovers out there, here are some tips I want to share with you on proper receipts handling skills:

  1. Establish a simple routine for dealing with your receipts as soon as it comes into your hands and stay consistent. You can for example leave a space in your wallet or purse just for receipts and every time you purchase something. When you get back home, immediately put the receipts into an organized folder. This way, you don’t have to think about where you put your receipt and don’t have to waste time looking for them.
  2. As soon as you receive your receipt, look for missing or faded information and fill in that spot immediately. There’s nothing more frustrating then trying to read the receipts’ date or price long after the fact when you’ve finally gotten around to putting into your data entry.
  3. For those of you who likes to fold your receipts, fold it so that the printed side is uppermost. This way, it will be easier to find the receipt if you ever have to look for it. When you fold a receipt so that the printed side is hidden, all receipts look alike and you’ll have to unfold them all to find what you’re looking for.
  4. Don’t let the data entry pile up. It’s a good habit to schedule a time every week to do the necessary data entry and make sure to stick to that schedule. If you don’t, you’ll find your self just putting it off and your piles of receipts will become even more ugly.

I hope these tips can help you out some way or another. Keeping track of your receipts is really nice and handy, but the trick is to being able to keep them organized. Good luck, I think I’ll stay with the online statements :)

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Billionaires Who Dropped Out of School

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Heres an interesting fact. In the year 1900, there were only about 5,000 millionaires in America. By the end of 2000, there were more than 5 million millionaires, and more than 300 billionaires and multi-billionaires. Almost all of these guys began with nothing and accumulated their fortunes in the course of a single working lifetime.

We all know that education is very important and crucial to obtaining a job these days but there are those few who were able to make it to the top without the complete aid of college education. These self made billionaires suggest that rather than a college education, that talent, hard work, attitude, consistency, and also along with a great deal of luck are the key ingredients of success. Here is a list of billionaires who all dropped of college, and some even high school. (not in any particular order)

    *Bill Gates
    *Li Ka-Shing
    *Larry Ellison
    *Roman Abramovich
    *Sheldon Adelson
    *Paul Allen
    *Amancio Ortega
    *Michael Dell
    *Kirk Kerkorian
    *Carl Icahn
    *Stanley Ho
    *Donald Newhouse
    *Fran├žois Pinault
    *YC Wang
    *Jack Taylor
    *David Geffen
    *David Murdock
    *Steve Jobs
    *Ralph Lauren
    *Henry Fok
    *Richard Branson

It’s a pretty long list here. Now before you consider dropping out of school, keep in mind that these people are the exception. For the most part, it’s probably like a million to one ratio for those who make it big. So the chances of dropping out and hitting the jackpot are pretty slim, something I wouldn’t recommend. Stick with the lottery. Although the chances of winning one of those are ridiculously slim, at least you’re not bartering your education.

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Path to Financial Success

For the majority of the population, most people have bad habits when it comes to money. These people, instead of thinking in terms of saving, investing, and financial freedom, they think only of spending, borrowing, and financial dependence. Statistic shows that in 2002, nearly 2 million Americans declared personal bankruptcy due to constant spending and borrowing more than what they could afford.

There are two directions that a person naturally goes through with regards to finance.

One road leads in the direction of earning, saving, investing while the other leads in the direction of earning, spending, borrowing and then getting into debt. Each person is responsible for their own actions and they have to make the decision on which road they are going to take.

For those who are in debt, the great news is, regardless of what road you have taken in the past, you have the ability to decide what road you want to take starting from this day forward. Accept complete responsibility for your financial life and take the first step into the right path.

The fact is, financial success is long-term success.

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