Net worth Archives - The Free Financial Advisor

Your net worth is a benchmark for your financial success. Notice that I said financial success and not just success. That was intentional because money doesn’t define your success. Money can afford you freedom, but I believe real success doesn’t involve money. That was free of charge, now let’s talk about how to increase your net worth.

What is net worth?

Net worth is assets minus liabilities. How much wealth do you have after you subtract what you owe versus what you have? It’s typically used to gauge your progress in your financial life. If you have debt, then when you pay it down, your net worth goes up. The same happens when you increase your savings.

How to increase your assets

Honestly, the only way to increase your assets is to save money. At least, that’s where it all starts. The more you save, the more you have to work with.

How do you save money? Decrease your expenses and/or make more money. That’s what it comes down to. Figure out what’s important – in terms of your budget and spending. Everything else that doesn’t fit on that list needs to either be removed or reduced.

Once you have money saved, then you can put it to work. Invest it in securities or assets that have a chance to increase in value. What kinds of things have a chance to increase in value? Stocks, bonds, mutual funds, ETFs, precious metals, real estate, certificates of deposit (CDs), and cryptocurrency/NFTs (though I would tread carefully here).

Growing your assets will help you increase your net worth.

How to decrease your liabilities

Pay down your debts. That’s it. Obviously, it’s more challenging than that. Ideally, what you’d want to do is pay down your debts before you focus on the saving aspect of it. If you have debts with high-interest rates, like credit cards, those should be your first priority.

We’ve gone into detail about the repayment methods before so we’ll only touch on them briefly, but what’s important is decreasing your expenses so you can make larger, more regular payments towards your debts.

The next step is developing a repayment strategy. The two we’ve talked about before are the debt avalanche and the debt snowball. The debt avalanche – you pay the debt with the highest interest rate off first before moving to the next one. The debt snowball – you pay the debt with the smallest balance off before moving on to the next one.

Paying down your debts will really help you increase your net worth.

Is there a net worth number you should hit?

At the end of the day, your net worth number is really a reflection of what you’ve saved for retirement. Ideally, you will not have any debts, including your mortgage. So there’s no math that needs to be done. What are your assets? Primary home, any rental properties, and then your retirement savings, with primary home and retirement savings being the two most common for everyone.

So the question becomes, how much should you save for retirement? Thankfully, we’ve created a guide for you to help answer that question (see below).

Disclaimer:

**Securities offered through Securities America, Inc., Member FINRA/SIPC. Advisory services offered through Securities America Advisors, Inc. Securities America and its representatives do not provide tax or legal advice; therefore, it is important to coordinate with your tax or legal advisor regarding your specific situation. Please see the website for full disclosures: www.crgfinancialservices.com

Jacob Sensiba

My name is Jacob Sensiba and I am a Financial Advisor. My areas of expertise include, but are not limited to, retirement planning, budgets, and wealth management. Please feel free to contact me at: jacob@crgfinancialservices.com

www.crgfinancialservices.com/

I’m not a dummy, so I avoid that aisle of the bookstore. You should, too. Let’s concentrate on what really smart people would do instead.

If you’re an exceptionally brilliant person who just happens to know less than you should about estate planning, I’ve written this piece for you.

Estate planning is a complicated field, but at a basic level there are only a few important items to understand. Luckily, understanding estate planning is like building a house: once you grasp the foundation, it’ll be easy to construct a manor later.

…and yes, I am in fact a ninja with similes.

The Will

In your will, write “I leave it all to AverageJoe.”

Okay, since you didn’t bite on that dubious advice, I’ll focus on some better tips: when you’re planning your estate, start with a basic document called a will.

If you’re estate is large or convoluted, you may need to gravitate toward more complex documents such as a trust, but you’ll still have a will as the base of your estate plan.

In short, a will is the basic block that everyone will need.

Here’s what you’ll accomplish in your will: you’ll determine where your belongings will go and how they’ll be divided. If you want to also control when they’re divided, you’ll need more complex documents (or a will which converts to a more complex document upon your demise).

In your will you’ll appoint a person to oversee the process. This person is often called the executor of your will.

Some practical advice: try to avoid naming two individuals. People fight about weird stuff when a loved one passes away. If you leave two people in charge equally, you’re asking for them to both fight for your interest. I’d rather you chose one single person who’s very comfortable being seen as “a jerk.”

Usually when I make that recommendation people’s mind springs directly to a specific person. Did yours?

What If I’m Sick and I Can’t Communicate With Medical Pros?

Hmmm…..this one’s a problem. Luckily, there’s an easy solution.

Here’s what we’ll do: We’ll throw into your estate planning package (doesn’t that sound official?) a document often called a Health Care Power of Attorney.

You may have heard the old story about “pulling the plug.” It used to be that you could just write down your wishes on a notarized piece of scrap paper and the doctor would follow it.

Today, that document, often referred to as a living will, isn’t recognized by many doctors and also isn’t legally binding in many states. Instead, you now nominate someone ahead of time to communicate on your behalf with doctor plug-puller.

Who would want that responsibility?

I certainly wouldn’t want the life-long psychotherapy I’ll need after deciding to pull the plug on my mother (not that I haven’t thought about it a time or two….but anger is fleeting, love is strong).

Here’s how you handle this: in the Health Care Power of Attorney, you’ll write down your wishes regarding end of life scenarios. That way, your nominated person will only be following your orders, not deciding what to do in the moment.

I told you this wasn’t difficult. In a kind-of-sick way, it’s fun. Let’s move on.

Who Will Manage My Vast Fortune I Haven’t Built Yet, But Will Someday?

You’ll also need someone to sort through your financial picture if you’re still alive, but unable to communicate or make decisions. For this, you’ll add a document called a Power of Attorney document.

In most cases, this is a springing power, meaning that it’s worthless until you’re incapacitated. You won’t have to worry about junior emptying your bank account the moment you make him your representative.

When it comes to both health care and financial powers of attorney, choose someone your age or younger. There’s a more-than-likely chance you’ll forget about these documents about 32 seconds after you’ve finished. You don’t want your power of attorney to pass away before you do.

On that note, consider a contingent power of attorney to back up your primary choice, in case your nominee can’t serve your wishes.

What About a Trust?

Trusts are important for more complex estates. Some bloggers with estate planning experience aren’t fans of trusts. Others live by them.

I’ll be blunt about trusts: I’ve seen more trust work done that was worthless than trusts which actually made sense. In many cases, there was only one reason for this: the attorney could bill more hours preparing a huge trust instead of a tiny will document.

There are good reasons you may decide a trust is for you:

you have children by two different spouses,
your net worth is well above $1M dollars (some estate attorneys will say above $5M is a better number),
you have specific charitable intentions,
there are business interests involved in your estate,
you have specific time frame wishes to dole cash out over longer periods or with specific caveats, and
You’re worried about privacy in your estate

Who Takes Care of My Beautiful Children?

Assuming you have children, you’ll choose a guardian in your will.

Many people have a will specifically for this reason. If you die intestate (that means without a will), the laws in your state will govern who cares for your children when you die. You’ve seen the mess they’ve made of our roads….imagine what they’ll do with your kids!

Should I Hire Someone Or Use A Kit?

This one is easy. A kit is FAR cheaper, but I’d hire an attorney every time.

Maybe you’re a whiz kid at estate planning. Good for you.

I’ve worked with families that have to clean up the mess left by an uber-guru such as yourself, and wading through your accounts isn’t pretty without professional help. If you work with an attorney, consider this to be your chance to pre-interviewing the person your family is 90 percent likely to deal with once you pass away.

Is this a more expensive approach? Heck yeah.

Will the lawyer’s will look suspiciously like the one in the will kit? In many cases, yup.

All of this is irrelevant. We’re talking about your children, your stuff, your healthcare. Do it right.

Okay, here’s the question of the day: is your choice of estate executor comfortable being “a jerk?”

(photo credit: Grim Reaper: Chris Fritz, Flickr; Light socket: Rennett Stowe, Flickr)

How to Increase Your Net Worth