Budget

Jan

2021

Are you winning or losing? Why you need to know your Net Worth

Your Net Worth is your financial health barometer and not knowing it will cost you!

When I coach business owners and leaders in achieving their goals, we look beyond the business. Business success is merely a symptom of the habits you’ve formed and your holistic success in life. The most common cause I encounter of poor business performance is physical health. The next is financial uncertainty.

When clients indicate that a physical health habit would improve their lives, we have several measurable ways to track their progress in achieving their goals. We can track:

Net worth is a measurable goal which focuses on the most important financial number... your wealth!

Weight
Body fat %
Cholesterol
Daily caloric intake
Hours of daily exercise
Waist Size

It seems so simple to set these goals and then to take action on them. Some combination of diet and exercise will achieve the desired outcome and measurements are fairly easy to take and to see.

The financial challenges most of my clients bring to me relate to their income, their spending, and their savings. It is common to see financial goals of an anticipated gross revenue or a savings goal for a planned purchase or investment.

One very astute and wise beyond his years client of mine recently asked me for help setting a goal around his net worth. He didn’t know his net worth and only knew it was important for it to grow.

What is net worth?

Your net worth is the balance sheet for your life. The scenario I like to give is that you have been summoned to leave earth and rise to the mother-ship, move to Eden, or to join John Galt. You have one day to sell off every asset and valuable you own and settle all of your debts. Once you’ve liquidated your belongings and made right your creditors, the balance remaining is your net worth.

Why is net worth the most important number on your financial bill of health?

If you are playing the short game, income goals can help you live comfortably and achieve your goals of recreation, lifestyle, and even investments. The trouble with income alone is that it does not care how much you spend along the way.

There is a reason many high earners and CEOs file bankruptcy as soon as their business suffers a bad year or closes their doors. Despite the fact that they saw tremendous incomes last year, their Mercedes is being towed away by the repo man. Their liabilities exceeded their assets.

What you focus on expands!

Two factors increase your net worth… 1. An increase in assets and 2. a reduction in debts. The core tenets of increasing your net worth are to save more and borrow less. The lowest risk means of doing so is to put your savings into a safe vehicle and to pay down your debts as quickly as feasible.

Some choose a higher risk option of leveraging their investments by investing their assets in real estate, the stock market, businesses, collections, and more. These investment vehicles, when carefully selected can dramatically increase the rate at which they see a return on their capital investment.

How do I determine my net worth?

As I mentioned, the most simple means of determining your net worth is to add up the value of everything you own and subtract all of the debts and liabilities you have. The next is to use a tool designed specifically for this purpose. I have you covered! Read on.

Checking your net worth is not a “one and done” process. It changes each and every day. If you are invested in the stock market, your net worth changes continuously from the opening bell until the close of the market. Each time you make a purchase or the value of your home rises, your net income changes.

The process of updating your net worth is fairly simple and takes little time. Growing your net worth on the other hand requires intentional planning and focus. You can accelerate this growth with lessons learned from others and a high level of accountability.

My invitation to you!

If you are serious about growing your net worth, I have a group for you. I am passionate about wealth building and I have a lofty net worth goal set for myself. I want to make as many millionaires as I can along the way. My group is called Wealth Watchers. We currently meet on the first Thursday of each month at 6:00pm (Mountain Time), online.

I share an intuitive and simple net worth tracking tool with all Wealth Watchers members. Sign up below for our next meetup and we will get the tool to you. Our group is committed to helping one another achieve higher net worth values through education and accountability. Not to mention, we are a social club, connecting growth mindset leaders with one another. Sign up now by clicking here:

Join Wealth Watchers

Once you’ve joined, we have a private Facebook community where Wealth Watchers can ask questions, share wins, and offer strategies to one another, between Meetups. Find us on Facebook here:

Wealth Watchers on Facebook

Aug

2020

Can you spare 1%? (Hint: it’s for YOU)

“That’s the way we’ve always done it.” In my former life, working in government, often when someone would suggest a new method, system, or principle which a superior was denying, it would be followed with this line. This way of thinking is why many of our government entities are archaic in processes and not able to keep up with the demands of their constituents. This also shows up in private sector businesses as well, because the one thing business owners dislike more than the way things are, is change.

GAAP or Generally Accepted Accounting Principles have taught us that the flow of money through a company starts with revenue, subtracts expenses, and ends with profit. There is a lot more to GAAP accounting and it has undoubtedly created a standard for business accounting and accountability, however, it has also contributed to many businesses being unprofitable.

Profit First, the book by author Mike Michalowicz, describes a fresh perspective for business accounting, wherein you take your profit first and then each of your expenses, in the order of priority. If this sounds outlandish and if you are skeptical, realize, Mike’s method encourages you to be more profitable. That’s it! His motive is for you to pay yourself and then tighten your businesses expenses to live within the remaining revenue stream. We should all be celebrating this, yet I imagine there are still some furrowed brows at the mere suggestion of such a thing. Stick with me… Your light-bulb moment is coming!

Open your profit account

The first step in implementing Profit First is to create a “Profit” account at your bank and immediately fund it with 1% of the balance of your business’ operating account. Surely, if you are like most business owners, you run from one bank account (I had two and though I was savvy). In the full implementation of Profit First, your business will have five bank accounts. Today, we’re starting with just a second account, for profit.

The point to this is that 1% is such a small amount, such a low bar, that you will not notice it gone. Now that you’ve started your profit account, don’t touch it! This is your money and transferring it back to your business is stealing from yourself. You wouldn’t transfer back from your tax account, because that is stealing from the government, so why would you steal from yourself?

Time Block

You’ve heard me preach time blocking before. Your new time blocks will be twice per month to settle your books and pay yourself a profit. Ideally, for simplicity’s sake, these will be the same dates each month, so you’ll know how far back to go. The 10th and the 25th are Mike’s suggested dates. Block these in your calendar on permanent repeat, reminding you to settle your profit account, and then honor that time block. As your profit account grows, this activity will become more exciting!

Grow your profit margin!

In the beginning, you’ll just transfer 1% of your revenues to your profit account. When I say revenue, I do not mean your account balance. That was just a starting point to prime your account. As you move into your new routine, you will take 1% of the total revenues received between your last time block and the current one and transfer it to your profit account.

Rome wasn’t built in a day and a high profit margin can’t be forced in the first month. Industries vary, however, in many serviced based industries, a 40-50% profit margin is considered the gold standard and in manufacturing, 25-35% is considered good. You’ll find your ideal profit margin and I’ll help you set a goal and achieve it, however, you’ll get there through incremental growth. If you transferred 40% of your revenue today, it’s highly likely you’d bankrupt your business.

As time goes, your target should be to increase your profit margin month-over-month. If you did 1% this month, do 2% next month. If you start feeling a pinch from your new profit draws, you have one of two options: raise revenue or cut expenses. Visit your P&L (profit and loss) statement and identify which needs to be addressed. Once you’ve streamlined your business, you can continue to grow your profit margins.

Benchmark and grow!

Profit First uses an Instant Assessment to measure where you are in your business and to set goals for which accounts must grow and which must be reigned in. Take this assessment regularly (at least quarterly) to know where you stand. I’ll post a link to download this tool at the bottom of the post.

This is just an introduction and I hope it has you salivating for more. Profit First is a full business accounting ecosystem to ensure your priorities lie in paying yourself first and increasing your pay as time goes on. If this has piqued your interest, I encourage you to pick up a copy of Profit First, by Mike Michalowicz.

If you need help implementing Profit First or in creating an understandable P&L statement, please reach out. Keep your business lean and your profits fat!

Download the Instant Assessment