Featured Posts, Investing, Personal Finance

What Is Your Net Worth?

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How many times have you googled Net worth of *insert celebrity name* ?? I know I’ve done this quite a few times. We often hear people mention the term, but do you know how to calculate your net worth? If not, let’s sip some latté and break this thing down…

Quick Accounting 101 Lesson:

Assets are anything owned of use or value that can be converted into cash. Assets include cash, investments, land, building, equipment, etc. On the other side, we have liabilities. A liability is money owed; an obligation against an asset.

Your net worth is basically everything that you own minus everything that you owe. If you sold all your assets and paid off all debts, how much money would you have left over? Consider this your financial report card. It’s a reflection of your financial health. Calculating your net worth should be one of the first steps to achieving your financial goals. You can’t plot a financial goal map if you don’t know where you currently stand. 

How To Calculate Net Worth:

List all assets and the estimated value.

  • Checking and savings account balance
  • Brokerage/Investment accounts
  • Estimated house/vehicle value
  • Jewelry and collectibles

List all debt.

  • Credit card debt
  • Mortgage balance
  • Car loan balance
  • Medical bills owed
  • Student loans

Subtract your total debt from your total assets. You have now calculated your net worth!!!

Net Worth Analysis:

Okay, so you’ve calculated your net worth. If your assets exceed your liabilities, then you have a positive net worth. Now, if your assets do not exceed your liabilities, then you have a negative net worth. If you calculated a negative net worth, don’t worry. A negative net worth is common for young millennials. This is often due to high student loan debt. This means that you have not earned enough money to offset the debt that you currently owe. The goal is to focus on increasing your net worth. In order to increase net worth, you should increase assets and/or decrease liabilities – paying down debt, building equity in your home, purchasing more investments (stocks, bonds), etc.

There is no standard when it comes to net worth expectations. Every individual has different financial needs and based on his/her lifestyle will have different financial goals. A formula that is often used as a benchmark when it comes to determining your “target” net worth is:

Net Worth = (Your age – 25) × (Gross Annual Income ÷ 5)

Regardless of where you currently stand financially, it is very important to know and understand your net worth. Understanding where your money is going will hopefully help you make better financial decisions, especially when deciding between if something is a need versus a want. Whether you are using an excel file or your favorite finance app, tracking your finances is key. If you need a recommendation, head over to Mint. It’s a free tool, that makes tracking your money easy for all levels.

 

Featured Posts, Personal Finance

Increasing Your Financial Literacy

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April is National Financial Literacy Awareness Month! Statistics show that only 24% of millennials have basic financial literacy knowledge. Regardless of your age, NOW is the perfect time for you to decide to take control of your finances. Understanding your finances and money management are essential tools for success. Over the last couple of weeks, several people have asked me, “WHERE DO I START??”.

Well… here are some good places to begin your financial awareness journey:

Search the internet – this might sound pretty basic, but it works. Do you have a particular topic that sparks your interest? Debt Management. Credit Report. Investing for Beginners. GOOGLE IT!  The world wide web is a great resource tool which is available to most 24/7 by using his/her cell phone. Top financial education sites:

Read books, articles and magazines. Picking up a book, financial magazine and/or newspaper is another great way to increase your financial literacy, and these are typically more credible sources than what you may find searching the internet. Top picks:

  • Forbes Magazine
  • Money Magazine
  • Wall Street Journal
  • Rich Dad Poor Dad by Robert T. Kiyosaki
  • Money: Master the Game by Tony Robbins

Watch finance based television programs. Reading isn’t everyone’s cup of tea, but don’t let that stop you from increasing your financial knowledge. There are several television programs that will provide you with the tools you are seeking. Top picks:

  • CNBC TV
  • Bloomberg TV
  • CNN
  • Fox Business News

Listen to talk radio/podcasts – Personally, I’m an avid reader, but lately podcasts have become my go-to. With the daily demands of life, it is often hard to sit down and focus 100% of my time to reading. For those individuals who are often on-the-go, podcasts are the ideal solution. I often listen to my shows while driving or while I’m working. Top picks:

  • The Clark Howard Show
  • Listen Money Matters
  • The Dave Ramsey Show
  • Stacking Benjamins

Take a financial literacy class – You can often find personal finance classes offered at your local public library. If your local library does not have classes available, then you may be interested in enrolling in a course at a 2 or 4 year college. Depending on the school, you may be able to find an online course which will enable you to learn from home. 

Start and investment club – Starting an investment club can have multiple benefits (networking, accountability partners, increased capital for investing, etc). Whether it be for the purpose of increasing your knowledge around personal finances or actually investing (real estate and/or stock market), being around like-minded individuals is always a plus. I will caution you to vet all individuals when it comes to investing your money with a group.

… and last, but definitely not least.. THE MOOLAHTTÉ BUZZ™ *sips latté* .. this site was created for the purpose of increasing financial literacy by sharing the wealth of knowledge I’ve gained over the last decade from books, mentors, and personal experience. 

Please comment and share your favorite books, TV programs, and podcasts below!! 

Featured Posts, Personal Finance

2018 Tax Reform… how does it affect me??

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By now, we are all aware of the new tax reform bill and many have already seen changes reflected in their paycheck. However, the number one question still on the minds of many is: HOW DOES IT AFFECT ME??

The Tax Cuts and Job Act will not affect the 2017 taxes that you are filing in April 2018. This act will impact the 2018 tax year with an April 2019 filing date. Affecting both individuals and corporations, the 2018 tax reform has the most changes the United States has seen in the last 30 years. For individuals, the bill reduced income tax rates, eliminated personal exemptions, and doubled the standard deduction.

The highest income tax rate was reduced from 39.6% to 37%. Please keep in mind that this benefit is only temporary. In 2026, we will revert back to 2017 tax rates. BUMMER!! The standard deduction was doubled from $6,350 to $12,000 for individuals filing single ($18,000 for head of household and $24,000 for married). Due to the increase in the standard deduction, there will be a drastic decrease in the amount of filers able to cross the threshold to itemize their returns (Schedule A form). On a positive note: if you are taking the standard deduction as opposed to itemizing, then your days of keeping track of receipts are over!!!

There were also several itemized deductions either eliminated of limited. Though you can still deduct state and local taxes and property taxes, these are now capped at $10,000. Are you in the market to purchase a new home? Well, the new reform bill has reduced the limit for those claiming a deduction on mortgage interest. In 2017, homebuyers could itemize and deduct the mortgage interest payments for homes with a mortgage that did not exceed $1million. Now, the mortgage amount is limited to $750,000. Please note, this will only affect new homebuyers. So… if you purchased your million dollar home last year… you’re good!!!  

Another major change to note is the adjustment in the child tax credit which increased from $1,000 to $2,000 per qualifying child. Prior to the Act, taxpayers could subtract $4,150 from income for each person claimed. Going forward, personal exemptions are eliminated. This will greatly affect those households with many children.

Other noteworthy changes:

  • Alimony payers can no longer deduct payments and the recipients are no longer required to report income (effective for filings after December 31, 2018).
  • Moving expenses are no longer deductible, excluding military personnel relocating due to military order

I hope this brief overview has given you some additional insight into what to expect with you 2018 tax year. Feel free to contact me through the CONTACT US tab if you have additional tax questions.

 

Personal Finance

8 Smart Money Moves for Your Tax Refund

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IT’S TAX SEASON… For many Americans, the first word that comes to mind is: REFUND!!!

The 2017 filing season opened on January 29, 2018, so by this point I am sure many of you have already received your IRS Refund. People have mixed feelings when it comes to tax refunds: some look at this as the government repaying them the money they should have been able to use throughout the year while others look forward to this annual act of “finding money”.

No worries, I will post more blogs on tax planning for those who would prefer to keep their money during the year and balance out at year-end.

So, the refund has hit your bank account. STOP!!! Before you “do it for the gram”, let’s discuss 8 smart money ideas for your refund:

1)     Start Or Increase Your Emergency Fund

An essential part of adulting is preparing for the rainy days. Though putting your refund in a high-interest bearing savings account will not yield the highest possible return, it will provide a return while the money is not being used.

2)     Pay Off Debt

As we focus on this path toward financial freedom, opting to pay down/off debt is always an ideal choice. Depending on the size of your refund, this could impact you in more ways than one. For example, paying down a credit card balance will not only reduce or eliminate the monthly minimum payment owed, but it will always increase your credit score.

3)     Fund Your Retirement

Regardless of your age, funding your retirement should always be a focus for NOW rather than LATER. If you’re not sure where to start, then consider opening a Roth IRA. I will elaborate on retirement in an upcoming post so stay tuned for that latté.

4)     Invest In The Stock Market

Similar to your retirement funds, choosing to invest in the stock market sooner than later is ideal. If you aren’t comfortable making this jump alone, that is completely understandable. Consult with a financial advisor to help determine your risk tolerance and get your portfolio started. I will advise that regardless of the professional advice you seek, it is always wise to fully understand where your money is going.

5)     Home Improvement

Using your tax refund to make home improvements can always be helpful. Whether it’s painting a room or finishing a later project, your home should always be comfortable. Depending upon the type of home improvements completed, it may increase the value of the home.

6)     Prepay Mortgage

Majority of homeowners are aware they have the option, but few understand the great degree of benefit that is derived from mortgage prepayments. Mortgage prepayments not only decrease the future payments but also increase the amount of equity in the home. Some investors even view prepayments as a top retirement strategy.

7)     Invest In Yourself

I cannot stress enough the importance of personal development. If you don’t sow into your life and bet on yourself, then how can you expect others to bet on you. We’re on the pursuit of good to great. Purchase some new books, enroll in a course, invest in a lifecoach.

8)     Start A Business

The average millionaire has approximately seven streams of income. What are you waiting on?? Let’s go get it!!

 

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