There is no cookie cutter amount for what is considered to be the ideal net worth. It simply provides an estimate of finanical health. Net worth is defined as the amount by which your assets exceed your liabilities. In a mathematical way, it is expressed as assets - liabilities = net worth. It is possible to have a negative net worth, although this is obviously not ideal.
One way to measure the ratio of our net worth to our gross income. Because we have different standards of living, using the ratio of our net worth to income is much more useful than comparing the size of our financial portfolio. When your net worth equals your income (1x your annual salary) you are considered to be in the early accumulation stage of your life. As your wealth grows, so does your capacity to take on more risk. You can become more aggressive in your asset allocation. When your net worth exceeds 3x annual income, this is when the power of compounding begins to accelerate. At this point, your investment earnings often exceed your savings. In some years your investment earnings will exceed your job earnings.
As you approach your peak earning years. The combination of growing wealth and increasing income further enlarges your risk capacity. During this stage your asset allocation plan is designed to focus your risk where you can build wealth the fastest. Before long your net worth increases to 7x your annual income and you enter what is for many the most enjoyable and secure stage of earning potential. Depending on your comfort level and standard of living, 10 - 15 times your annual income would be a good net worth to aspire to achieve.
If you have questions about financial planning or implementing strategies that can help you increase your net worth, please visit www.planandact.com and start by taking your free financial assessment today.
Many business coaches and books tell the story of a famous study of 1979 Harvard graduates (or 1953 Yale graduates). Ten years after graduation, the 3% who had written goals were earning ten times the average income of their peers who had no goals. The story is an urban myth, but verifiable research at Dominican University has confirmed the power of putting your goals into writing. You have now joined the fabled 3%. You have SMART Goals in writing. SMART stands for Specific Measurable Achievable Results in Time.
This is a critical step. The difference between dreams and goals is a written plan. Look at the four walls around you. The building first existed as an idea in someone’s mind. The blueprint was a key step for converting the dream into the solid structure you can see and touch. There’s an old saying that people don’t plan to fail, they just fail to plan.
After creating the blueprint, the next step for turning dreams into reality is massive action. Are you ready to act on your plan?
Your beliefs determine your behavior. Therefore it is extremely important that you believe this plan is achievable. Achievable is the “A” in SMART goals. What you achieve is primarily mental. “Whether you think you can or can’t, you’re right.”(Henry Ford). Only human beings have the ability to create the future in their minds first. Remember the building illustration. Every human accomplishment, from the invention of the plow to smashing the atom and putting a man on the moon, was first a thought in the human brain before it became a reality.
Every one of us has this amazing ability. We just may not be aware of it’s potential power in all areas of life. If you can plan a vacation, build a home or plan your day, you can plan and achieve financial independence. It’s 99% mental. The levers in your Financial Plan give you choices. You can change your beliefs about what is possible for you or you can change the levers until the goals match your current beliefs.
If you have questions about financial planning or implementing strategies that can help you grow your portfolio to your retirement level, please visit www.planandact.com and start by taking your free financial assessment today.
It's great to have the option of paying off a mortgage early or investing. Having this option means that you have some extra discretionary income somewhere to make your mortgage disappear faster. How do you know which decision to take? If you apply more money to pay off the mortgage faster then you can be free and clear of mortgage debt a lot sooner. If you hold off on paying off your mortgage sooner then you can use the extra cash on hand to invest in some type of investment vehicle that has potential to grow over time. As you can see, there is a trade-off in each scenario.
Let's discuss the pros and cons of each:
Pay off mortgage early versus investing - Pros: 1) You can get rid of monthly mortgage payments a lot sooner, 2) Once the mortgage is paid off, a job loss or have a financial crisis won't be a threat to foreclosure on your home, 3) You can have the option of using more of your home's equity if needed. Cons: 1) No more tax write-offs of mortgage interest if you itemize on your taxes, 2) Discretionary income would have to be applied to the mortgage, which means there is less money to do anything else with such as invest, 3) The amount that you earn while investing may prove to be higher than the benefit you get from using your mortgage interest as a deduction on your taxes.
Every individual is unique and the choice of paying off your mortgage versus investing the money elsewhere can be a bit confusing. An analysis by a financial planning firm can help you to decide.
If you have questions about financial planning or implementing strategies that can help you decide to pay off your mortgage early versus investing, please visit www.planandact.com and start by taking your free financial assessment today.