San Diego, CA. What is your "money Mental?" asks
the nonprofit Institute of Consumer San Diego, CA. Have you ever wondered
just how well you have done at hanging on to some of your hard working
money over your entire working years? Looking at that aspect of your
finances can be very revealing. It can also help you determine your Money
Mental: spender verses saver. It has been written and said many times over
that the difference between the very rich and the not so rich folks is:
Rich folks had a lot more money, but it doesn't end there. The rich are
superb record keepers.
Financial pictures do not need to be complex or loaded with details. The
basic numbers to determine are:
Assets - cash, stocks, bonds, etc
Liabilities - debts, car loan, mortgage, credit card
Net Worth - the difference between assets and liabilities
a/k/a the difference between what you own versus what you owe.
This exercise demonstrates very quickly the need to
maintaining good records on your finances, both income and expenses.
Keeping records need not be extensive or time consuming. In fact most
sources for financial data will be found in savings passbooks, checkbooks
registers, paycheck stubs and monthly receipts from household and other
How To Develop The "Big Picture"
Step One: Make a list of assets:
Helpful hints on determining the current value of your
Select a date (usually as of the first or end of a month
If your date is the end of a month/year and a payment may
be due on the first of the next month/year, it will not affect your
calculation, since the payment is not due on the last day of the current
month/year - e.g. the date of your financial picture.
Maintain consistent dates (either beginning or end of a
period) throughout the year.
Keep receipts, pay stubs, etc. on a monthly basis in 12
Includes money in checking and savings accounts, any money
due from a stockbroker for securities sold before the statement, but not
yet received, interest due on savings etc.
List the value of any stocks, bonds or other securities,
any loans due you from family members or others - which you are likely to
collect; prepaid utility deposits, rent or security deposits. In some
cases, deposit holders pay interest, if they don't, ask them to, it
doesn't cost to ask.
Life Insurance (cash surrender value)
Not all life insurance policies build cash value, term
insurance, for example does not. Ordinary life insurance, whole life
insurance, annuities, and some forms of variable or adjustable life
insurances do build cash value. If you have borrowed from life insurance
policies, the amount to put on the net worth statement is cash surrender
value after the loan.
If you are participating in a retirement or pension plan
through your employer and you are fully vested, (which means that should
you terminate your employment, you may have a certain amount that has been
paid into your retirement plan that is yours to keep). Vesting varies from
plan to plan, but usually is occurs in no less then five years and no more
than ten years of employment or your participation in the plan. If you
have paid additional money into your pension plan and terminate your
employment before you are vested, the additional money you paid in is
yours forever - however what you might lose is any matching amount paid by
your employer into your plan.
As a landowner you have a "fee interest" in the property.
If you own a building on leased land, you have a "leasehold interest." A
home or other building is considered an improvement to land, so their
value should be calculated separately. List the value of your real estate
at the price paid, plus any improvements (duly noted) and any
appreciation/depreciation due to inflation/deflation. State the full value
of your property on the asset side and list the amount due on any
mortgages or subsequent trust deeds will be listed separately under
Furniture in your home and other locations may be listed
here. It is best to make a list of each room and then make a combined
list. Include also musical instruments, appliances, tools, etc. Don't
included built-ins or wall-to-wall carpeting which is included in the
value of the structure. As a rule of thumb, furnishings are about 8
percent of the value of the house.
Antiques and Collectibles
If antiques have a fair market value, one can use
comparables for determining value or have an independent appraisal
completed that will be respected by both insurers and the IRS.
Motor Vehicles (includes recreational trailers or
vehicles, boats, motorcycles, etc.)
Cars, trucks and other motor vehicles (collectibles
excepted) depreciate (lose value) sometimes quite rapidly and the "current
value" is the amount to use. Any loan outstanding on a vehicle will be
listed under liabilities. For help in determining current value, contact a
bank or credit union loan officer who will have a "blue book" which lists
current value. Another method is to find comparisons in local automobile
dealership ads or the classifieds
Clothing and Personal Items
As a general rule, clothing and other personal items are
not readily convertible into cash (unless they are furs or jewelry, (which
should be listed separately) and therefore will NOT be included in assets.
Other items of value $100 or more may be included.
Step Two: Make a list of liabilities
Money owed to others, whether it is a home mortgage, auto
loan, credit card statement, taxes, utility bills, or a loan from a family
member is called a liability. Include every debt owed, even to family
members. If you have co-signed a loan as a guarantor for another, it is
considered a liability for you until the loan is paid, because you
promised to pay if the borrower doesn't. On monthly statements, list
the outstanding balance plus any charge purchases made since the last
If you are not self-employed and employed by others it is not likely you
will have any income taxes payable due to the withholding tax. If this is
not the case, then include any taxes due. If necessary, use your tax
bracket from last year and estimate the tax on any unreported income.
Step Three: Calculate Net Worth
The totals calculated in step one: listing assets and also
in step two: listing liabilities are transferred in step three to the Net
Worth Statement. The picture (or summary) is developed by subtracting the
total liabilities from the value of all assets. If the value of
liabilities is greater than assets, the difference is called negative net
worth. If the assets are greater than liabilities, the difference is
called positive net worth. If the value of both liabilities and assets are
identical, the net worth is referred to as zero net worth. See examples
below of possible net worth outcomes.
[Examples of three possible outcomes]
Example of Positive Net Worth
Total Assets: $150,000.00
Total Liabilities: ($90,000.00)
Net Worth: +$60,000.00
Example of Negative Net Worth
Total Assets: $100,000.00
Total Liabilities: (110,000.00)
Net Worth: -$ 10,000.00
Example of Zero Net Worth
Total Assets: $100,000.00
Total Liabilities: (100,000.00)
Net Worth: Zero
NET WORTH - How To Look At The Big Picture
Total (or estimate) all money earned since entering the
Income total working years $__________________
Number of years worked: ________
Average earnings per year $____________________
Net worth is: $____________________
Determining Your Money Mental: Spender or Saver?
||Compared to total
income earned since beginning work, the net worth is:
||less than 10% of total earnings.
||between 10% and 50% of total earnings.
||between 50% and 100% of total earnings.
||greater than total earnings.
||When compared: net
worth to total income over my working years, I . . .
||Have done OK.
||Am wondering where did all the money go?
||Think I better quit spending and start saving.
||Don't have a positive net worth.
||And, I need to pay off some debt, and fast.
For help with "Mending Spending" and finding more money
for savings, visit the ICFE's Web site at:
If you would like a printed copy, please send $1 to the
ICFE and ask for: "Money Helps"
The information packet includes:
improve spending Practices,
How to set up and
implement a spending-plan" (plus a budget work sheet),
take to reduce indebtedness,
spend smarter for household and grocery items and a
Profile" which helps people identify dangerous spending habits.
Money Helps" is available on the Internet free or by sending $1 and
a self-addressed, 60 cent stamped envelope to:
ICFE Money Helps
PO Box 34070
San Diego, CA 92163-4070
About the ICFE:
The Institute of Consumer Financial Education (ICFE),
founded in 1982 by the late Loren Dunton - creator of the "certified
financial planner” (CFP) designation - is dedicated to helping consumers
of all ages to improve their spending, increase savings and use credit
more wisely. The years between 1984 and 2000, the ICFE was also known as
the National Center for Financial Education (NCFE).
The ICFE is a nonprofit consumer education organization that has helped millions of people through its education programs and Resources. Over
one million "Credit
/ Debit Card Warning
Labels” and "Credit
/ Debit Card Sleeves” are in circulation world wide.
The ICFE's on-line help for consumers who spend too much
was featured in PARADE Magazine (June 9th, 2002) in the Intelligence
Report section. The money helps and tips are from the "Money
Instruction Book," a course in personal finance, which was completely
revised and updated in 2002 and is positioned to become among the premier
programs in the new bankruptcy and debtor education initiatives.
The ICFE's "Do-It-Yourself Credit File Correction
Guide," now in its Twelfth Printing, is in use by thousands of consumer credit and debt
counselors in addition to tens of thousands of consumers. It received a
"buy” rating in July, August and November from nationally syndicated
financial columnist, Humberto Cruz in his column, "The Savings Game".
BottomLine Personal newsletter gave the Guide a "Send For” rating in
September 2001. The ICFE and our do-it-yourself approach to credit file
correction was featured on NBC Nightly News on 04-30-02. The Spanish
edition of the Guide premiered in January 2002. Syndicated columnist,
Robert Heady also gave the ICFE Guide a "buy” rating.
The ICFE Web site at: www.financial-education-icfe.org helps consumers with
mending spending, learn about the
proper use of credit, budget and expense guidelines, how to set up and implement a
spending-plan and also access financial education courses and videos and how to
teach children about money. Other ICFE services include a
free eNews, and an
on-line resource center of financial education
learning tools, including videos, books and personal finance courses.
Consumers may learn more on the Internet about the "Do-It-Yourself
Credit File Correction Guide" here, or fill out our request
form, indicating your areas of interest.
For more information contact
Paul S. Richard ICFE Executive Director at 619-239-1401.