Increase Your Net Worth? I Thought That Was Just for Businesses
If you own a business, chances are you meet regularly with your certified public accountant, your chief financial officer (could be your husband or wife!) and go over your net worth. You determine what your assets and liabilities are and then plan for the future. Why? Because if we don’t have a game plan to implement, we don’t know where we are going. But have you thought about doing this with your own personal finances?
This can be a real eye opener. It is so easy to just enjoy life and spend and figure we’ll pay it off each month (hopefully), or perhaps the debt continues to grow. Why? Because after a hard week at the office (even if it is the home office with children and the dogs running around), we want a nice reward. Or perhaps we tend to live more in the moment. Maybe it’s time to look at the future. After all, we didn’t graduate high school, college, graduate school or get a job without planning.
One of the best ways to build your family’s financial future is through home ownership. Recent information from the Federal Reserve states that the net worth of a homeowner is actually over 40 times greater than that of a renter! That is a staggering thought.
Maybe it’s time to start thinking about buying a home, especially when purchasing is more affordable in today’s market.
Every three years the Survey of Consumer Finances shows the breakdown of how owning a home helps build financial security. Over time, the average net worth of homeowners continues to grow, while the net worth of renters tends to hold fairly steady and be significantly lower than that of homeowners. The gap between owning and renting just keeps getting wider over time, making home ownership more and more desirable for those who are ready.
Owning a home is a great way to build family wealth
For many families, home ownership serves as a form of ‘’automatic savings.’ Every time you pay your mortgage, you’re adding to your net worth by increasing the equity you have in your home.
The impact of home equity is part of why Gallup reports that Americans picked real estate as the best long-term investment for the seventh year in a row. According to Gallup, 35% of Americans chose real estate over stocks, savings accounts, gold, and bonds.
Today, there are great opportunities available for those planning to buy a home. The housing market has made a full recovery, and all-time low interest rates are giving home buyers a big boost in purchasing power. If you’re ready, buying a home this fall can set you up to increase your net worth and create a safety net for your family’s future.
Additional ways to build family wealth
I love examples. A very successful person I know, we’ll call him Joe. Joe says he embarked on the journey to financial freedom about 5 years ago. He said, “I recall[my coach] saying something like, “Do what others aren’t willing to do for the next five years, and do whatever you want for the rest of your life.”
It really hit home for Joe. then, most importantly, he acted on that knowledge.
And here is where he’s at today:
He just paid off his mortgage
He pays his taxes regularly and is expecting a sizable refund
With money he has saved, he bout a shiny red Corvette
He’s created a positive cash flow and is working now toward the “big savings”.
Hi success is inspiring so I want to share what he has done in case you’d like to follow his lead. (As always, check with your CPA).
Joe started his journey by taking two important steps.
First, he created an S Corp. (He works as an employee, but owns a business on the side, which he incorporated as an S Corp. (more on that in future blogs).
Second, he set up his bank account and set up additional accounts with a name and the percentage he’s putting in each one taken from the main account.
Here’s a snapshot of what he did each time he received income from his business:
10% Tithe (He provides funding to his church)
10% Savings (He pays himself)
30% Taxes (Set aside for taxes)
30% Business (Re-invests into his business)
20% Personal (Household/Fun/Vacations)
Joe was able to get out of debt in 5 years and paid off his mortgage. Even crazier, he booked a $40,000 cruise on a two story townhouse style ship. Yes, that was his state room and he paid cash!
But what if you don’t own a business? You can still follow most of his formula and increase the amount you pay towards your mortgage. Make sure to let the bank know that the extra money you are paying is going towards the principle. Other people chop numerous years of house payments by paying their mortgage every two weeks, instead of each month. Both of these methods increases your equity even faster.
Bottom Line
It’s always good to know your net worth, isn’t it? We can start with your home and go from there. To easily find out the estimated equity and value of your home, click here. And to learn how you can use what you are already paying in rent to build your family’s net worth, feel free to give me a call.