If You Can Answer Yes to These 4 Questions; You Will Grow Your Net Worth! (Part 2)

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This article is the second part of a two part series, discussing 4 characteristics that accumulators of wealth share.

The first part of this series explored why it is necessary to know how much you spend on shelter, clothing and food (in other words basics) every year. Knowing this will allow you to control your consumption rather than letting consumption control you! This post explores three more characteristics that high accumulators of wealth share. If you wish to grow your net worth/ wealth and retain it, you must be able to answer YES to these questions:

 Question 2: Do you operate on an annual budget?

Allocating your expected future earnings to different consumption and savings and/or investment categories for the year is important so that you’re able to cope with any unexpected situations, and also live comfortably.

A lot of people see budgets as restricting, and therefore a bad thing. However, a budget actually gives you freedom because it tells you all things that you can actually do with your money. Personally, creating and (somewhat) sticking to my budget gives me peace of mind, as it means I won’t have some month left at the end of my money, in other words, I don’t run out of money before the end of the month. It also allows me to pursue a lifestyle I like and can afford.

By budgeting for my travel and reducing the amount of money I spend on clothes and shoes; I am able to do something that means more to me: see the world. Budgeting means that I get to go away for summer with my friends, rather than sit in my room, sighing and staring at my friends’ Instagram pictures of them sipping on daiquiris on a beach in Thailand.

Equally important, budgeting allows you to allocate a percentage of your income towards retirement and other financial goals (e.g. paying off student debt; building an emergency fund etc.)

If your answer is NOT yes:

Just imagine never being able to retire – If this doesn’t motivate you to start budgeting then I don’t know what will. If you do not know where to start; check out my post on how to Build A Budget That Works [With Free Budget Template]

 Question 3: Do you have clearly defined daily, weekly, monthly, annual, and life-time goals?

The goals you set for yourself guide the choices/ decisions you make today. For example, if your goal is to have a net worth of $500,000 in three years. You will plan accordingly and make the necessary sacrifices. For example, you will be motivated to use your time wisely and start up a side business and maintain multiple streams of income, rather than depending solely on your 9 to 5 job. You might decide to live with roommates and pay $400 rent rather than live alone and pay $1,200 in rent and you might decide to use public transport/ a bicycle rather than buy a car.

However, if your goal is simply to appear wealthy you will be motivated to involve in conspicuous consumption, which only destroys your net worth! Ultimately, the goals you set for yourself affect your financial habits today.

If your answer is NOT yes:

You need to set some goals and achieve them! If you’re unsure about where to start the easiest way is to think about what kind of person you want to be and work towards that each day and make daily choices/ decisions that will allow you be that person you envision. Here are some goals I set for myself and a 2016 goal worksheet to help you get started!

Question 4: Do you spend a lot of time planning your financial future?

Do you consider yourself a planner? Most millionaires consider themselves as planners, who spend a lot of time planning for their financial future. By planning, I mean studying and figuring out investment decisions to take, and managing your current investments. Some planning activities include making detailed savings and investment plans; researching companies, industries, and financial instruments to invest in; taking time to build an effective portfolio; and rebalancing your portfolio. It could also mean talking to a financial adviser to help you figure this out.

If your answer is NOT yes:

Consider dedicating an hour per month towards planning your financial future as a start, as time goes on you can put in more and more time. To make this process simpler, use tools like Microsoft Excel which makes it easy for you to measure your progress. If this number’s life didn’t choose you, then you can get a financial adviser to help with this (but remember, qualified people don’t come cheap).

 

 

 

Written By

Chinazom graduated with a Bachelor of Commerce in Accounting with Distinction in 2015. She works as an auditor at a Big 4 accounting firm in Toronto, Canada. She has passed her CFA Level 1 exam and is currently in training to become a CPA (Chartered Professional Accountant) in Canada. She loves to volunteer and she is currently the Human Resources Chair of the United Nations Association in Canada - Toronto Branch. She is currently on a journey to financial independence and hopes she can inspire young people to achieve their financial goals.

2 Comments

  • This is really great stuff! Wanted to add that another thing that could be helpful for our generation since we’re always on our phones is to use personal finance apps like Mint to monitor spending and help stick to budgets. I have an Excel template I set up, but I can be bad at constantly going back to record as I spend. With Mint, since it’s connected to your card and account it records it and shows how much you have left of your monthly budget for food, for example. It’s been helpful for me, so I just thought I’d share. Keep it up!

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