.
to come out of your chequing account on payday, before you’ve had the chance to spend the money.
How Do You Want to Grow?
Now that you’ve laid out your current net worth, it’s time to give thought to how you’d like to see it grow.
Patrick and Morgan are starting with a net worth of $344,000. After discussing their goals for the next five years with their money coach, they learn that they are behind where they should be. Patrick and Morgan start to create a strategy to aggressively grow their net worth every month. The strategy requires Morgan to return to full-time work as a nurse. Currently, she works three days per week. Patrick will have to work toward becoming a foreman rather than a team lead at his roofing company to increase his income by at least 15 percent.
They’ve been big spenders for many years, and decide to cut back on out-of-country holidays, clothing purchases, and electronics for their children. They also agree to implement the Crush It debt-reduction strategy, which we’ll discuss in chapter 5 (see page 66). Their goal is to have a net worth of $625,000 by the time they’re 50, in five years.
Patrick and Morgan map out their plan by extending their net-worth-tracking spreadsheet over a five-year time frame. Then they calculate what each asset or liability balance needs to be in order to achieve their goals.
Patrick and Morgan have developed net-worth goals and “inked” them, which means there is a higher likelihood that they will achieve them than if they hadn’t written them down. More important is that they have a realistic plan to make it all happen. The plan requires them to change their spending patterns and earn a higher household income.
Each couple’s net-worth plan will be different from the next. Gretta and Tom, the couple with all the bling at the beginning of this chapter, would likely map out a plan whereby over five years they achieve debt freedom, bringing their net worth from negative $235,000 to $0. Still another couple, with a very modest income, could have a net-worth plan that brings them from $0 net worth today to $15,000 in five years. The point here is that your net-worth goals are yours and no one else’s.
Take a stab at extending your net-worth plan over five years. Don’t worry, the rest of this book will give you effective strategies to help make it happen, including advice on how to invest wisely, buy real estate, and pay down debt. But for now, outline your net-worth goals as realistically as possible. You can revisit and refine them later as you learn new financial strategies. Use Patrick and Morgan’s Five-Year Net-Worth Plan (see previous page) to get started.
Your household income is the primary fuel for your net-worth growth.
Congratulations! Setting some net-worth targets for yourself is the first step toward creating a rock-solid financial plan. I’ll show you other important components of your plan in chapter 11, Design Your Master Money Plan.
Fuel For Your Net Worth
You’ve probably figured this out by now, but your household income is the primary fuel for your net-worth growth. That means it’s pretty important to protect and try to grow your income every year. When was the last time you got a raise or bonus? Could you be working for a different company that pays more? Could you start your own side business? As we move through the remaining chapters, think about how you can expand the size of your household income.
Monitoring Net-Worth Growth
The best way to monitor your net-worth growth is to periodically update your personal net-worth tracker. At a minimum, you should check in every six months. For example, in January 2017 you might be worth $25,000, and in June 2017, $30,000, and on and on. If you find you’re getting off track, do some course correction and carry on.
Once you start implementing the principles discussed in this book, such as adopting the habits of truly wealthy people — and not those that just look rich but are actually broke — reducing debt, and growing assets, you’ll see that net-worth figure start to grow. There’s nothing more exciting than watching yourself get closer and closer to financial freedom.
CHAPTER 3
Scrap Your Emotions and Sort Out Your Accounts
Have you ever skied down a black diamond run with a blindfold on? Probably not — it’s crazy dangerous and just plain stupid. So is allowing your partner to call important financial shots on your behalf.
One of my very first clients was a newly divorced woman, aged 40. During her 10-year marriage, she let her husband manage their investments. After her separation agreement was finalized, she had no idea how their money had been invested. As it turns out, her ex-husband was highly conservative and had kept the bulk of their money in guaranteed investment certificates (GICs) and cash, earning little interest. Meanwhile, my client would have been better off taking on more risk to grow her portfolio. But because she didn’t get involved in the decision making around her investments, she missed out on a decade’s worth of portfolio growth.
If you’re guilty of deferring important financial affairs in your household to your partner, that needs to stop today! I don’t care if your partner is better with money than you. This isn’t the 1950s. Both partners have an equal responsibility to make savvy financial choices together — as a team. Whether money matters are your “thing” or not, you should take an interest in them to avoid finding yourself in a financial situation of which you weren’t fully aware.
Consider the task of checking up on your personal finances like taking your car in for regular maintenance.
Consider the task of checking up on your personal finances like taking your car in for regular maintenance. If you take care of your vehicle, it will run smoothly and for a lot longer than if you were to neglect it. It’s the responsible thing to do.
Financial Chores
What financial tasks or responsibilities happen in your household? As a best practice, it’s wise to swap these chores every few months so that both partners know how to do all the important financial tasks. You may find through this process that one partner is better at a particular task than the other. And it’s okay to lean on each other’s expertise, but both of you should be able to perform all of the financial chores required to run your home. Just imagine what a pickle you’d be in if your partner went into a coma and you’d never logged into your online banking.
Take 10 minutes to create a list of financial chores that are done in your home. For example:
Bill payments
Investing
Online bank transfers
Meeting with the bank for loans, mortgages, or credit cards
Budgeting
Buying a home, a car, or other big-ticket purchases
Negotiating prices or interest rates
Once you’ve created a list, assign the tasks equally. Should you or your partner find that you’re having trouble completing certain financial chores, help each other out or simply do a search on Google for best practices on subjects like budgeting, investing fundamentals, interest rate negotiation, or how to hire the right financial adviser.
Accounts
When couples get together, both partners have their own existing bank accounts, credit cards, loans, mortgages, and leases. Early in a formal union, couples face the choice of joining their finances or continuing to operate independently. Regardless of your personal views on this, stats show that neither approach is better than the other. It’s completely up to the couple to decide what’s best for them. And the great thing is that if you find sharing a bank account to be problematic, you can switch back to banking independently.
My grandmother and grandfather on my father’s side were married in 1948. My grandmother was a book keeper in Toronto (until “quitting” work because she got pregnant) and my grandfather worked in the finance department of an electronics