Financial Planning

By Reneili Choy

The truth is that understanding and applying financial planning to your life is crucial for your mental, financial, and emotional well-being.

The answer to this problem is simple. You need the right training and solid information that applies to Your daily lives.
And that's why today I suggest to you, this awesome eBook. Information containing something incredible for the quality you will find on the inside.

• Language: English
• Publisher: BookBaby
• Release date: Feb 28, 2022
• ISBN: 9781667829579

Book preview

1 THE BASICS

Simplified: A Step-By-Step Method to Calculate Your Net Worth

Knowing your net worth is the first step towards becoming financially healthy. You cannot guesstimate this process or just have a ‘feel’ for it.

You’ll actually need to do the numbers here. So often, people avoid finding out their net worth because they fear knowing where they stand or it just seems like a monumental task.

In reality, it’s quite easy and straightforward. In this article, you’ll discover how to calculate your net worth in 3 short steps.

But first, you must know the difference between assets and liabilities…

What’s the difference?

In its simplest terms, an asset is something that generates an income for you, or it has the potential to generate income.

Liabilities are financial obligations. It’s everything you owe such as your car payments, credit card debt and so on.

Here’s a quick list of assets and liabilities:

Assets

Life insurance

Cash on hand

House and/or rental property

Land

Gold

Individual Retirement Accounts (IRAs)

Savings bonds

Stocks and/or mutual funds

Possessions you can sell

Vehicles (car, boat, RVs, etc)

Liabilities

Loans (student loans, lines of credit, home equity loans)

Credit card balances

Mortgages

Student loans

Taxes

Child support

Alimony

Any bills, etc. that you OWE

Calculating your net worth

Now that you understand what assets and liabilities are, it’s time to begin.

Step #1

Grab a piece of paper and draw a line down the center dividing it into 2 columns. In the left column, write down the cash value of ALL your assets.

Don’t be too concerned if it’s paid in full or not. Just write down the cash value. For example, if you can sell your car for $17K, this is an asset with a value of 17K. It doesn’t matter if you still need to pay 9K to own it fully. Just write 17K in the left column.

Do this for ALL your assets. What could you sell your home for? What’s the cash value of your life insurance policy?

Do note: if you have stocks, bonds, etc. you’ll look at the current value of the assets and NOT the value at maturity.

Step #2

Now you’ll repeat the process in the right column, but you’ll write down all the liabilities you have.

Remember the earlier example of the car?

Now you’d write down, Car 9K … because you still owe 9K on it. The same applies to all other liabilities.

If you still owe 70K on your home, this too will go in the right column, even if you wrote Home 400K in the left asset column earlier.

Step #3

So this is where we stand. All your assets are listed on the left and each has a number to it… and all your liabilities are on the right, and those have numbers too.

In step #3, we’ll total up all the numbers in the left column. Write the sum total at the bottom of the column.

Do the same thing for the numbers in the right column. This will give you the total of your liabilities.

Now, subtract your liabilities from your assets. This is your net worth!

For example, if your assets totalled $520K and your liabilities totalled $310K…

520 – 310 = 210

Your net worth is 210K. That’s quite good.

However, many people may discover that their liabilities exceed their assets.

For example, if their assets are at 150K, but their liabilities are at 320K…

150 – 320 = -170

That means they have a negative net worth: -170K

This is nothing to panic about if a huge chunk of what you owe is for big purchases such as a house, car, etc.

However, if your liabilities are comprised of ‘bad debt’ such as credit card bills, student loans, etc. you’ll definitely want to create a financial plan to pay off the debt as soon as possible.

The goal is to always reach a positive net worth and increase it as much as you can. In this way, you’ll achieve financial independence and be able to retire comfortably.

But it all starts from knowing where you stand now. So, calculate your net worth and write it down. Once you have a number, you can create a financial plan based on it.

"Make it a policy to know your net worth to the penny". T. Harv Eker

Understanding the Different Types of Income Streams

There are several different types of income, and tapping into the power of these different income streams will not only increase your wealth but will also secure your financial future effectively.

Ultimately, to reduce debt faster, it’s best to earn more. If you wish to make sizeable profits in the stock market, you’ll need more capital. There’s a certain degree of truth to the maxim, Money makes money.

In this article, we’ll look at different types of income and you can decide for yourself which one you should start focusing on.

1. Earned Income

This is the money you earn from working a job. It’s also known as active income. The more sought after you are in the marketplace, the higher your salary will be.

This is why neurosurgeons earn much more than bus drivers. They have a much higher skillset.

It’s important to know that while earned income is good, you’ll still be trading hours for dollars. Since there’s only 24 hours in a day, you’ll hit an invisible income ceiling because of this limitation.

Like Warren Buffet said, if you don’t find a way to make money while you sleep, you will work until you die.

2. Interest Income

This is the income you earn from lending money. For example, when you deposit your money into a bank, you’re actually ‘lending’ it to them. The bank puts your money to many uses such as offering loans and so on.

Because of this, you’re paid interest on your money. That said, the interest rates in savings accounts, etc. are ridiculously low these days. So, your money may be better invested elsewhere.

However, having about 6 months of expenses saved up in a bank account can be very handy in an emergency. There’s nothing quite as liquid as cash in a bank.

3. Profit Income

This is probably the most lucrative type of income stream, if you can do it right. Profit income is income derived from producing and selling… or from buying and selling.

For example, if you mass produce attractive mobile phone covers cheaply and sell thousands of units at a 200% profit markup, you will make a decent profit.

You could keep doing this as long as there’s a demand for your product… and you could actually do it while having another job (earned income). This will give you an idea of why having a side income can create wealth.

Another example of profit income is buying and flipping houses. If you have a keen eye for real estate and the funds to pay and hold on to the property until you find the right buyer, you could rake in thousands of dollars by selling the houses at a higher price than you bought them.

4. Rental Income

This is pretty straightforward. If you own a second home, you can rent it out and make rental income. All too often, people only think of houses when talking about rent.

However, construction machinery is rented out too. So are sound systems, jukeboxes, arcade games, pool tables, etc. There’s a ton of items that businesses rent out.

Once you own the property, it’s just a matter of finding customers who would rather rent than fork out a considerable sum to buy these products.

For example, construction firms pay up to $3000 a day to rent a large excavator. They’re still willing to rent it daily for a week or so, rather than paying $100,000-$500,000 for a new excavator.

5. Capital Gains Income (also known as portfolio income)

This is income that’s derived from assets which increase in value. For example, investments which appreciate in value upon maturity.

Investing in stocks which increase in value, investing in peer-to-peer loans, etc. are all examples of capital gains income.

6. Royalty Income (also known as passive income)

This is a difficult income stream to create, but definitely worth striving for.

An example of royalty income would be writing a book and publishing it on the Kindle marketplace or with a traditional publisher. As long as people are buying your books, you’ll get a percentage of the sale.

So you’re working once and getting paid over and over again. This is why bestselling authors make millions. They have several books on the market and each is an income generating vehicle.

The same principle applies to music, movies and so on. Artistes (if it’s in their contract) earn residual income for as long as people are still consuming the content.

These 6 income streams are the most common ones out there. If you focused on just 2-3 of these income streams and gave it your best effort, you could be making a 6-7 figure income in just a couple of years.

Always remember, financial planning becomes much easier when you’re making more money than you can spend. The best way to do that will be to do more than just rely on earned income.

Invest in yourself and learn what you need to… and focus on creating a new income stream. When that works, scale it up and start working on the next one. With time, you’ll be financially independent and in the top 1% of earners in your country.

Benefits of Having a Budget

If you’re in debt or you have no idea where your money is going every month, you definitely need a budget. In fact, when it comes to personal finance, a budget is the most basic and effective tool that you must have in your arsenal – and you must use it.

Many people look at a budget as something ‘restrictive’. They feel that it doesn’t allow them to live their full life in a spontaneous manner. Very often, they end up broke and mired in debt.

The good news is that a budget gives you freedom. After all, you’re the one creating it… and with the right planning and execution, you can come out of debt, save up a nest egg and still have money to enjoy life. It may take a bit of time, but you’ll get there.

Now let’s look at a few other benefits of having a budget…

It relieves financial anxiety

When you’re in debt and you have bills and numbers rolling around in your head constantly, it’s easy to get overwhelmed. The best way to overcome this problem will be to write down all the details down to the last penny on a piece of paper.

Now you have exact numbers to look at. You’ll know which credit cards have the highest interest rates, which one has the highest outstanding balance and so on.

You can now create a budget based on your current income and see how to pay up your debt while still saving a small portion of your income. It’s imperative that you rectify your dire finances with a budget.

It prevents financial stagnancy

If you’ve been in debt for ages and just seem to get by from month to month by paying the minimum amount on your bills but you’re not progressing, a budget will show you what you need to do.

The same applies for saving your money. If you have no money to save at the end of each month, a budget will show you where you’re leaking money and you can trim some expenses so that you have funds to save.

It allocates your resources effectively

Too often, people focus more on settling debt and paying up bills than saving for themselves. While you’ll need to pay off the debt and bills, a budget will show you how to save anywhere from $25 to $50 extra.

For example, that might mean paying more than the minimum sum for just one