3 Ways to Increase Your Net Worth in 2022!

three

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increase

your

net

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i'm brian preston, the money guy, brian, I'm very excited about this show, maybe more excited about this show than any other because today we're going to talk about one of our favorite things in the entire world. world. world, you could call it a family tradition. We definitely enjoy the simple update of putting the actives into the passives by seeing what has changed in the network statement, this will be a pretty powerful thing because if you've been wondering how do I start the engine? to really start creating wealth and how can I have measurable instances to know how well I'm doing or where I'm having problems.

This will be

your

connection and we will go one step further. Now we have a tool. available that you can use to make this a tradition that you can do every year. You can check it out at learn.moneyguy.com. Now, Brian, I think that's really interesting. So to understand net

worth

, what it is and how. It works, you really have to understand a very simple equation that, uh, many, many, many, many years, when you went to accounting school, I think that's what it was called, you learned this equation and that's how it was, you could call me puppy, I was in the university of georgia, i was just a little puppy at the university of georgia, you learned this equation in accounting class, um, assets equal liabilities plus equity, that's like accounting 101 when you think about a balance sheet, that's how you classify approaching it well, that's the way accountants learn that equation, but when it comes to personal finance we like to change it up a little bit instead of focusing on equal assets.

We would like to say that capital equals assets minus liabilities, but we are still using There are a lot of similar terms that can be confusing to normal people, so we try to make it much simpler, much more like money in terms of how we think about this and essentially your net worth is equal to all the things you own minus all the money you owe, yes that's a very simple way to think about it, yes it is, I love that you brought this back to terms accountants because it's one of those things when I think about what I'm going to be.

A great investor wants to know how healthy the balance sheet and the income statement and the other financial documents are, well, the same thing happens with personal finances that so many times we focus on how much income people earn and I tell them that that is not the case. . the income statement is never where your wealth lies, wealth is when you talk about true wealth creation, it's quiet and it resides in that net worth statement with that key part of the equation that Beau said is what you own minus what you own. that you owe, so it's really the net profit that you can keep and from which you build financial independence, so when it comes to building and specifically increasing your net worth, we believe that there are actually three different

ways

to do it, that This is what we are going to analyze.

What are three ways you can

increase

your net worth? The first one, uh, is pretty easy. It's the one that I think most people are excited about: growing your assets and adding them to the asset side of the equation. Well, this sounds. as an obvious statement from the captain, well, of course, if we add to our assets, but I want to dig a little deeper into this, how can we turn this into what is going to be the ultimate primary driver for a typical person's annual income? asset growth, yeah, so when you do your net worth statement and add to it, the way you see that growth year over year is through your savings, the dollars you understand where you're going to defer gratification. money in your portfolio to grow for you and you see your investment accounts increase due to savings, that is the number one way most people increase their assets in their annual net worth.

Now, when you say savings, of course, we're also talking about investing. Sometimes I use those terms interchangeably, but before we even talk about investing that money, I think we have to say what our peers are doing because we have some benchmarks or some guidelines that we tell everyone to aspire to and even focus on getting. as soon as possible, but what does the typical American really say? Yes, there was a study by the US Euro Economic Analysis Bureau that looked at US savings rates from 2010 to the end of 2021 and that's what they found, the average savings rate since 2010 it's only about eight and a half percent and if you're putting this out as a podcast and you can't see the image on the screen right now, I think it's actually artificially inflated because of greed, I think when people were at home . during the pandemic, savings rates really went up a lot, it looks like the average is probably closer to a little bit better than maybe seven percent, yeah, in that range, when you look at this picture and I'm doing this for all the listeners of Audio.

It's pretty standard, I mean, it has some ups and downs, but it's pretty flat to the point where it's around six to eight percent, but then in 2020, when nobody could leave the house, savings rates skyrocketed and then you could say, wow, that's great, no, it just means we locked down the American consumer, but don't worry, they'll get it as soon as we open the doors and open the economies, it's like Americans have to do my duty. patriotic. Let's spend some money. This is what you see eight and a half percent and you're fine, you know, maybe that's healthy no, this is what we tell everyone, this isn't the old saying that if you get to 10 you'll be fine for the rest. of your life, realize.

We don't have social security like we do, you know, social security is just not guaranteed to be there, especially if you're younger people because that thing is in financial trouble, in large part, the pensions that you will receive, you'll be lucky if you even work for the same company in five or six years, so the fact that you think they are going to provide you with a pension simply does not exist, they have become extinct like the dinosaurs and more and more falls on your shoulders, so that's why Do we recommend that you save and invest 20 to 25 of your gross income for the future?

Now you may be saying, "Okay, guys, that sounds like a big number." Why do they say we actually have some numbers to back up our 25 percent? goal, so let's say you decide to invest your money and you can earn six percent on average over your working career very moderately and let's say that while you work every year your salary increases by about one and a half percent a year and you want to retire at 65. Something magical happens when you start putting your army of dollar bills to work if you are 20 years old and you start saving 25 of your gross income at age 20.

When you reach age 65 you could retire and you could replace 167 of your pre-retirement income. That's right, you could get a significant raise in retirement if you work until 65. So two disclaimers I always say when we show I love this research we did, but the reality is we know that most people don't save between 20 and 25, but a little over eight percent, as we've talked about, and then, unfortunately, most people don't find the money guy. shows at age 20, that's right, it could be 25, it could be 30. So we give you the grace of knowing that if you're a financial mutant who discovered us at age 20, you could actually get close to that. 15-20 savings rate because you should be rewarded for starting early, maybe you have a more traditional path like Brian described and don't start saving until age 25, but that's still pretty early for most if you start.

By saving 25 starting with your child at age 25, when you reach retirement, you could actually replace 131 of your pre-retirement income at age 65. You'll again be able to retire and get a raise, so if you wait until age 30 and Here This is where the magic happens if you wait until age 30 to start saving and you can save consistently from age 30 to 65 and you can save 25 percent of your gross income by the time you reach age 65. You will be able to replace 100 of your pre-retirement income. That's it, that's where the magic number 25 comes from. It allows someone who saves over a 35 year period to replace 100 of their income when they reach retirement when I look at these charts.

I get so jealous of all of you 20-somethings who have discovered this show because you can see that essentially there are people under 30 who discover this content and discover that their army of dollar bills may be more powerful than their brains , their hands and their backs. you're very funny, so don't get jealous if you look, you know, you've got some mates that are a little older, you've got brothers, you've got aunts and uncles, see, man, I wish I had what they've got, you could do it all, if you're finding out this content and you are under 30 years old.

I want you to see how powerful every dollar you save and don't spend can be if you just engage it to start working for you it's really amazing so if you keep waiting if you wait until you're 35 and save 25 it can still replace almost 80 percent of your pre-retirement income and if you wait to start saving until age 40 you can still replace almost 60 percent of your pre-retirement income all Know that sometimes life happens well, we don't know what the next ones will be like five years, 10 or 15 years, so the sooner you can figure this out, the sooner you can start saving 25, the more options you give yourself later. in life and for me, someone who has been tracking my net worth for over a decade, it's amazing to look back and see the amounts I was saving in the mid-2000s and what they have become now, it's extraordinary.

I'm glad my young 20-something self realized that, so if you start tracking your net worth annually, especially if you use the tool we make available to you, then you too will be able to see How it happens as your net worth increases over time. years, so we talk about savings and investments because we want to put this money to work. I don't want to spend because it's kind of an additional issue, but we have to tell people who don't know how to invest how. Do you get involved in investing if you don't know anything about investing?

Yeah, so if you're someone who's just starting out, technology has made the world a lot easier instead of having to figure out what I buy, when I buy, I buy. I sell? It's become incredibly easy with target retirement index funds, where basically all you have to do is figure out what year I think I want to retire. If you think you want to retire in the year 2050 or 2055, you would buy the target. The 2055 retirement fund or the Freedom Index 2055 fund right now, while that is many years away, will be more aggressive and then as you get closer and closer to that date, it will naturally adjust and become more conservative for you , basically.

It takes all the work away from you, so there are only two questions you need to answer: when do I think I want to retire and how much money can I save. Focus on those two things and when you look at your net worth statement each year, you'll be amazed at how the numbers grow, so that's the basic strategy on how to get started: how much you can save, when you need it, there's some kind of investment, they'll make all the work also taking advantage of power. about index funds I want to tell you because financial mutants are a curious bunch, you've probably realized that because we have, in addition to our net worth tool, we have the financial order of operations and many of you will maximize the opportunities. with your employer plans with your savings, you know and follow the way I mentioned this briefly, go to moneyguy.com resources, if you won't get the same free deliverable, if you need a deeper dive, you can go to learn .moneyguy.com.

In fact, we have a really great course that will speed up all of this for you right there with the net worth template, so make sure you check that stuff out and this is what I like after you start the process that you'll find after you. start investing and building wealth, you will have different amounts of money, like if your employer offered you some free money, you know, and you will be crazy not to maximize that free money, so that will be what is called tax deferred, the part that your employer contributes and then depending on how you do it, whether it's roth or traditional, it will be tax deferred or tax free, which means that the money you put into the roth options your auth ras your roth 401ks and 403 beats they grow completely tax-free we call that tax-free bucket and then the one that is very liquid in the long term which can be your bridge account for early retirement or investments in other things is your liquid after-tax money that is in a individual or joint brokerage.

Many times you need to know about these threegroups so you can know how you're going to implement your long-term goals, which I think is wonderful. It's one of the things we've put in our net worth tool, right there on the dashboard, a breakdown each year of where your tax deposits are, how much I have in those tax-free investments, how much I have in the future. -tax investments how much do I have in tax-deferred investments and when I do this annual exercise it will tell you as next year progresses where I should put my dollars what are the most efficient places what are the deficiencies I have my financial picture should be You should be aware of that, so when you do your net worth return or if you use the net worth tool that we make available directly in the dashboard each year, you'll be able to see exactly where each of your three tax brackets are.

Yeah, so someone probably wrote to us before, when we were doing a livestream and it looked like they had all their money in traditional deferred taxes maxed out. You could if you were doing this annual tradition of updating net worth. statement you might see hey, wait, you know, it looks like 80 of my assets are in this traditional tax-deferred account, how does that fit into my goals? I think this will be a great indicator, so you know, hey. maybe I need to focus on not only diversifying the portfolio but also diversifying my taxes so that most people get excited when they think about increasing their assets, they think about their savings rate, they think about the investments they're putting to work, the army dollar. bills that are growing, but you'll notice that's not all there is on the asset side of the equation, we also have things like wear and tear assets or maybe even things like illiquid assets that can also increase in value over time, so let's talk about usage.

Assets first, this is what will be most common, many people have our houses. Now look, you can do whatever you want with how you disclose your home in the net worth tool that we've created, but I want to make sure I give you some sort of money hack because we're in an inflationary period and many of you are experiencing a tremendous growth of assets in the paper of the houses in which they live. Here's the problem, why do I keep saying use the assets of the house where we live is because we all know that if things got really bad, I mean if you lose your job or if you have volatility in the market, you will still be very grateful to have a place to shelter your family to keep them dry when it rains outside, it's hard to eat that house, so you're going to think, well, I have all this liquid courage.

I have six figures of net worth. I will tell you that I can open a home equity line and notice market declines. They don't like lending for that type of debt. Plus, you lose a job. They don't like lending to people who have lost their jobs, so many times that money is not liquid because it is a fixed asset that you are going to use. I live with it so I always recommend it and we talk about this constantly what bo and I do and you may not agree with this but this really keeps things in check on our net worth statement we value our assets of use as our home at the cost we don't We don't give market value to what we paid for them when we originally bought them, so here we live in the suburb of Nashville, Tennessee, are we underestimating our net worth?

That's absolutely fine, because when we look at our network statements, I don't. I don't want to see how much my net worth is increasing because of my house's appreciation as far as my house is concerned. The only number I care about is how much of that debt I'm reducing, that's what I want to see reflected on my net worth statement, not a wild fluctuation that could go up this year and down next year and so on because I can't convert my house in cash very quickly now look I'll be devil's advocate I'll say look someone some of you are out there thinking you know I'm going to retire and I'm in a high cost of living area and I'm going to retire somewhere else geographical part of the United States and perhaps even internationally and that when I liquidate I will use that capital that will be part of my retirement.

Congratulations, you have turned that used asset into a liquid asset that will go into your retirement plan and I applaud you and we can now include it as liquid. holding on but be careful because I have fallen prey to this I have fallen into this own trap there is a lot of self-reflection in this that you do not want to have that you do not need cash reserves or I do not need it, you can reduce your savings because you count on that, hey, my house is valued 250,000 last year, why am I doing it in the last three or four years? why do I need to save more?

It's a false sense of security because you're looking at profits on paper versus what's actually available, another asset of use that shows up on our network statement that I think, in my opinion, is quite frustrating, are the things that take us away from point a to point b every day, they're our cars, they're our cars and you can I'll be really, really excited thinking, "Oh, I bought this car new and I paid so much for it and I'm going to put that on my online statement." price and that's great, which will surprise you when you look at it next." year, then you go to Kelly's blue book or go somewhere to check what the value is and you'll see that that asset doesn't go up in value, it actually goes down in value, it's funny, this is one of those things because you and I design this template, we actually used it, so we used it for our own personal assets, but part of it is we had to bring it.

I brought back 15 years of data and the rawest learning experience. because it was fun on the asset side to see investments increase over time, even in a recession, and see how well I saved, so maybe it cut losses during that market volatility, but I have all my good memories of all the vehicles my wife and I have owned because we upgrade them every year. I go to Kelly Blue Book or Edmonds and rate them and it's depressing, yes I know we are in unique times right now because of inflation that is not happening as fast as it has in the past. but historically you know you own a car for four or five years and you're going to lose 50 to 60 percent of the value and I saw that on my net worth statement to see the cards that you were so glad you got and bought . this car and then essentially watch it go from forty thousand dollars thirty thousand twenty and then, but at the end of the time you're about to get rid of it, it's seven thousand dollars, you're like God, I remember when that thing was 40,000, it's a little depressing, meanwhile, every asset you hold in your investments over a long-term period you say, wow, I remember when I put six thousand dollars in that Roth and now it's worth it, you'll quickly see that cars are not our favorite thing.

If you're trying to build well, look at another perfect example that falls into that category is furniture, so the things that we own and that we use maybe it's house decoration or maybe furniture or maybe gadgets and toys in the house that we use daily, it's okay to list them on your net worth statement, but remember that most of the time those things are going to lose value over time if you really want to focus on how to grow your net worth when you add to the assets side of your equation, you want to add assets that appreciate, not depreciate the assets as much as you can control them, so we only cover the use assets, we have already covered the common liquid investment assets that I want to talk about some of the illiquid things that are out there because I think that there will be financial mutants who will see this content, they will see the network tool and they will see that we have a section for real estate and real estate, what I'm thinking. this is for those of you in the financial order of operations once you get to step eight, I'm good because you've done the basics to get your retirement assets, the liquid assets, the emergency reserves, if you choose what you want, There is no such thing as being a truly passive real estate investor, but you decide that you are going to start doing real estate, we have a section on the tool to use, just a warning that I love real estate and a section one under passive, we will talk about the power of leverage, but it's one of those things that you just need to know how it fits into your list of financial goals so you don't get your cattywampus trading financial order, I'm doing it in the wrong order, you know another Something that a lot of people go through high when they make their net worth declaration.

This surprises us if you are a small business owner or perhaps a larger business. The company would most likely have some sort of intrinsic value if you were to sell it. or if you got rid of it you would probably recognize some value depending on the business, we always think it's crazy when we look at someone's net worth statement, they have their checking account listed, their 401k listed, and their car on the list. Hey, where's your business? Why isn't it there? Oh, I didn't think about that. It's a big part of what makes up your total net worth, so if you have a business, even if it's a small side business, you have some. type of terminal value, we think it makes a lot of sense to enter your business interest, your business assets on your network statement and we also just covered assets, which are the things that you are excited about as you grow, here it is which, especially, is the oldest.

The more I try to simplify my life, let's talk about some debt, yeah, so remember we said there's two ways or three ways to increase your net worth, one is to increase your assets and the second is to decrease your liabilities now uh this is a hot take, yes, I want you to hear us out loud because this is not, are you using this right?, is it a hot take or a cold taste?, it's so tight, its taste could be hot, it could be cold I don't know Tell me you're getting older without telling me you're getting older Keep going You might be surprised to learn that our view is that debt is not always a bad thing I'll say it again Debt is not always a bad thing, however, it's not always a good thing either, it's not something you should be careless about, it's not something you should be reckless about, but unfortunately it's probably a necessary evil for most of us that will appear at some point. somehow in our network statement, I'll share it.

I think debt is very personal. Um bo and I have been working together for two decades and decades, I mean, we can say that and it's so interesting that we know that we both are. financial mutants, but we have completely different worldviews on some of these debt problems and I blame it on the fact that we are also in different stages of life because I take into account not only the wealth creation process of trying to maximize every dollar . that is under your control, but you also reach a level of success where you are also thinking about debt, that is, preserving your wealth, and that is if you can minimize and get rid of as many obligations in your life as you can simplify your life , that definitely includes getting rid of debt and that's why we want to move forward as this is something personal that will be different no matter how similar your worldview towards money is, just being in different stages of life you will have different thoughts, these are the ones you may find that you need to know how to handle it, yes, and what we want to make sure that you do is that you set the boundaries well so that you don't get into trouble, so the number one largest debt that appears in most people's network The statement of value is your mortgage, so we just want to give you some rules of thumb as you think about your mortgage and when you do your net worth statement, when you enter the tool, you can evaluate oh, wow, am I really following this one? is that we believe that your mortgage can be about four times your total annual income and that's because the housing market is inflated, it used to be lower than that, but if you have a mortgage, it's okay for your mortgage to be about four times your annual family income. but you want to make sure that the debt service on that mortgage and the housing costs you have do not exceed 25 of your gross monthly income.

If you find yourself in a situation where you exceed that amount, you need to do some sort of self-assessment. to figure out, oh man, if my home is where it should be for my long-term wealth creation journey and then that's mortgages, I figure I'm going to give you some hefty debt that's probably good if we give people The funny thing is that if you are buying your first home, if your down payment is three to five percent, that's fine, although many experts will tell you up to 20 because I know that inflation markets move and, in general, the market real estate, mortgages, that's a healthy debt, one that's gone. from the good column to more of that gray column is student loan debt and um, this isa trap that you have to be careful of because more and more data is coming out that tells you to be very respectful of any student you have. because a lot of the rules have really tightened it up, it's hard to get rid of student loan debt, you have to pay close attention to the interest rate that's applied to these debts, so I want to talk about that because we've tried. to provide guidance to people on when they should prepay their student loan debt instead of waiting and letting it drag on for an extended period of time.

Yes, this is one of the things about student loan debt, specifically that we delve into the financial aspect of. order of operations course, so if that's something you're interested in, go to learn.moneyguy.com and check it out, but I want to give you kind of a summary, a high-level overview of what we went through there if you're someone from About 20 years old and your student loan interest is below six percent, you may not want to prioritize paying off quickly because your army of dollar bills can probably do more for you in investing than paying student loan interest.

When you're 30, it drops to five percent, so if you have less than five percent student loan debt, maybe you're not in a rush to pay it off. When you're 40, it'll go down to four percent, and then when you get to 50, we really don't want to If you have any student loan debt, you should be happy there and you're probably at that stage thinking more about your kids and paying for college and that kind of stuff, I encourage you too because a lot of you are going to have children, if so, I have a high school senior, I am trying to do everything in my power to educate her and her classmates, try to understand that student loan debt is not, so you can go to the supermarket, know and buy. entertainment items for your friends and other things, this is a very limited period of time, try to keep your student loan debt below your expected salary for the first year, if you can do that you will have a big head start in life and That also allows me to transition to another debt that we see now, this one I definitely don't put in the good column, no, this is, um, this is one that the world has done, the United States consumption machine has done it. made. where anyone can afford anything if they just stretch out the amortization longer and daniel and i talk about this stuff all the time and you do too, is that the typical car is now financed.

You know, you'd think it would be 60 months or five years no, no, we're still going out, I think it's 72 months, four months now, so we're getting to where the cars are getting, they better be reliable, if we can't pay them, we're living in the backseat of them because they're getting payback periods that look like this and that's just not healthy because cars in normal times will depreciate quickly, don't they, it was really a stretch to even call these things investments because how many investments do you really have? paying to insure paying to put fuel in it will lose fifty percent of its value within four or five years and then you will know that there is a lot of negativity that accompanies vehicles, this is not the way to generate wealth, even if it makes you look really great, so when you're doing your annual net worth statement and you see, oh man, I have a car loan that I'm putting in my liabilities column, we want to give you some little rules of thumb to walk through the first one.

One is that when it comes to cars, we want you to sign up for twenty-three-eight, you want to put twenty percent down on the car, you don't want to finance it for more than three years or thirty-six months and your total car payments remember how many cars you own they can't exceed eight percent of your gross monthly income and that's for normal brands, for your Hondas and your Toyotas, and you're filling in the blanks if you're going to drive a luxury brand that's, uh, Mercedes, BMW, I would even throw Tesla. In that category you're most likely going to have to pay it off in a year and you're like, "Well guys, but no, man, I can't, I can't pay for that Tesla in a year, we'd argue with you, you can't afford the Tesla, yeah ". and that's something you might want to consider in a less expensive car, but if you can follow that 23.8, it will keep you within the healthy limit.

Now we cover one of the key parts of how you will increase your net worth. Do you have to make sure you are accumulating assets? So, part of this and you think we're talking about liabilities. Why are you going back to assets? I need to make sure that your monthly investments, which are an asset, are much larger than your car payment, which is paying off debt, because they're not. It bothers me to no end when I find out that people bought a fancy car, have a monthly payment of eighteen hundred to a thousand dollars, and don't feel good about having it. a five hundred dollar payment either, but then you find out they're putting 300 a month into their investments, that's backwards, you need to be maximal, you know, prioritize the investment side, minimize those monthly debt payments as much as possible . possible, that's why I want to say that if you buy a ten thousand dollar card, that's substantially better than buying fifty thousand dollar car financing for six years and we've already talked about the right thing: you want to keep your housing expenses at your mortgage below 25 when you add up all your debt service, so this is mortgages, student loans and car payments, because those are the three that we can see on the net statement.

You want to make sure all that debt service doesn't exceed 35 of your total. gross income, that's your top line, we said these are liabilities, these are debts that we expect to see, we understand that they may show up on your net worth statement, but there are some types of debt, some types of liabilities that if you see them on your net worth statement, if you are reviewing and filling out, you think oh yeah, I got it oh yeah, I got it oh yeah, I got it that should be a red flag and the sirens should go off an alarm should start ringing because there are certain types of debts that You don't want to see in your annual network well, I mean, this is pretty easy to understand, you can't have credit cards, you can't have credit. card, I mean, realize that credit card companies charge you 16 17 interest rates, those are good years of investing, so how are you going to get ahead if you're paying them all that interest?

They store credit cards, I don't care if they gave you 10 when you signed up, it's most likely a trap because if you forget about your credit card bill or it just gets buried somewhere, you run a big risk of You have to pay a lot of interest, you are going to pay a lot. of transaction fees, be very careful with that and then don't forget because I've already alluded to this if you're the type of person who is a collector when I say collector, I mean maybe you're the type of person who If you watch TV and they advertise caravans, you think: I would like to have one of those.

I'm guessing they'll probably have it for 200 a month for the next 20 years. You can have a caravan just because. Just because you can afford 200 a month doesn't mean you need a caravan if you see another commercial or go visit a friend and it turns out they have a boat and you say I need a boat you know and that's what you hear. With a Chris Jansen song you say that I would also like to have a boat. You could probably do it for 200 a month too, but you'll never own your life, so any kind of high interest debt on a depreciating asset is no, land you should be very careful with when looking at your wealth tool net so I can already hear you guys saying you're making a mountain out of a molehill this is just a little credit card it's 200 a month it's 300 a month let us show you the dark side of compound interest so let's say He is 22 years old and has the average credit card balance in this country right now.

Hey, you know what I'm going to make the minimum payments, so we know that right now the average interest rate on credit cards is a little over 16 percent if you want to make the minimum payment that most credit card companies say Credit cards. we have to pay 25 or 3 percent of the outstanding balance and we know that right now the average outstanding credit card balance is about 5,300, that is 53,300 for which you are paying 16 interest and you are making A minimum payment if that were your strategy it would take you 152 months or almost a little more than 12 and a half years to pay that debt and instead of only paying fifty three hundred dollars you would have spent about nine thousand dollars to satisfy that debt which is nine thousand Dollars. that didn't appear on your net worth statement, well what if I said you know what I'm a financial mutant and I'm not going to do that and instead of paying that minimum monthly payment, what if I invested those dollars?

Put that 9,000 to work for me over that 12 and a half year period from age 22 to 30, that 9,000 will have become 22,000. So now, instead of not having 9,000 on your net worth statement , you have You have 22,000 on your net worth statement, but it gets a little bit better. What if you decided to leave those twenty-two thousand dollars in your army of dollar bills working for you when you reach 65 in your wallet? That amount of money could be worth almost 462,000 and remember that all you did was put 9,000 to work because the way you would do it would be to not rack up five thousand dollars of credit card debt.

I'm going to say that otherwise five thousand dollars of credit card debt could cost you almost half a million dollars in retirement. These seemingly small decisions are actually not small at all, but I'm not playing devil's advocate, that's just the truth. credit cards, we all know credit cards are horrible, I see this, you just told me, 5000 could actually cost me 461. I'm going to be the type of person that I've heard because of real estate and what it allows you do with leverage, let's use debt to create wealth, this is the way and look, I'm not arguing that this is a very powerful tool, but whatever that four letter debt word is that you should be very afraid of, you should be very afraid because there is a dark side even in good leverage, which is like real estate investing and we worked together and created an illustration that also shows this, yes, so let's look at the pros and cons of leverage.

Let's say you buy a million dollar investment property and you only put 200,000 down, so 20 down and borrow the rest, that's nice. If the strategy goes well, if you are lucky and things go your way, your property could increase by 20 percent in value in the first year or if you are unlucky, your property could drop twenty percent in value. Now I know it's a big change, but in some parts of the country right now we did this for illustrative purposes that we want to show you, but the crazy thing is this is actually happening in certain parts of the country, but it's still going on, so This is what happens if you are on the positive side. of this equation because of the leverage your rate of return was actually one hundred percent and your capital doubles to four hundred thousand instead of only having two hundred thousand dollars of capital you have four hundred thousand dollars that's amazing and that's the part that the brochure always says.

What happens if you are in that second scenario and the property value drops by 20 due to leverage? Your rate of return is actually negative 100. Your equity in the property now drops to zero. Those two hundred thousand dollars you had in it are. you are now eliminated because you still have debt on the property of more than the property is worth, so leverage can be an amazing tool that can work for you, but it has a very dark dark side, so in summary , you put in 200,000. In this, if everything goes well and you're 20 years old, it would be cool to see your 200 turn into 400.

You say, "That's pretty impressive on my balance sheet." Now I have an asset worth 1.2 million 800,000 that's incredible, but I want to play the other side of this imagine you put 200,000 as a down payment for it to come out of something, it came from your cash, it came out of your investments, yeah the asset really went down in value, you got it. you lost the 200,000 down payment now the property is worth 800,000 you owe 800,000 you're going to feel pretty sad making those monthly payments knowing you lost it now look, that's an extreme example of what you're expecting and anyone who's in the business of real estate because I remember when you and I were in commercial real estate, someone we admire says guys, all I'm going to ask you is if things get bad, can you still make the payments because you have to be? able to take advantage of it because you know that the real estate market will not necessarily have a V-shaped recovery, it can sit still for a while, it should bepatient, you must be persistent and you must know that you are a long-term investor to handle it, so do not get caught by the magic of leverage, keep your eyes wide open so as not to fall into traps or mistakes, so remember that we said that there are Three ways you can increase your net worth, one is to increase your assets and the second is to decrease your liabilities.

Well, both are quite mathematical. There is a third way to do it and I would say that this is not just one way, it is a must, but it is more behavioral. What a mathematician and it's don't screw it up, don't screw it up, yes, we just covered how leverage harnesses the siren song to accelerate wealth and it really can do that, but there's also a way it could take you a step back, so Expose the rule of not screwing it up because there will be many ways that you can build wealth, but there are many traps that you can fall into, so we want to give you guidance on the things that we do.

I've experienced and seen people make mistakes or do good things, so you can be aware of that and the first thing is day-to-day progress versus long-term progress. Yeah, you know, watching your net worth grow is a lot like watching a tree grow if you stare at it every day, you might focus, oh, it was that a move is that good, it's all good, you get hyperactive, in You don't really see any growth, you plant a tree, walk away and come back later, oh wow. that thing is growing oh wow that's getting bigger and then enough time passed you look like a sacred cow when did this giant oak tree come about?

I love talking about the power of compound growth and how one dollar can become 88 dollars, what people don't understand about it is that if you are investing and this is part of ruining everything, you start investing, you are building your assets, You look at it in 10 years and we know that every decade there will probably be two recessions throughout that decade and I don't want you to leave after 10 years of investing. These guys told me I was going to turn a dollar into 88, but I'm thinking I'm going to put in thousands of dollars so this can be a much bigger pot in 10 years. you're going to get frustrated, this is what I mean by don't screw it up, don't get frustrated, lose consistency, lose patience and persistence to the point where you can't actually see the tree grow from the sapling to this.

Big deal, that's what we mean by being careful to understand that capitalizing on time takes time for all of this to work. Another way not to blow it is to not try to do too much, oh man I want my net worth to explode. I'm ready to go so I'm going to go all in on bitcoin or I'm going to go all in on tesla. I'm going all in on filling in the blank or you know what I'm going to do. I'm going to take all the capital out of my hole and put it on the market because then I can exploit it.

It's okay to build wealth slowly because when you try to move too fast when you try to do too much when you try to be too aggressive, that's when you put yourself in a risky place and in a risky position and another thing, I think it's amazing. I see people do this all the time and they say, guys, you know what I am. I'm at the beginning of my journey like I have no money. Why would you do a net worth calculation? Chances are, my net worth statement today is even negative because I'm only 22, the sooner you start tracking it, the sooner you'll get excited about continuing to track it, so I'd say no matter where you are, whether that CEO of That boardroom guy who's worth $80 million right now or that college grad who has $80 in his pocket, make your first net worth statement this year and I promise your future self won't regret it.

I can, I can talk especially to everyone who is out there who is worried that their net worth might be negative right now because I have I mean, it's a scary thing and you feel like if you do this exercise of using the net worth tool, it's going to be a little sad to see maybe even further back than you think and look I have a confession here because this all goes into the extreme power of activating the invisible hand when I started my first company I went to conferences because let's face it, when you don't know what You're making it feel like we're busy doing nothing, let's just move on. to conferences and learn learn learn and surely someone will have the solution and here is a case where they actually shared a solution but I just didn't want to listen to it and that is what I feel we are doing with this network The tool that is worth it today in day is that I went to conferences and, I'm not kidding, every year they would have the talk, you know, you see the same speakers and they tell you look, if you are going to be a successful business owner, write down who your ideal client is and then I want you to do even better than I want you to take that ideal customer, compare them to your actual existing customers and rate them as customers that you really hope to attract in the future b customers who are good customers and then you have c customers or clients which are fine, but you know you just have to be careful about overloading your book with c clients because they may not fit everything perfectly, so I heard this and went to joke.

No, this was probably four years, five years and I'm like these guys, I don't have time and at the time I was just saying I didn't have time, the reality is I was afraid to see what the reality of my situation was. It's, but you know what, after five or six years of this, I said: I'm going to do this exercise. I'm going to prove that this is not what they say it will do, so I signed up my ideal client. I recorded whether my clients were clients a b or c and this is what I realized guys seventy percent of my clients were in that column c and just between clients b and a it was 30 yeah and that was disappointing so I do the exercise .

Fast forward 24 months into the future and I look at my clients again this is the part I'm talking about invisible hand has flipped now I have 70 of my clients are in column a and b and only 30 aren't because we went out and started, I didn't I did, I don't fire clients, no one who knows the way the wealth abounds in how we do things, we don't fire clients, it's just that we grew in a way that we woke up, we activate that invisible hand as far as I can. I won't tell you what changed, but we started attracting the right kind of clients, we started doing the right kind of things in the business, we grew, and exactly the same thing happens with net worth statements.

I've been tracking my net worth statement since 2006. And it was a lot of fun for me to use this networking tool and enter all those acts that you know every year into the system and see how it activates over the years, changes lives and That's why don't listen to this and be afraid. your negative net worth or your low net worth and say I'm just not going to do this. Get excited because today is the day you really start building your wealth journey and this is what we've done: We're making available to you the exact template that we used and I think this is probably my favorite part of the template: the dashboard , because this panel will put in front of you each year the things you need to focus on and the things you need to be on first.

What is my net worth over time? How are my assets growing? How are my liabilities decreasing? What is happening to my liquid assets? Liquid assets. Where am I on my journey to abundance? What is my money accumulator score? and then what is my army of dollar bills doing? How powerful, how powerful is my army of dollar bills. The amazing thing is that when you start tracking your net worth the first year, it may not be incredibly exciting, you may be negative, it's just one, but in the second you're going to see some progress you're going to say oh wow cow holy that and then the third year and the fourth year and in no time you will have 10 years of data here you will be a sacred cow how did I get here?

I went from where I was then when I didn't know what I was doing to where I am now and will this remind you every year why you're making the decisions you're making and why? This may be perhaps the most powerful tool in your entire financial arsenal. I think it's amazing because if you do this exercise and we have a case study on the visual screen, but for all my podcast listeners and others, Look, yes, there will be years like this case where this person lost their job around 2014 and you'll see that net worth and other things took a hit during that period, but then there are other periods where net worth skyrocketed. 50 percent because maybe you got a combination of you saved a lot and you invested very well, the investment market recovered very well, you can visually see and experience every part of that, that's what will change your life and would really encourage you.

You take advantage of this because it's not just the CPA in me, it's the part of me that gets very sentimental about the trip because the older you get, I tell you this as a person who is approaching. when I was 50 I started this in 2006 by tracking my net worth yearly. I wish I had started the year I graduated college. That's what I wish I had done. I missed it by about 10 years. We went to the office and asked everyone. Are our advisors making statements online? The answer is yes, which was surprising to me, even though I was talking to some of our primaries.

We have advisors in this building who started the year after I graduated from college. I'm so jealous they did it. that even for me as a financial mutant it took me to start 10 years after graduating, do better, you can use this tool, you can see it visually, it will awaken that invisible hand in your brain and this is what will create wealth, so if you want to use this tool if you want to access it, go to learn.moneyguy.com. We make it available for 29 and it's not like 29 every year or 29 monthly for a 129 investment, you can have this template that you can take and use it and you can build year after year to see your financial journey grow and I think you'll look back one three five in ten years and you'll be like holy cow I can't believe it's come this far yeah the price is one of those things we did on purpose this was one of those where I want everyone who uses it get compensation to finish the exercise, but I actually got it for 29.

I can't believe how affordable it is regarding what we talked about. The cycle of abundance on this show all the time is I want to come give you free information. I want to give you very affordable tools, whether it's free on moneyguy.com resources, whether you know affordable tools like the foo course or even this one. net worth tool, go to learn.moneyguy.com, that's all part of the cycles of abundance, you will learn, apply, grow and achieve a level of success that we call the cycle of abundance. I can remember who planted all these seeds, all these tools, we don't ask for anything in return until the fact that when you achieve that success you will take the relationship to the next level.

I love it because it is a proposal in which we all win. investing in you because we know this is good enough, you will be successful if you just follow the steps and if you really do the exercise and the homework of using the tools that we have created for you. I'm your host, Brian Preston, Mr. bo hansen money has team learn apply grow abundance