Making Money

Knowing your Net Wealth is sexy!

There is nothing sexier than someone who has confidence in themselves. It is something magnetic, almost hypnotic, that draws you to them as soon as they walk into the room. That special something that makes you want to be the person they are talking to or, better yet, be the person doing the talking. Confidence can come from a lot of things. You may be born with great looks, a really smart brain, you may be a natural extrovert, or you may be wealthy. Wealth and confidence are interchangeable. The more money you have, the more confidence it can give you to take the road less traveled or take risks. Taking risks, and winning, builds incredible confidence. And the single most important thing you should know, when it comes to your money, is your net wealth.

 

What is your Net Wealth?

 

Your net wealth is, simply, what’s left over when you subtract all your liabilities from your assets.

Your assets are everything you own, that you could sell one day and get some form of monetary consideration in exchange for the sale. It could be your house, your share portfolio, your part ownership of your firm, the cash you have in the bank, your jewelry, your art, your retirement savings. Add all of those up and you’ll get your Total Assets.

Your liabilities are everything you owe to someone else. These could be your mortgage on your home, student loan debt, credit card balances or your overdraft. Add up all of these and you’ll get your Total Liabilities.

When you subtract the total of your Liabilities from your Assets and you get your Net Wealth.

 

“The goal is to have a positive number and the higher the better.”

 

Cartons of financial investment products in a shopping cart.

Why is it important to have a high Net Wealth?

 

When we are around 6 years old, we usually start school. Nelson Mandela said that “Education is the most powerful weapon we can use to change the world.” Maria Montessori said that “Childhood education is the key to the betterment of society.” So, we can effortlessly conclude that schooling enables us to change the world for the better.

Any change or progress starts at home and with you. Hence schooling is about, foremost, improving your world and then the world of those around you. With education, we are given an opportunity to pursue great enterprises through, one day, entering the workforce and pursuing our dreams. Each of us chooses a unique path and that path comes with many rewards, one of which is financial. That’s the pay-slip you get at the end of every month.

With the money we are paid, in compensation for the work we do, we are able to invest in ourselves, our children, our community and generally in the world around us. Each investment we make, whether it is buying clothes, food or a house, leads to an overall improvement in the world around us.

However, at one point in our lives, we may stop working or be forced to stop working due to some unforeseen event. When this happens, the money we have invested and saved over our lifetime can then be used to support us, much the same as that regular paycheck did.

The higher our Net Wealth, the higher the ability we have to support ourselves and those around us, during either that unforeseen event or perhaps, just at that moment of retirement. Net Wealth enables us to be free of having to ask others or society to support us when we are in need or in retirement.

 

“Net Wealth is the freedom you’ve always wanted.”

 

Taking an adventurous boat cruise

 

What can you do to make your Net Wealth larger?

 

Net Wealth can be influenced by 3 principal strategies : Make More Money, Save More and Invest Wisely. Each of these strategies can be broken down into multiple sub-elements and be approached from multiple angles.

 

Make More Money

 

Making More Money is easier than you may believe. But let’s be clear, you can’t just click your fingers and suddenly more money starts pouring into your bank account. You can’t expect to just work harder and suddenly your boss will give you a raise and your bank account starts going upwards. Making More Money requires a strategy, a real strategy that you need to adhere to. But, let me tell you a secret: once you know a few little tricks, Making More Money is actually quite simple.

 

Let’s start with the first and easiest way to Make More Money:

 

Step1: Get a promotion.

 

Getting ahead in your career is not just about devotion and working hard. It is actually about seizing opportunities and working smart. If getting a promotion in your current company is hard, as people aren’t moving, then start looking outside. It has been proven that moving jobs every 3-4 years can lead to a 50%+ increase in your Net Wealth after 10 years.

 

However, when looking at that promotion in your company or changing companies, you need to make sure you write the best CV you can and that you ace those interviews. Those two steps require a lot of preparation. Check out www.chiefmoneyman.com for insights and tips in how to write a C-suite CV and Ace that job interview.

 

Step2: Get a side Hussle

 

In today’s world, making money no longer needs to be just from your day job. The internet, electronic scooter charging, Uber and Airbnb are just a few of the ways you can make extra money every month. Even an extra $100/month can be significant over a 10-year period, given the positive effects of compound interest.

And it doesn’t just stop with the obvious things. I read an article just yesterday about a couple who makes over $7.000/month buying and then selling items on Facebook. They just flip them. They buy things they know are undervalued, get them delivered and then resell them. Sounds easy? Well, it is easy! You just need to start doing it.

 

Step3: Ask for a Raise

 

It may be that you don’t feel like changing company and that there aren’t any promotions going around. That doesn’t mean you need to be happy with a few percentage points of increase to your salary every year. There are lots of ways to get a raise. First you need to prime yourself with some basic negotiation skills. Second you need to create the environment for a raise and that could possibly mean building a strategy with your boss and possibly following one or two online courses relevant to your role and industry to up-skill yourself. Remember your boss probably has a boss as well, so the more ammunition you can provide to make the selling story easier, the better it will be for you.

 

Save More

 

Saving more starts with one simple premise: spending less.

There are immeasurable pages in the internet about people advising you how to spend less. I’m going to give you just 4 things that are easy to do and which you need to start doing tomorrow.

 

1. Paying yourself first each month

 

This is a powerful and a quick way to start putting savings aside. When you get that weekly or monthly paycheck, take a part of it first: for you. Before you pay anything, take some money out and put it into a savings account or investment account. Pay yourself first.

 

2. Selling old stuff rather than throwing it away

 

That old dining room table has seen better days and which you are looking to replace. Guess what? Someone will be willing to buy it off you. So before throwing it away, go and try sell it.

 

3. Mobile Telephones

 

Mobile phones are practically a necessity now days. So much so, that maybe we shouldn’t even consider them to be discretionary spending? Competition in the mobile phone sector is explosive and a little shopping around can go a long way. The same service can be 10$ or 20$ less a month somewhere else than with your current provider. You just need to take some time to evaluate all the various offers.

 

4. Television

 

Gone are the days of Cable TV. Seriously, do you really need it? But the next match, I here you say? Do yourself a favor and go watch it at a friends’ house or down at the local bar. Save yourself 20$ a month without having to sacrifice the luxury of watching the game.

Movies? Netflix, Amazon and others have such competitive packages now days, that Cable TV is practically obsolete. Sure, you’ll still be spending maybe 10$/month on TV but you’ll be savings versus what you were paying before.

 

Invest Wisely

 

The last factor that can help you increase your Net Wealth is all to do with how you invest your savings.

 

If you don’t have any investments and are just starting out, here is a simple 4-point plan to follow a step at a time.

  1. Target saving 10-20% of your after-tax income. Your goal will be to get up above 50%, but that takes time and practice. For the first 3 months invest in short term deposit accounts
  2. Then for the next 3 months, invest in any low or no-tax savings accounts that you may have access to
  3. After 6 months, carry on investing in the tax-free or low tax investment vehicles, but allocate 50% of your monthly savings to index funds that track the market. Start off with your domestic market and then add a tracker of the S&P500 after 3 months, splitting between the domestic fund and the S&P500 fund. Once you reach 12 months of investing, start adding European tracker funds and fully allocate your savings on these for a total of 3 months.
  4. Once your knowledge of what you are investing in and doing starts getting to a reasonable level (probably after 18 months of investing), you can start to add some government bond funds or corporate bond funds.

 

A simple allocation that you can target, excluding your cash deposits, is the following (build up to this; you’re not in a rush to perfectly replicate this right off the bat.)

40-60% North American funds

20-30% European funds

10-20% Asian funds

10-20% Government or Corporate bonds

 

A few things to remember as you venture down the investing highway:

  • Don’t panic if the market goes down. You’re investing for at least the next 10 years
  • Watch out for charges from the funds you invest in. Charges can eat into your return and so serious damage to your Net Wealth goals
  • Try to diversify as much as you can

 

What is a good Net Wealth Goal to have?

 

Given the use of your wealth is to support yourself during retirement, or if something happens and you can no longer count on your job to cover your expense needs, an easy goal to strive for is to have 15-20 years of after-tax income saved. A lofty goal or something attainable?

If you save 50% of your after-tax income every month, with a reasonable return on your investments, you should have enough saved up in 16 years. Now imagine if you started doing that when you were 24 years old? By the time you are 40 years old, you’ll be thinking about retiring!

 

Knowing your Net Wealth is the most important step in being able to do something about it.

Building wealth builds your confidence in yourself and your ability to fend off that rainy day.

 

Confidence is sexy and hence knowing your net wealth is really sexy!

 

The CFO

4 Comments

  • Frenchreader

    Hello! Thanks for another great article!

    Would you recommend those of us who are starting to build their emergency fund to start investing simultaneously?

    I started from scratch last June but have been saving about 40% of my income for a few months now (with an additional 18% going to my student loans). I have about 3-4 months worth of expenses saved as of now. I am not sure if I should start investing now or wait until I am up to 6 months. Any advice?

  • The CFO

    Thanks! I am glad you are enjoying it.
    I would recommend you start splitting now between investing and building into your emergency fund.
    Great savings rate by the way!

  • The CFO

    I am in mid-7 figures and hoping to crack the 8- figure net worth in the next 3-5 years unless I decide to throw it all in and retire again.

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