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in Budgeting Tips | Money Talk · April 26, 2021

What is Net Worth and Why It’s Important to Track

There is a lot of talk about budgeting, but you do not hear about net worth tracking as much. Budgeting is just one part of the wealth equation. Budgeting tracks your income and expenses which is key. However, tracking your net worth tracks your wealth. It gives you a complete picture of your finances. Are you using the money you are saving each month in a way that is constantly increasing your wealth?

Budgeting without tracking your net worth is like driving without directions. How do you know you are headed in the right direction? To reach financial freedom, you need to have assets (things you own) that generate enough income to cover your monthly expenses. You track these assets using a net worth statement or tracker.

What is a Net Worth Statement

A net worth statement is a sheet that lists all of your assets (what you own) minus your liabilities (what you owe). To better explain the concept, I created an example below.

To the left, we have a monthly budget tracker which I am sure you have already seen and hopefully already have. To the right, we have a net worth tracker. As you can see, net worth is the net of your assets (things you own) and liabilities (what you owe).

Remember I mentioned that budget and net worth are dependent on each other? Assuming no interest, your net worth would be directly increased by

  • $1,000 debt payments would decrease your liabilities.
  • You would use the $1,000 leftover from the budget to make additional payments or invest (depending on your situation).

As long as you spend less than you make, your net worth will likely increase each month, but it’s not an exact correlation.

For example, if you have investments in the stock market, the value of these investments will vary from month to month. Investments will change regardless of how much you spend. This is why tracking your net worth separately is important to complete the picture.

These days, you can use the same app to track both your budget and your net worth. The Mint App for example.

How Tracking My Net Worth Changed My Life

I’ve known about net worth statements since I took my first accounting class in the 8th grade, but I always thought that little people like me didn’t need one. Net worth statements were for the wealthy, so I never bothered. It felt pointless because I didn’t have anything to my name anyways.

Things changed in 2019 when I had my mini-life crisis. I realized that I was just a few years away from turning 30 and I still didn’t have anything to my name. I started a net worth tracking worksheet I’ve been using to track my progress every month since December 2019.

As of December 31, 2019, I had a negative net worth of about $38,000 and as of March 31, 2021, my net worth is just a few dollars shy of $90,000. I have always been jealous of Ryan because when we met he already had a significant amount of savings in his retirement account and I had ZERO. This was my main motivator to get my life together, so I have Ryan to thank for lighting the fire that led me to make the decisions that got me to where I am today.

You probably already know this, but real estate investing is the reason I have been able to turn around my financial position so quickly. Our buying strategy allowed us to increase our wealth without having the money. If my wealth-building strategy only consisted of stocks, I’d probably still be negative because getting loans to buy stocks makes no financial sense.

Here is a snapshot of our net worth from January 2020 through March 2021. As you can see Ryan’s net worth has changed at a higher pace than mine. This is because he had investments in his retirement accounts and these have performed really well over the last year.

I use Personal Capital to track my net worth. I would have used Mint App, but I had a few syncing issues with a couple of my rental loans. Personal Capital just worked out better for me, but if you are using Mint to track your budget, it would make sense to have it all in one place.

Reviewing your Net Worth

When I review my net worth statement, I look for an upwards trend. My budget tracks how much money is coming in and out of my bank account, but the net worth tells me whether my budgeting efforts are taking me in the right direction. It tells me how well my investments are doing.

It also makes me think twice before getting into new debt. For example, my car was totaled in an accident and I have not gotten a replacement because I don’t want my net worth to decrease with a car loan. You may be thinking, “But Kat, when you get a car, you also have an asset. Wouldn’t that offset your liability?”

I don’t count cars as assets. The moment you drive the car, its value decreases significantly. A car to me has the same value as my sofa or bed. None.

Can I sell it and make a profit after counting interest, maintenance, and repairs? Yes? Then maybe I will count it. If not, then it’s just another piece of furniture.

My budget says I can afford a car, but my net worth says, don’t even think about it. Are you seeing how a budget and a net worth statement go hand-in-hand?

This all goes to say that tracking your net worth is just as important as tracking your expenses. The goal is to increase that net worth number so you can achieve financial independence.

This post may contain affiliate links. I may get commissions for purchases made through links in this blog.

Previous Post: « How to Use Creative Financing to Buy Rental Properties When You Don’t Have Money
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New Blog Post 🚨 In this week’s blog post I am New Blog Post 🚨 In this week’s blog post I am going over why we bought a short-term rental, our experience so far. Plus what we did prior, during and after purchasing our first short-term rental in March 2022, a Cabin in Blue Ridge, GA.

Check it out at www.beyondjustnumbers.com or link in bio @beyondjustnumbers
I can’t stress this enough. Some investors are l I can’t stress this enough. Some investors are looking to make money from day one, but that’s not always the case. It wasn’t for us and I’ve talked to a lot of rookie investors who have told me “Thank God I have my personal finance situation together.” 

This is just my opinion. Do you agree? Let me know in the comments!

Want to join a free community of like-minded individuals? Join our REI Coffee Chat Community where we talk real estate investing, personal finance and financial freedom, and much more! Link in bio @beyondjustnumbers

Want to learn more about investing in real estate? Read my blog www.beyondjustnumbers.com

#realestateinvesting #realestateinvestor #creativefinancing #investmentproperty #buyrealestate #firemovement #debtfreejourney #financialindependenceretireearly #rentalproperty #investinginproperty #personalfinanceblog #wealthbuilding #planforretirement #investorlife #livefree #airbnb #moneyisfreedom #enjoythejourney #reicommunity #realestateinvestments #shortermrentals #cashflow #realestate
I used to think that investing in real estate was I used to think that investing in real estate was for the rich. I became in love with real estate while working for a real estate investment company that owned hundreds of units. This was back in 2011 and I was 20 years old at the time. I had less than 5 years permanently living the US, so I had no idea about anything. I grew up in Colombia and the only talk of money we ever had was the lack of it. 

The investors I worked for were a wealthy family, so naturally, I thought… Real Estate requires wealth. I don’t have wealth. Therefore, I cannot invest. 

I figured… well shit, I need become wealthy so I can invest in real estate. Eventually, after educating myself I realized how wrong I had it. You can build wealth BY INVESTING in real estate.

Took me a couple of years to figure it all out. Hence, why I didn’t start investing until 2019. I wish I had figured out earlier, but it is what it is. In just 3 years of investing in real estate, I was able to accumulate more wealth than I ever thought possible. 

Just to give you an idea…Did you know you could invest in real estate with as little at 3.5% of the purchase price? For a $150,000, that’s only $5,750. Buy a duplex that needs a little bit of work, fix it up, rent one side and live in the other. This will reduce your monthly expenses significantly, save the money and do it all over again.*

Of course it’s not that simple, but it’s also not that difficult. There are some particular steps and considerations which is  why I recommend doing further reading on the subject. 

Book Recommendation:
✅“The House Hacking Strategy” by Craig Curelop and ✅“Investing in Real Estate with No (and Low) Money Down” by Brandon Turner. 

#realestate #realestateinvesting
🚨 New Blog Post! Continuing the “Getting Star 🚨 New Blog Post! Continuing the “Getting Started in Real Estate Series” 

You’ve found a property either on your own or through a realtor, you’ve run your numbers, you’ve got a lender and now you are ready to make an offer. What’s next?

In this post I want to discuss a few items:

✅Key components of a real estate contract
✅How do you make a compelling offer to ensure you get the property you want
✅The main contract contingencies and how they work
✅Communicating with your realtor

I also provide real examples of what we have done personally. 

Check it out at www.beyondjustnumbers.com

Let me know what you think!
If I listed all of the hats, I’d never end 😂. If I listed all of the hats, I’d never end 😂. Anyone else? Show me the multiple hats you wear and tag me. Let’s have fun with some reels.

Trying to get good at the real game like @investinginyourwealth. How did I do?
The fact that you are not where you want to be doe The fact that you are not where you want to be doesn’t mean you won’t get there. Greatness takes time. Focus on what you control.

And remember, it’s okay to pivot.

#mindset #realestate #firemovement #realestateinvesting #realestateinvestor #rentalpropertyinvestor #rentalproperty #cashflow #motivation #financialfreedom #financialindependence #financialindependenceretireearly
We see a lot of advice around hiring a real estate We see a lot of advice around hiring a real estate friendly CPA. However, when you look up  CPAs that specialize in real estate, they can be pricey.  However, that doesn’t mean that other CPAs or tax professionals aren’t good. They might not be particularly aware of certain items, but they can research and collaborate with theirs peers. Perhaps it may require you to do a little of work to compensate. Things you can do:
✅ listen to The Real Estate CPA podcast or join the Facebook group
✅follow social media accounts of the pricey Real Estate CPA and take notes of what they are saying
✅attend free educational events 
✅read BiggerPocket book on Real Estate taxes 
✅if you know anyone working with a really good Real Estate CPA firm, ask them what they are doing

Then use that to go your CPA or tax professional and be like “Hey, is this something we can do for me?” They’ll probably say, “Let me look into it”. 

If they are good, they are going to research it and/or ask their CPA peer group. (CPAs and tax preparers also have Facebook groups where they collaborate with each other).

Here is a piece of advice, if they tell you “No, we can’t use this loophole or no, you don’t qualify to use this strategy” —> Ask WHY and “How can I qualify in the future?.” This way you confirm they did their homework and aren’t just being lazy. Don’t just take no for an answer. You can then get a second opinion by asking a question in a forum or to your peers.

So don’t panic if you don’t have a real estate CPA or tax professional. 

Next video I’ll be answering the question… “Can I skip the tax professional altogether and do my own taxes?”

#realestate
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