The Modern Couple's Money Guide. Lesley-Anne Scorgie
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Название: The Modern Couple's Money Guide
Автор: Lesley-Anne Scorgie
Издательство: Ingram
Жанр: О бизнесе популярно
isbn: 9781459729797
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How do you feel now that you know what your net worth is? A negative net worth isn’t ideal because it means you owe more than you own. When you owe money, your options are limited — you either pay the money back or your lenders will harass you until you do. If you don’t pay them back, your credit rating will be impacted in a negative way, making it harder for you to borrow money at affordable rates in the future. But don’t worry if you’re staring at a negative number. This book will show you how to increase your net worth and change that negative into a positive, which will allow you to have greater choices and flexibility with your future. However, when you have a positive net worth you can continue to build savings for retirement, start a business, put a down payment on a home, pay for your wedding, or invest in your education.
Where Should Our Net Worth Be?
Almost every week I get asked “What should our net worth be?” The answer just isn’t that simple, because it’s based on what your goals are for the future. If, for example, you came to me and said you wanted to live on a beach in Bali and sell T-shirts for the rest of your life, I would tell you that you would need much less than someone who wants to take luxury cruises, play golf in warm climates, and shop for expensive jewellery in retirement. The person heading to Bali may need only $100,000 to live comfortably for the rest of their life, whereas the person heading down luxury lane would need closer to $4 million.
However, as a general rule of thumb, the average 30- to 50-something Canadian household will need approximately $2 million for retirement. So if you work that back, starting at the age of 25, and assume that as you age you’ll make more and can afford to grow your net worth more aggressively through asset growth and debt reduction, you would need to reach the following net-worth milestones at these ages:
Okay, I know that these numbers seem downright massive! But there are a few things that will work in your favour and push you much closer to achieving these targets.
1 Compounded interest and reinvested returns: The most powerful asset you have is time. The more time you have to save and invest your money, the more it will grow through the power of compounded interest and reinvested returns. Compounded interest and reinvested returns mean that you earn interest and returns on your initial investment (the principal), which is then reinvested, allowing you to earn more interest and returns on it. So now you’re earning interest and returns on the existing interest and returns. The more time you have to allow compounded interest and reinvested returns to actually compound, the more money you’ll have in the end.Think of it as piling rocks at the top of a mountain. You push the pile over the side of the mountain. On their way down, your rocks hit more rocks, which hit even more rocks. Before you know it, your little pile of rocks has started a landslide. That’s how compounded interest and reinvested returns work: as time passes, your portfolio grows into something quite huge and all you needed to do was gather those initial rocks at the top of the mountain.The longer you wait to invest your money, however, the less powerful compounded interest and reinvested returns are. Why? Because the less time you have, the less opportunity you give compounded interest and reinvested returns to compound themselves. Time is the magic ingredient that grows your money.
2 Mortgage as a forced savings plan: More than likely you will own a home in your lifetime. The act of repaying a mortgage forces you to reduce your outstanding mortgage balance, thus pushing your net worth higher every month. The only reason this would not work in your favour is if you borrow back the equity — typically through a low-rate line of credit or consolidation loan — you’ve put toward your house. I’ll introduce the pros and cons of using lines of credit and consolidation loans in chapter 5 (see page 69).
3 Inching your way to debt freedom: Every month you will reduce your consumer debt (debt that isn’t your mortgage) as long as you don’t accumulate more. Again, this builds your net worth through regular debt repayment. When you become debt-free, your cash flow will improve dramatically, allowing you to put more money toward assets.
4 Automation: Would you believe me if I said that you can build your net worth with your eyes closed? It’s true. Through regular automatic contributions to your investment plans and the outstanding balances on your debts, including your mortgage, you can watch your net worth grow without having to do too much. Set up the transfers 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 СКАЧАТЬ