What Is Your Net Worth?


Money in, money out, a transfer here, automatic debit there. Sometimes we almost need a full time accountant just to keep track on all the comings and the goings of our hard earned dollars. The more accounts and investments you have, the easier it can be for money to float around in the ether. You know you work hard, you haven’t bought a Harley in the past month so you must be getting further ahead right?

Sometimes we can all feel lost in a crowd when it comes to our finances. It is no good guessing that you are on track. One thing I can wholeheartedly encourage everyone to do, if you haven’t already done so is to KNOW YOUR NET WORTH. It is imperative to your financial growth!

It is very hard to aim at something without having measured increments to gauge your progress. Imagine asking your basketball coach about who won the game and getting a response like “You got some in. They got some in. I think you won?”

There is a fabulous saying: What gets measured, gets managed. You know those charity telethons with those humongous goals to raise $10 million for the hospital upgrade? There is always a scale that denotes the amount donated. Why? Because psychologically we are instantly excited and motivated when we see dollar figures ticking over and momentum being gained.

Your savings journey is no different. Know as accurately as possible your net worth. Write it down, monitor it and manage your financial growth. If you drop behind in a month, note down why and take steps to mitigate any future losses.

The calculation of net worth is super simple:
Assets minus Liabilities (Money owing and taxes) = Net Worth

Calculate the values of your assets as a best estimate. Personally, I don’t tend to calculate motor vehicles as they sink like a stone in value over the years (unless it is a historical vehicle).
The way to work out the value of your home and investments is to spend 30 minutes scanning sold properties on the internet. Compare apples with apples. Stocks are easily by checking on the internet too.

You may even find it helpful to calculate 3 prices:
- An ‘I wish’ price
- A ‘Sounds About Right’ price, and a
- ‘No Way’ price.

From that point I would always choose the middle price. The process above might look unnecessary as you could just start with a ‘Sounds Right’ price. The challenge is that we aren’t always quite so objective when it comes to the appraisal of our beloved family home.

Now that you have a plausible valuation, take away any loans and debts. To be even more accurate I like to calculate the tax owing on any potential profits made.

The next step is to write your net worth down on a piece of paper that you won’t lose, a document or a spreadsheet. I use a spreadsheet because I calculate my debts again at end of each month with a fine tooth comb.

Watch your net worth carefully and celebrate each saving milestone that you make. Maybe you can plan a little celebration with your family each time you save an additional thousand. Associate pleasure with saving and you will be guaranteed to form good habits for your financial future.

Have you ever heard about the amazing Chinese bamboo tree? If not, keep reading. There’s a lot we can learn from this plant in relation to budgeting and investing.

The Chinese bamboo tree is impressive! Over 90 feet of towering greenery above you. But do you know what it takes to make it grow?

In your first year of growing a Chinese bamboo tree you plant it, lovingly water it, fertilise it, carefully remove the weeds surrounding it, and… nothing happens. Year two the same process and… again, not so much as a tiny bit of green bursting through the ground. Year three and four is frustratingly more of the same. At this point, most would think something had gone wrong and would probably be tempted to plant something else in its place.

But in year five something incredible happens. Green life begins to burst through the soil. Not gradually either, but at an astonishing rate, 90 feet in just five weeks! Isn’t that amazing? You could practically pull out a deck chair and witness a transformation before your eyes.

5 financial lessons from the Chinese bamboo tree:

#1- Plant a Chinese bamboo tree. This is sometimes easier said than done but you need to ‘plant a tree’ (or invest) in something that will produce great growth. It might be a savings goal, prospective business, property or other form of investment. Write a plan about what your 90 foot tree will look like, plan what it needs to help it grow and what daily contributions you need to make to ensure its success.

#2- Consistency is the key. Set a goal and pursue it relentlessly. Keep ‘watering’ by saving and investing with that goal at the forefront of your mind. Before you go to bed each night plan one step that you will take to get you closer to achieving that goal.

#3- Have faith that your ‘tree’ will grow. You might be saving, saving, saving while your friends are borrowing and buying, living the high life. Don’t get frustrated! Bad debt is just that. Save and invest towards good assets that will earn income for you. The goal is not to pull the seed out of the ground now, but rather to allow it to grow. If you are doubtful that your investment/savings ‘tree’ will grow, seek the counsel of financial advisor of some sort. You should feel confident in the seed you’ve planted.

#4- Plant other trees. One tree is great but you could help others more in the world by having other trees planted. Once you know how to plant one, plant another or teach someone else.

#5- Enjoy the planting process. Savings and investment is not meant to be like sucking on a lemon most of your life so you can eat cake in your final years. What kind of a life is that? Enjoy the process along the way. When you save more than you spend, you feel liberated. When you invest in something that grows while you sleep, you feel empowered. And when you can help others along the way, you feel purposeful, proud and free!

Today I was reflecting on the famous Bob Dylan song ‘The times they are a changin’ when I was asked to make numerous changes to a new rental property that we have acquired. The building was built in the 1970s and hasn’t been renovated since.

Old tiling that has stood the test of time, solid double brick walls, plasterboard that was more than 10 millimetres thick. Things seem to be made to last, until now that is, where I am requested to modernise the appearance and update the fittings.

One of the alterations that the property manager has advised I change is the hot water unit. It is a 50 litre unit which the plumber estimates will only disperse enough hot water to last a person five minutes. Oddly enough this is an apartment that has been built to house 3 and possibly 4 people. My question is how have the occupants spent the past 45 years showering in the past?

The hot water unit at my house contains around 300 litres. I have worked out that it costs around about $12 a week the heat. We often run out of water as the kids like a morning shower and sometimes an evening bath. When we travelled around the world for 4 months we rented out our house for a year. In our absence the tenants requested a high-flow showerhead to replace the frugal water saving feature. Now the unit gushes out water to whoever can twist a tap.

I remember as a child having a 30 cm television with 4 channels. Now my own children watch a 60 inch unit and have access to 20 or more. I fondly recall our once a year family outing to an All-You-Can-Eat restaurant where each family member felt nauseous because we consumed so much. Maybe you can remember waiting for almost a year or more for a movie to arrive from on video tape?

It amazes me that most family units only 3 or 4 decades ago were content to live in 10 square homes. Nowadays people in Australia and other Western nations aspire to have homes of 25 squares or more. There is no way we would put up with a 50 litre hot water unit in such an establishment. We can no longer stand freeze-dried coffee anymore and need expensive machines to disperse water through freshly roasted beans.

Where am I going with this post you might ask? The title was ‘The times they are a changin’. The above reflections might not be representative of you whatsoever, so please don’t take offence. I think, however, you would agree that you know plenty of people in society where this post paints an accurate portrayal. Possibly it shows the root cause for the bad debt that many have incurred? When I moved into a new home with Hayley as a couple of young twenties, we turned down numerous offers of furniture and white goods as it wouldn’t look modern enough for our tastes. Out came the credit card and in came the lesson it taught us about debt.

Indeed that little hot water unit inspired a lot of thought about how much has changed. We seem to have so much compared to previous generations yet still desire more. We seem to have an insatiable appetite for the latest and the greatest. While we definitely have a higher comparative standard of living, I believe we need to celebrate what we have. There is nothing wrong with investments or acquiring assets, but we all need to remember to show gratitude for the blessings that each of us have.

Do you need a credit card?

No. No you don't. Cut the thing up now!

I am an ex-owner of multiple credit cards. To be honest, I don't really remember actively seeking them out. They found me!

As a young twenty something who had gone through a few rough financial patches the idea of a piece of plastic that could 'bail me out' if an unexpected event occurred seemed like a sensible idea. The paperwork was practically non-existent. All I had to do was sign on the dotted line and I had 3 credit cards within the week.

I had envisaged using the card only in situations like I needed an emergency spleen transplant. Plus they had all these amazing points that would save me money. What's not to love? In 3 years if I spent lots on the cards I could have enough points to fly to Sydney.

They also waived the $110 fee x 2 (for my wife and I) and the $88 fee on the other card for the first year.

It got better. They even gave me 55 days interest free. If I was super clever and paid off the credit card at the 54th day, I would be one clever cookie.

The problem was that I did use it. Not a lot at first, but little by little. I also forgot to pay it back by the 54th day. It was hard to remember what product you purchased when too. We were also building and there was a lot of other costs associated. Putting it on the card earned us points. Subtle, subtle poor money management began to creep in.

At the end of two years we had nearly $25,000 on our credit cards at 18% per annum.

We eventually sold the house and moved somewhere more affordable. We cut up the cards and realised the hidden curse in a credit card.

So what do we use now you ask? Debit cards.

Debit cards have the exact same features as credit cards and you can use them exactly the same. There are no points though, but no fees either. No interest expense, but a small interest amount is earned.

The only catch, if you can call it a catch, is that you can only spend what you have earned.

This is budgeting 101. Only spend what you earn. This is the key to improving your savings potential.

I understand that some people could potentially use them to their advantage and capitalise on the incentives, BUT... the banks are banking on you losing out.

The average American owes $15,706 on their credit cards!

Source: https://www.nerdwallet.com/blog/credit-card-data/average-credit-card-debt-household/

Cut them up!

$8,000! That was what one tradesperson estimated to retile the bathrooms in our extremely modest home. Just to give you an idea of the size that he was working with, it was less than 15 square metres. Understandably he did not receive my business.

My next port of call was to visit a tiling store to explain that I knew what constituted a reasonable price and wanted a tradesperson they would highly recommend who would give a fair quote. They gave me the name of Chris.

Chris was the epitome of professionalism. He was well mannered, clean, tidy, well organised and quoted me less than half of the previous quoted price.

First lesson- Get two quotes as a minimum and go by recommendations.

The second story involves having a repair person from Bosch visit our house for a call out. The water was not being drained. I carefully examined the washing machine and could hear water going in but it was failing to go out. I googled the model number and examined the faults that others had experienced. I ascertained that it was most likely a defect with the outlet house. Later that day my wife rang the service technician. He laughed at my diagnosis and said it wouldn’t be a hose. Upon inspecting the machine for a while he concluded that it was in fact the outlet hose and only charged the $150 call out fee, the hose was gratis!

Second lesson- Do your own research using that marvellous contraption called the internet!

The third story is back from when we built our home out in the country. We had a few outrageous quotes for getting over 150 metres of cabling laid, even up to $15,000. I picked up on a bit of the lingo along the way. By the fourth quote I could say with certainty the exact type of cabling needed and detail the specific measurements required. I mentioned the contacts I had formed with the power company, had an excavator arranged to dig the hole to the exact depth, laid all the necessary conduit in preparation and sealed it accordingly.

Consequently I paid a fraction of the price due to the time that I had saved the electrician in managing the third party tradespeople.

Third lesson- To save money it helps to be proactive. Do your part and get a discount.

The fourth example is not so much a story, but more my experience in negotiating a reasonable rate with tradespeople. I have found you can get a much better overall price when you clarify their hourly rate from the outset. Most people are poor estimators of time. Ask 10 people how many hours it would take to paint a given room. Estimations will vary widely.

When you negotiate an hourly rate you show that you expect accountability from the tradesperson. Most would generally estimate more as a safety buffer when they quote you, so an hourly rate is not only fair for everyone, but usually works in your favour.

Fourth lesson- Negotiate an hourly rate to get a cheaper outcome.

Ever walked past a shop, seen a bargain in a catalogue, found the deal of a lifetime on eBay and thought ‘I have to buy it!’? The fact of the matter is that there are so many purchases we make that are not premeditated in the slightest.

Marketers know this only too well and exploit it as much as possible. Think about your typical trip to the store where you have just 3 items on the list. You are made of steel if you can make it past the half price chocolate and the buy one get one free soft drinks.

With smaller items it perhaps doesn’t matter too much and won’t exactly break the bank. Larger items however, can have a devastating effect on your budget and long term financial goals. Sometimes we get eBay alerts or an email from an online store and are tempted by the option of purchasing a bargain just in case it disappears forever.
Let’s face it, we get a rush of endorphin when we buy. It makes us feel good. But how do we control ourselves?

I have a solution. Introduce a ‘Buyer’s Lag’ into each sizeable purchase.

A Buyer’s Lag is a time that you decide upon before you make a purchase that involves a prescribed amount of money.

An example of this might be to write down that that you would not make a purchase greater than $50 without writing in a diary and waiting a fortnight. Yes, you might lose the deal. Yes, a fortnight is also a long time, but by being disciplined you will save money and only make purchases that you really need.

You may even like to introduce an accountability partner that you have to call to discuss your prospective purchases with. Hayley and I are quite serious about budgeting and know to run our purchases by each other. The Buyer’s Lag adds in another layer of protection and gives you time to think carefully about whether you truly need the item that you desire.

Okay, the last post I made was all about decluttering. At this point I will confess that I am at heart a minimalist. I love my toys, but would be equally happy bumming around in my one pair of jeans and a couple of t-shirts.

When I was a child, at two points in my life, I sold off or gave away all but 3 possessions. I am fascinated by the concept of minimalism and think we would enjoy life a lot more if we had less and spent less.

Confession over. My belief is that less gives you the opportunity to experience more. I am a huge fan of Kirsten Dirksen and her alternate living YouTube channel. If minimalism and being happy with less appeals to you, I encourage you to check out her channel if you haven’t already.

Here are a few short decluttering tips as promised.
* Shed- Dispose of chemicals, old paint, old tiles/bricks, equipment etcetera that you will never use again. There is often a lot of junk in a typical shed that are stored for ‘maybe’ moments. Chuck it. Chances are that you’ll forget it was even there when the time comes to use it.
* Kitchen- How many spare plates and bowls do you own? Got 30 forks? How many salad servers? Cull your excess platters, utensils and appliances. You will have so much additional space in your cupboards as a consequence. But don’t stop there! Go through your pantry. Throw out that 10 year old spice which has needs a chisel to loosen.
* Vanity units- If it’s hard and crusty, dump it. As you throw it out work out the approximate value of the disposed goods. This is meant to be a shameful task and will stop you spending $20 on that latest fad skin care cream that is extracted from rare, high altitude Himalayan mud.
Kid’s Rooms- Why hang on to boxes upon boxes of baby clothes? Sort them into genders and sizes. eBay them as bulk lots or sell them separately if you have the time and patience. Alternately, just donate them. The amount of toys that most kids have nowadays is insane. Based on my own family, I know for a fact that 50% can easily be given away or on sold. The best way, but the slowest, is to remove everything from their rooms and only put back what will be used again in the future.
* Garage- Do you have old bikes you’d never use, car parts, tools that have been replaced with superior items? Photograph your unwanted goods and post on Gumtree, Craig’s List or eBay.
Study- Scan important paperwork and begin to develop a digital file system. Burn or shred banking records older than the government taxation requirement. Dispose or give away the 3 staplers and 30 pens you might have. Don’t keep that old 486 computer with a VGA monitor that sits in the corner.
* Book Shelf- This is up to you. Some people would prefer to lose an eye than dispose of a single book. I am an avid reader and felt this burden when I had to shift countless books as we moved homes. Consider reader PDF files, eBooks or even listen to the text on Audible (my personal favourite). I have now read (listened to) over 45 books in the past 4 months thanks to the brilliance of the Audible program.

I know I said I am a minimalist at heart at the beginning of this post. I will also confess that there is an element of me that loves to learn a new hobby and skill. Currently I am enamoured by kayak fishing and longboarding and am keen to someday learn how to paraglide. These items take up space and cost a reasonable sum of money.

You can’t do it all, but you are also risk becoming quite a boring person if you do nothing of interest. My advice is to limit your passions and try to do things that include others. The more family members or friends you can incorporate into your hobby, the more chance you will do it with greater frequency and share the enjoyment.

By decluttering and keeping your treasures to a minimum, you value what you have and think carefully about your purchases.