Treat Your Money Like No One Else

Managing Money in a Marriage Relationship

How do you take two different people, with two different attitudes about money, different situations, and circumstances, to come together and effectively manage money? It is the love of money that is the root of all evil, not your spouse or potential spouse.

One of the most difficult things to do with money is to handle it in a marriage relationship. What I like to call the marriage money dilemma. Two people, perhaps born into different circumstances and situations, and different cultures, with different thoughts about everything including money. And now they have to come together to effectively manage their money – the marriage money dilemma.

How do you take two different people, with two different attitudes about money, and bring them together to effectively manage money? It is the love of money that is the root of all evil, not your spouse or potential spouse. Below are some tips to help you and your spouse manage your money and avoid the marriage money dilemma.

Learn Your Partners Attitudes about Managing Money

You may be very compatible in other areas, but if not compatible financially, it will be much better for both of you to know up front. Once you know the others attitude about money, you can develop a plan for the two of you to work together. Money differences in a marriage have real consequences, and you cannot assume that your partner’s stance on money issues will change after marriage.

As you are planning and thinking about your finances, understand that trouble often ensues when people with different attitudes about money and other things live together and share their future and finances. Find out what your partner or prospective partner’s attitude about money is. Are they a spender or a saver, or do they respect money? The answers to these questions will help you find out. You must realize that both of your money attitudes were formed long ago, probably as children, because of the different situations and circumstances that you were both raised in.

Managing Money Together to Plan for your Financial Future

When you are planning, or already married, think about and plan for your financial future as well. Set financial goals that you mutually agree upon and work together toward those goals. Using your differences as strengths and looking at your finances from both points of view, could give you insight into a better way of managing finances that you would not have seen apart.

It’s Our Money in a Marriage Relationship

Once you get married you must realize that it is not your money anymore it’s our money and you must act accordingly. Both partners’ money needs to be used to accomplish the goals both of you set and agree upon. Additionally, you can probably do more with the money together in one pot than to have two smaller pots of money.

Participate in Periodic Money Meetings To Manage Money Together

Communication in a marriage is critical and when managing money in a marriage it is doubly so. Make time to sit down together and talk about your money. Call them money meetings. Have a money meeting, before each pay period. You can create a spending plan for the pay period together and talk about how well you are doing. You can also present financial goals and discuss future financial goals as well.

These tips can help you and your spouse come together over money and begin to effectively manage your money together. Using both you and your partner’s strengths, you together can conquer the world and your finances.

Concerning Your Net Worth Statement

After analyzing your net worth statement, you may have some concerns. These concerns may include low assets, high liabilities, or negative net worth. You will want to address these opportunities. The net worth statement may also provide information that will lead to the development or revision of goals and objectives.

In my last post, I talked about the net worth statement. Also called a balance sheet, it is a tool you can use to see if you are making progress towards your goals and objectives. You can read the last post by clicking here.

In this post, I wanted to discuss some of the issues or opportunities concerning your net worth statement. The net worth statement keeps you informed about your overall financial standing. It lets you know if your net worth is decreasing or increasing.

Valuing Assets and Labilities

First, a key to the net worth or balance sheet is determining good values for assets and liabilities. And because you are using this net worth to compare to other years, you need the values to be as accurate as possible. Therefore, you will want to use the same valuing tool. For example, if you are valuing a car, and you use Kelley Blue Book.com one year, you may want to use Kelley Blue Book to value the car next year. Otherwise, if we don’t get good values for assets and liabilities, what’s the use to comparing it to prior and future years.

Addressing Net Worth Concerns

Increasing Net Worth by Cutting Spending

As a financial counselor, I would help clients increase their net worth by showing them ways to increase their assets, decrease their liabilities, or both. One way to increase assets is to cut back on spending. This will allow for the building up of savings which will increase net worth. Investing is another opportunity for some to increase assets.

As you are addressing opportunities, keep in mind that that decreasing spending will have the greatest impact on net worth. The reduction should focus on larger asset items such as housing and transportation. Reducing spending on smaller daily expenditures will not have the same impact.

The Effect of Increasing Income

Another way to increase net worth is to increase income. If you can negotiate a pay raise, find part-time work, or sell your products or services, you can use the increase to build savings and pay down debts.

Paying Off Debt and New Worth

Finally, paying off debt can quickly increase net worth. Paying off high-interest credit card debt can have the most immediate impact on net worth. Freeing up cash by reducing spending or increasing income can be a great start toward a debt repayment plan.

All Net Worth is Not the Same

A person who does not currently have the financial resources to pay off all existing debt is considered insolvent. Their liabilities are more than their assets. This situation is frequently found among students and recent college graduates who have incurred student loans and have not yet built-up assets to offset debts. Considering where an individual or family is in their financial life cycle, insolvency or a negative net could be expected. A negative net worth due to student loans or the purchase of a home is not the same as a negative net worth due to credit card bills or the accumulation of lifestyle assets or assets that don’t produce disposable income.

Finial Thoughts

As we start a new year, you may want to create a net worth statement to see where you stand financially. Once you have an idea of your net worth, you can develop objectives and goals to improve your financial situation. However, you can always commit to spending less than you make and increase your rate of saving in this new year. This will always move your finances forward in the new year.

Time To Update Your Net Worth Statement

If you would like to gain some insight into your current financial situation creating a net worth statement may be for you. It’s a listing of the property you own, assets, and the debts you owe, liabilities, can provide you that insight. Sometimes it’s called a balance sheet and is based on the following:

Assets = liabilities + net worth, or assets – debts = net worth

The net worth statement is like a photograph of assets and debts on a given date. Comparing net worth statements made over several years can help you measure the progress toward your financial goals and financial situation. Additionally, the net worth statement is a good measure of your ability to pay off current debts, or debts due within the year.

Developing the Net Worth Statement

Most net worth statements are created at the end or beginning of the year which makes them easier to compare year over year. However, it is possible to develop a statement at any date and as often as needed.

Listing Assets

Generally listed on the left-hand side of the balance sheet, you want to start by listing your largest assets which for most of us this would be our home and then vehicles. And you also want to list your more liquid assets like checking and savings accounts. Additionally, gather statements and list any investments and retirement accounts. Also, consider personal items that may be of value. This could include jewelry, coin collections, musical instruments, etc. You don’t need to itemize everything, but list items worth $500 or more. Now, add all of items listed together. This number represents your total assets.

If you obtain your current checking account balance, remember to subtract the value of anything still outstanding. Keep in mind that the key to correctly listing current assets is to accurately estimate the value of items. Therefore, be conservative with estimates, especially with home and vehicle values. Inflating the value of large assets is easy to do and will not paint an accurate picture of your net worth.

Listing Liabilities

Liabilities are generally listed on the right-hand side of the net worth statement and include all debts and obligations to pay. Start with the major outstanding liabilities such as the balance on your mortgage or vehicles loans. Next, list all of your personal liabilities such as credit cards, student loans, or any other debt you may owe. Now you want to add up all of your liabilities to come up with a total.

Your Net Worth Statement

Once you have your total assets and total liabilities, subtract the total liabilities from the total assets and you will have your net worth. It doesn’t matter how big, how small, or even if it is negative. This is just a starting point. You will want to file it so you will have something to compare against in the future. Now you want to repeat this process, during the same period once a year, and compare it with the previous year’s number.

Your net worth statement can be a useful tool to measure your financial progress from year to year. There is no magic net worth number, but you should use your net worth to track your progress from year to year, and see it improve. I am a financial counselor. Contact me here if I can assist you with creating a net worth statement.

How is your Financial Health?

If you are taking better care of yourself, you are probably exercising and know what your blood pressure and cholesterol numbers are. Therefore, it stands to reason that if you are trying to be healthier financially, you would need to know things like what your assets and liabilities are.

Many are looking toward the end of this year and the beginning of the next with better financial health. And every New Year people decide to become healthier and vow to improve their physical health, so they start exercising and eating healthier. And then others decide that they want to be healthier financially and want to improve their financial health, but do not know quite how to go about it. A financial checkup may be in order.

Similarities of Financial Health and Physical Health

On the surface, there are striking similarities between your financial health and physical health.

Both can affect aspects of our life and require collecting information, evaluating alternatives, and taking some risks. However, it seems health issues have received a lot more attention than financial issues.

There are dangers of focusing on a single aspect of your finances.

Tending to retirement savings without dealing first with high credit card debt is perhaps equivalent to treating high cholesterol while ignoring high blood pressure numbers.

If you want to be healthy, financially, and physically, you cannot get by with just a healthy right leg or a well-managed retirement plan. The whole system must be healthy. But while many of us are willing to undergo regular health check-ups, many people never undergo a financial check-up.

Achieving Better Financial Health

The first step in better financial health is to have an accurate snapshot of just what shape your finances are in. By having a good sound understanding of both your assets and liabilities, you can start planning a healthier financial lifestyle.

Next is to track your spending. Knowing where your money is being spent; where your money is going, is paramount in managing your finances better and improving your financial health.

Your assignment for the next month or so is: 1. pull together your assets and liabilities to get an accurate picture of your finances, a balance sheet or net worth statement, 2. Track you’re spending so you can see where your money is going.

My number one financial tip is that you cannot effectively manage your finances without knowing where your money is going…track your spending.

So, start today because today is the first day of the rest of your life. Only you can make the most of it. Take charge of your financial health. The key to your future is in your hands, not your employer’s and not your family’s. Comment below. I would love to hear from you.

Build Wealth with Compound Interest

Compound interest will either work for you or against you. To make it work for you, grow the difference between your income and expenses as much as you can.

Today I want to talk about something a little different. When I started this blog, it wasn’t about compound interest, it was all about the spending plan and creating a plan to spend your money. I believe that using a spending plan may be the most important thing you can do to manage your money better. However, another important but not fully understood concept in money management is building wealth with compound interest.

What is Compound Interest?

Compound interest is the interest calculated based on both the initial principal and the accumulated interest from previous periods on a loan or deposit. According to Investopedia, it goes back to 17th-century Italy. To understand better, think of it as interest on interest. And it grows faster than simple interest, which is interest on just the principle.

What’s the Big Deal

Compound interest is what gives the average person like you and I a fighting chance to build wealth. Someone once said that those who understand interest earn it, and those who do not understand interest pay it. There are two caveats however:

• It takes time to realize the gain. There’s no magical investment that’s guaranteed to double your money. One or two years is too short a timeframe to experience its extreme power. Therefore, you need to be patient, but the results are worth the time.

• You need to continue to invest, even when everyone else thinks it crazy to do so because it’s the way to get Compound interest working for you.

And even with those limitations, it’s still the most powerful weapon to build wealth.

Get Compound Interest Working for You

It will either work for you or against you. To make it work for you, grow the difference between your income and expenses as much as you can and then invest. This will allow you to realize more because you will have more to invest. Making your money work for you is all about having compound interest on your side.

2022 will be a year of work, rebuilding, and hope. And I will continue to bring financial literacy information like the Build Wealth with Compound Interest article above to you. In my last blog post for 2021, let me wish loyal readers and everyone a happy, joyous, and prosperous new year.