How Much Are You Worth Today?

You can never reach your destination without knowing your current location or starting point, and a journey to financial success is no different. The balance sheet or net worth statement is your personal finance road map. Most people don’t know how much they are worth. Just for fun… jot down a guess of what you think you are worth. Now fill out a balance sheet and find your true net worth.

You will need to put on paper—what you own (assets) and what you owe (liabilities). What you own minus what you owe is your net worth. Enter account balances or estimated market values of what you own in the asset column. Enter outstanding loan balances or what you owe in the liabilities column.

To find the value of your household items, estimate what you would get if you sold them at a yard sale. Used furniture and appliances lose about 50% of their value. Find the approximate value of your home at www.zillow.com or www.cyberhomes.com . To find the approximate value of your car go to www.kbb.com or www.autotrader.com.

Make a list of your ASSETS that will include: Principal residence, other real estate, automobiles, checking and savings accounts, CD’s, money market accounts, 401K, Roth IRA, and retirement plans, stocks and bonds, insurance (cash value), household items, antiques, collectibles, jewelry, other assets.

Now make a list of your LIABILITIES that will include: mortgages (1^st and 2^nd), home-equity loans, credit lines, credit card balances, auto loans, student loans, other debts.

Total your assets and your liabilities columns; now subtract your liabilities from your assets. If your assets are larger than your liabilities, you have a positive net worth. If your liabilities are larger than your assets, you have a negative net worth.

Don’t be discouraged if you have a negative net worth, this is your starting point; by following a debt reduction plan you will be moving toward a positive net worth.

It is a good idea to repeat this exercise frequently to keep track of how you are doing. Some people repeat this every month; it is encouraging to watch your net worth grow as you are paying off debt. The results will let you know if you are moving in the right direction.

I recommend filling out this form at least once a year and compare it to last year’s form.

Date this and keep as a record for future use.

Now that you have looked at what your net worth is consists of, before you make your next purchase, you will want to ask yourself this question; “Will this make my net worth go up or go down”?

If you are planning to buy a new car or a Plasma HDTV and ask will my net worth go up or down? Your answer is it will definitely go DOWN, something to think about before you sign on the dotted line.

If however you take the money you were going to spend on either of those purchases and invest it, your net worth would definitely go UP.

This information is an excerpt from Financial Freedom 101 by the same author.

3 Steps to Becoming a “Millionaire”

For most people becoming a millionaire is just an impossible dream and they cannot fathom how they could ever become a millionaire, except for maybe winning the Lottery.

But in reality there are 3 steps to becoming a millionaire that are not difficult to follow.

1. Invest regularly; direct deposit into your brokerage account monthly.
2. Invest over a period of time; the longer time frame you have to invest the better.
3. Seek the best return; look for better returns than a savings account will pay you.

$175 invested monthly can make you a millionaire!

20 years 30 years 40 years 3% interest $57,596 $102,233 $162,465 6% interest $81,261 $176,669 $350,253 8% interest $103,765 $262,551 $614,999 10% interest $133,996 $398,881 $1,115,936 12% interest $174,850 $617,734 $2,079,423

The table above shows the results of compounding of interest. If you receive a 10% return on $175 invested each month, over 40 years, you will be a millionaire! If you don’t have 40 years, you will want to increase the monthly amount and/or the rate of return to reach the millionaire status.

A 12% rate of return will make you a millionaire twice. If you think this rate is too high consider this; the stock market has returned 10% over the last 75 years. By combining the stock market with real estate you can realize more than 12%. You will however, have to educate yourself in those fields, a small cost for financial independence.

Notice that 12% interest yields more that twice the return of 6% especially for 30 and 40 years. This is the miracle of compounding!

Investing $175 each month amounts to $2100 per year. A millionaire mindset would ask “How can I get this amount or more to invest?”

Those that don’t have that mindset will probably say I can’t invest that much money or I don’t have that kind of money to invest each year. For those, I would ask that before you dismiss this idea, you would look at your current finances and determine how much you can save and then invest in your future.

We all have excesses in our budget that can be trimmed from our spending and then use to invest. Consider eliminating coffee lattes, eating out, premium cable TV, and other discretionary expenses that could be used for investing.

Take a second job, as a temporary measure, to eliminate your consumer debt. Once you are out of debt, this money can be invested. 75% of the Forbes 400 (a list of the 400 richest people in the world) credits their wealth to staying out of debt!

As you are educating yourself on investing in the stock market, invest in an market index fund from Fidelity or Vangard (both have low expense fees).

Check out ProsperingYou for more personal finance information.

How to Avoid Tax Season Scams.

As millions of Americans prepare their tax returns, crooks are also at work posing as the IRS. The tax season is normally a time when crooks are active in trying to pry your personal financial information from you. Identity thieves can use such information to drain a victim’s financial accounts and run up charges on credit cards in the victim’s name.

The come-on: A con artist calls prospective victims and tells them that they are eligible for large rebates for filing their taxes early; they just need to share their bank account numbers. If they refuse, the crook tells them they can’t receive the rebates.

The real deal: The IRS does not gather information by phone. Taxpayers who choose can have their refunds deposited directly into their bank accounts – but only if they provide account numbers when filing their tax returns.

The new rebate program to stimulate the economy has brought out new scams.

The IRS will send out checks to 130 million households, including more than 20 million low-income older Americans. The checks go out automatically to those who have filed a 1040 or 1040A tax return for 2007.

The elderly are especially at risk, they may not be aware of the scams going on and may be more willing to trust someone if crooks are convincing and sound sincere.

But the M.O. is always the same. The crook must some how get the information from you. You need to be alert to their operation and never give out your personal information to anyone either on the phone or via e-mail, never no exceptions!

The IRS or any bank organization will never ask you for your personal information either over the phone or in an email.

The IRS has identified other types of scams:

Refund e-Mail:
Bogus e-mails falsely claiming to be from the IRS tell recipients they are eligible for tax refunds in specific amounts, if they click on a link within the e-mail to access a refund claim form. The form then asks for personal or financial information.

Audit e-Mail:
The come-on: An e-mail tells recipients (who might even be addressed by name) that their tax returns will be audited and instructs them to click on links and enter personal information.

The real deal: The IRS does not send unsolicited e-mails to taxpayers.

Changes to tax law e-mail:
The come-on: E-mails are sent to businesses and accountants instructing them to download information on tax changes.

The real deal: Recipients could be unknowingly downloading malware onto their computers, which could provide con artists with access to those computers and the ability to extract sensitive information for fraudulent purposes.

The only legitimate IRS web addresses begin with http://www.irs.gov. Anyone receiving a questionable e-mail claiming to be from the IRS can forward it to a mailbox set up by the IRS: phishing@irs.gov.

The author is the owner of www.ProsperingYou.com were more personal finance information like this is available.

How to Avoid 5 Stupid Income Tax Mistakes.

1. Don’t not file your income tax return because you don’t have the money you owe.  You can file an extension that will allow you more time to accumulate the money.  You can make payments to the IRS; you will pay interest on the amount you owe or you can borrow the money from bank, home equity, and other sources.   While these might not be the best options for paying your taxes, it is so much better than having the IRS come after you and they will and they will in addition assess a penalty.  It is against the law to not pay your taxes, remember Al Capone?

 

2. Don’t ignore the IRS.  If you have received an IRS letter; don’t just hope they will go away.  Once they have your number, they are relentless in pursuing what they want.  They have the power to file a “Notice of Federal Tax Lien” against your property (that includes your house, car, or any of your personal property) and place a garnishment against your wages.  They won’t just go away, so stand up and face the situation.

 

3. Don’t get a refund-anticipation loan.  If the firm that prepares your return offers you a loan in anticipation of your refund, don’t accept it.  The interest on that loan is extremely high (as much as 100% APR).  This is an outrageous amount of interest, and these loans should be avoided.

 

4. Don’t pay your taxes with a credit card.  If you don’t have the money to pay the taxes you owe, you need to find ways other than a credit card to raise the money.  Unless there were unusual circumstances that caused this problem, you need to raise your exemptions in order that this does not happen next year.  Paying taxes with a credit card is definitely not a smart financial move.

 

5. Don’t spend your refund as soon as your receive it.  According to the U.S. Bureau of Economic Analysis, Americans are saving less money than they did just a couple of years ago.  That is a bad trend especially at a time when life expectancy favors living into the 90’s.  Tax refunds and rebates are a good way to kick-start a savings program.  Saving money requires discipline and determination.  Make saving money a habit and get started today with your tax refund.

Key to Debt Elimination

The U.S. Commerce Department reports that America’s personal savings rate is less than one percent. Until recently it has been less than zero which says we spend more than we earn!

If you spend more than you earn, the result is DEBT. If you want to eliminate debt, you must first learn how to save money.

As basic as it may sound, before you can save money, you have to spend less than you make. In order to do this, you must do one of two things or a combination of both: limit your lifestyle and/or increase your income.

You must begin to make saving a priority in your life. It is a discipline that has to be learned.

If saving money doesn’t become your lifestyle, DEBT will!

You will never successfully get out of debt, or build wealth, until you save money from every paycheck! People often say they cannot save, because there is no money left after paying bills. That’s because they need to pay themselves FIRST, and then pay bills.

3 Basic Reasons for Saving:

1. Emergencies: Many financial difficulties can be traced back to a few common root causes and one of these is a lack of emergency savings. Expect unexpected negative financial events to occur in your life. The best way to handle these events is to have an emergency savings account.

In the words of your grandmother, you need to “Save for a Rainy Day”. The car breaks down, the roof springs a leak, a job loss, a large medical bill; these situations can create a crisis. But most expenses like these can be handled with emergency savings.

If you are a homeowner, you should have $1,000, renters should have $500 in a beginning emergency fund. After your consumer debt has been eliminated, increase the beginning fund to 3 to 6 months living expenses.

2. Major Purchases: Save for large purchases such as auto, furniture, appliances, vacations, house down payment, etc… Instead of borrowing, pay cash by planning ahead and saving for the purchase.

3. Wealth Building: Save for retirement, college funding, etc… Discipline and consistency are the keys to saving for the future.

Compounding means that you earn interest on the money you save and on the interest your money earns.

Compound interest is a mathematical explosion. Albert Einstein was quoted as saying “The most powerful force in the universe is compound interest, because it allows for the reliable, systematic accumulation of wealth!”

Excerpt from “Financial Freedom 101”

The 2008 Gold Rush

The gold rush of 2008 is happening now as the price hits a record of $1,000 per ounce. In the past six months the price of gold has gone up about 40%. The cause in the rise is probably due to several things, including the value of the US dollar, the erratic movement of the stock market, and others.When the price of gold futures hit $1,000 an ounce last week, people starting going through their old jewelry boxes to come up with broken gold chains, ear rings without a match, and any article of gold that they no longer wanted.

With the increase in activity of buying and selling gold comes illegitimate businesses. When you are shopping your unwanted gold, check out the buyer. Make sure he is giving you a fair price. Do that by checking with several dealers. Check out businesses with the local BBB. Avoid selling to unfamiliar Web businesses or buyers who pop up out of nowhere.

When the price of gold goes up, its sister silver follows. Silver price has hit $20 per ounce, a gain of about 40% also.

What does this have to do with us other than selling unwanted jewelry? Probably not much unless you own gold coins, bullion, or other gold forms. If you are an owner, watch and wait to see if it will go higher, before selling.

If you are not currently an owner, you might be buying high. Again wait and watch for good entry points, before buying.

I love the commercial that states “Gold will never be worth zero”. After Bear Sterns, that seems to be good advice.

The caution is if it’s now in the news, then you are probably too late.

What you don’t read about the national foreclosure “crises”

We see and read about the percentage of increase in the national foreclosures (79% from 12/06 to 12/07). If we look a little closer at the data however, we see that the numbers aren’t really what they seem.

Of the 10 highest foreclosure areas in the US, in nine of those areas houses have appreciated over the last five years. In half of the10 highest foreclosure areas in the US, houses have appreciated an average of 104% over that period of time!

Detroit is the only area of the top ten, where home appreciation in the last five years has been negative. This area has other economic problems associated with the decline of auto manufacturing that has affected housing.
The data shows the problem is more regional than national. The national average is about 99 healthy mortgages to 1 that is foreclosed on.

If you purchased a house in California, Florida, or Nevada, five years ago or longer, you got a 20% appreciation per year on your investment. Did you get that on your 401k? Even if the value of your house has dropped by 15% recently, you are still way ahead of the game. Your net worth has climbed considerably during that time, without any investment strategy on your part.

So the problem comes down to those who bought a house more recently. If you bought with a small amount of money down, or you had an interest only loan, or an ARM mortgage, you probably are upside down on your house mortgage. Unfortunately you bought at the top of the bubble.

Data also tells us that more people are paying their credit card bills before making their mortgage payment. By going into foreclosure, their FICO score will be affected. Your FICO score will also affect you auto insurance, rent or anything with an interest payment attached to it. These folks are taking the short sighted course.

Another subtle issue is that foreclosures will affect the value of homes in the area. Appraisers compare other homes in the area when someone wants to refinance or sell their house. If there are foreclosed houses in the neighborhood the appraisal will be lower due to the foreclosures.

Did we bail out the stock market when it dipped more than 30% in 2002? I am sure more than 1% were affected by that decline. So why do we need the government to bailout this “crises”?

www.ProsperingYou.com

Consumer are paying on their Credit Cards before paying their Mortgage.

Since Jan 2007, according to Experian, a larger percentage of people are 30 days or more late on their mortgages than on their credit cards.

In the current economic slow down, it appears that consumers have chosen to continue to pay on their credit cards while ignoring the mortgage payment.
Too many consumers took out mortgages they couldn’t afford. Now that housing is in a down turn, many now owe more on their house than it’s worth. The thoughts seem to be that they feel they will lose the house anyway, so why bother.

They are concentrating on paying the car payment and credit card bill so they will be able to charge food and other staples if they need to.

Using the house as a “piggy bank” doesn’t work under the current housing conditions.

This is however not necessarily a “smart” strategy, since having your house foreclosed on will affect your credit score, and your credit score will affect the interest rate you will be paying in the future. Not to mention auto insurance, rent, and other monthly payments that are tied to your credit score.

Once again our mentality is instant gratification, not thinking long term.

How to avoid Foreclosure

When you miss mortgage payments, foreclosure may occur. This is the legal means that your mortgage company can use to repossess (take over) your home. Foreclosure could seriously affect your ability to qualify for credit in the future. So you should avoid foreclosure if at all possible.

The most common reasons for falling behind in a mortgage payment are loss of income, divorce, illness, and death in the family.

According to a recent Freddie Mac/Roper survey, 58% of 1,400 delinquent borrowers surveyed didn’t know that their lender could offer help to keep them in their homes. They thought there was nothing the lender could do for them.

As we will see, there are ways the lender can help. It is in the lender’s interest to NOT foreclose on your home. Foreclosure is an expensive process for the lender, and if they can work out something to keep you in your home without foreclosing, they would rather do that.

Do not ignore the letters from your mortgage company. If you are having problems making your payments, contact your mortgage company immediately. Explain your situation. Be prepared to provide then with financial information, such as a budget. Without this information, they may not be able to help. Stay in your home for now. You may not qualify for assistance if you abandon your property.

Some of your options include the following:

• Your mortgage company may be able to arrange a repayment plan based on your financial situation.
• They may provide for a temporary reduction or suspension of your payments.
• You may be able to refinance the debt and/or extend the term of your mortgage loan.
• Your mortgage company may be able to work with you to obtain an interest free loan from HUD to bring your mortgage current.
• You may want to try to sell your home and pay off your mortgage loan to avoid foreclosure and damage to your credit rating.
• As a last resort, you may be able to voluntarily “give back” your property to the mortgage company

A housing counseling agency can help you determine which, if any, of these options may meet your needs. You should always discuss the situation with your mortgage company.

Beware of scams! Solutions that sound too simple or too good to be true usually are. Unfortunately, there are people who may try to take advantage of your financial difficulty.

Some cautions:

• Don’t sign any papers you don’t fully understand
• Make sure you get all promises in writing
• Beware of any loan assumption where you are not formally released from liability for your mortgage debt and contracts of sale.
• Check with a lawyer or your mortgage company before entering into any deal involving your home.
• If you’re selling the house yourself to avoid foreclosure, check to see if there are any complaints against the prospective buyer.

A final word of advice, don’t ignore your situation, it won’t go away by itself. You must be proactive and seek help, either through your lender or a housing counseling agency.

The author has a website on personal finance.

Ken Hall

www.ProsperingYou.com

kandbhall@gmail.com