Your Money Mental: Accumulation or Consumption?
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"What Is Your Money Mental: Accumulation or Consumption?"

How To Develop The Big Picture

RELEASE: September 2001
CONTACT: Paul S. Richard, ICFE Executive Director

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:

  1. Assets - cash, stocks, bonds, etc

  2. Liabilities - debts, car loan, mortgage, credit card bills, etc.

  3. 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 expenses.

How To Develop The "Big Picture"

Step One: Make a list of assets:

Helpful hints on determining the current value of your assets.

  1. Select a date (usually as of the first or end of a month or year).

  2. 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.

  3. Maintain consistent dates (either beginning or end of a period) throughout the year.

  4. Keep receipts, pay stubs, etc. on a monthly basis in 12 monthly envelopes.

Cash/Current Assets

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.

Other Assets

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.

Retirement Plans

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.

Real Estate

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 liabilities.

Home Furnishings

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 statement.

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 workforce:

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:
a) _____ less than 10% of total earnings.
b) _____ between 10% and 50% of total earnings.
c) _____ between 50% and 100% of total earnings.
d) _____ greater than total earnings.
 
  When compared: net worth to total income over my working years, I . . .
a) _____ Have done OK.
b) _____ Am wondering where did all the money go?
c) _____ Think I better quit spending and start saving.
d)   Don't have a positive net worth.
e) _____ 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: http://www.financial-education-icfe.org.

If you would like a printed copy, please send $1 to the ICFE and ask for: "Money Helps"
The information packet includes:
Ways to improve spending Practices,
How to set up and implement a spending-plan" (plus a budget work sheet),
Dealing with creditors,
Steps to take to reduce indebtedness,
How to spend smarter for household and grocery items and a
"Spender's 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.

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