Finance for Women
Module 2: Where are you now?

Welcome back to Module two of Finance for Women.

This week we are getting down to numbers. But don’t panic – that’s not going to be as scary as it sounds, and we’ll make it as easy as possible.

Part One

By now you have had a chance to explore yourself a little more financially. You have probably caught yourself this week thinking about money in ways that you didn’t realize had become a habit. And you have probably been getting clearer about your attitude towards money and what that is creating in your financial life.

Well done! Awareness is your first tool.

Remember that this is a six-week programme so be kind to yourself in the early weeks. You are changing the habits of 20, or 30 or more years. Allow yourself little baby steps and treat yourself gently as you progress.

Once you have cleansed, keeping the skin supple and firm is important. And so is conditioning your new awareness. You’re off to a good start. The key to a new attitude is to is to remind yourself of it until it becomes a habit. And to add layers of information to support your new awareness.

In this module we are going to get into the subject of what you are worth. Priceless is the word that springs to mind. Nevertheless, it seems we don’t have a good measure of how we are doing. If I ask you how much you think your neighbour is worth, how would you work it out? You could look at the things he owns, but then you don’t know how much of it is paid for? You might know how much she earns. But then you may not know how much of what she earns she keeps.

You see we are conditioned in our culture to measure our financial progress by false indicators, by material goods , work promotions, job categories etc. The only true measure of financial progress is your “net worth”.

What that means is that you will add up what you own, subtract what you owe and the result is your “Net Worth.”

Now don’t panic!

In the world of finance, someone just went out and gave things a lot of complicated sounding names and complex looking rules for using them but once you know what they are it’s simple.

Part Two

What are you worth?

In financial terms this exercise is about establishing your “Net Worth.” What that means is that you will add up what you own, subtract what you owe and the result is your “Net Worth.”

Take my hand and I’ll walk you through it.

In the next few parts of this course, I have given you easy to follow instructions on how to complete this first exercise. I recommend you take a moment and read all the way to the end to get an overview before beginning back here with item number 1.

The entire exercise should take you less than 2 hours in total during the next week although you may have to take some time in between the beginning and the finish for some of your questions to be answered. You need to pick one day (today sounds good) and add up everything you own and everything you owe on that day.

Round off numbers to the nearest £. Estimate conservatively.

If you are not sure of a value, make a good guess. Getting the picture 90% correct and finished is better than aiming for 100% accurate and never getting there.

Part Three

Your Assets (everything you own)

In your notebook on a new page write “Assets” across the top and underneath list the following headings shown in Italics in the following order.

1. Investment in Real Estate
(Do not include your home). Write the current market value of any real estate you own. If you own more than one piece of real estate list them separately and their value.

2. Investment in Business
Write the current market value.

3. Partnerships
Write the current market value of any investment you have in partnership with someone else.

4. Art, Collectibles, Autos etc.
Write the current market value of any collectible items you own.

Now add 1-4 together and that total is your “Illiquid Assets.”

What that tells you is the total value of the things you own that would take some time to sell and turn into hard cash if you wanted to.

Draw a line under this total and call it Total A

Leave a line and continue with:

5. Monies owed to you
(Also known as Debtors or accounts receivable). List the people who owe you money and how much they owe.

6. Pension Plan
Write down the current surrender value. If you don’t know this, just call up your pension company and ask them for the surrender value. It may be zero.

7. Life Insurance
Write down the current surrender value. Again, if you don’t know the answer, call up your insurance company and ask them for the surrender value. It may be zero

8. Stocks, Bonds
Write down the current value of any stocks or bonds that you own. If you do not know, call up your broker and ask them for the current value of your account.

Now add 5-8 together and that total is your “Liquid Assets“.

What that tells you is the total value of things you own that are easily sold and converted into cash if you need them.

Draw a line under this total and call it Total B

Next:

9. Cash
Count all the cash you have in your pockets, purse and piggy banks and write down the total.

10. Cash Equivalents
This is money in bank accounts, credit unions, money market accounts, the Post Office and so on. Write down all the money you have in all your accounts.

Now add 9-10 together and your total is your “Capital currently Available (uninvested)“.

What that tells you is the amount of money that you have in cash or an easily accessible account that you could use easily.

Draw a line under this total and call it Total C

11. Your principal residence
Write the current market value of your home.

12. Personal property
Write a list of the things you own such as jewellery, furnishings, cars etc and estimate what you would receive for them if you had to sell them today.

And finally for this part, add Total A + Total B + Total C, together with the answer from numbers 11 and 12 and that total is your “Total Assets“.

What this tells you is the value of everything you own if you had to sell it all today.

Draw a line under this value and call it Total X

But of course even if you sold everything you had today and had the money in your pocket, before you could go on a spending spree, you would have to pay anyone you owed money to first.

So let’s find out about the money you owe.

Part Four

Your Liabilities (everything you owe)

In your notebook on another new page write “Liabilities” across the top and underneath list the following headings shown in Italics in the following order.

13. Accounts Payable
This refers to bills such as for electricity or telephone, which you have received but have not yet paid. List them and their value.

14. Business Loan.
Write down any monies that you may have been loaned to put into a business.

15. Credit card balances
List your credit cards and their balances.

16. Lines of Credit
This includes hire purchase or lease agreements such as for a car and shop credit like store cards. List them and how much you owe to each one.

17. Mortgage
Write the amount outstanding on your mortgage today.

Now add 13-17 together and your total is your “Current Liabilities”

What that tells you is the amount of money that you owe if you had to pay everything you owe today.

Draw a line under this total and call it Total Y

Next, one last calculation and you are done.

Part Five

Your Net Worth

Take your total Assets (Total X) and subtract your total Liabilities (Total Y) to give you your “Net Worth“.

When you take your liabilities from your assets, this tells you the amount of money you are worth today. If you were to sell everything you own, pay all your debts and walk away with all you possess in your pockets, it would be this amount.

That’s all there is to it, so go back now to the start of this Net Worth exercise and strut your stuff.

Flex those financial muscles.

Focus on one item at a time. When you don’t know the answer, pick up the phone and ask the person who does. It’s your money and you have the right to clear explicit information, in a language you understand. Keep asking, until you get the answer you can use.

Don’t be put off by financial jargon. Take charge, it’s your business.

About Your Net Worth

Calculating your Net Worth is like taking a photograph. It stands still in time. And the powerful thing about knowing this is that you can see from photo to photo what has changed. A bit like playing spot the difference, you can see if something has been added or taken away from one photo to the next.

Of course you want to see things added in so you can see you are moving forward financially.

Net Worth is best calculated at least annually. However, in the beginning of learning about your finances and when you are making major decisions I recommend redoing it as often as every 6 months or even quarterly.

By the way, you might like to know that right now, sitting there with your Net Worth value in front of you, you are the proud owner of something that only 5% of the population have; the financially secure 5%.

And more importantly, you have struck a stake in the ground that marks the date and the spot where you committed to your financial future.

Go buy yourself some flowers and enjoy your accomplishment!

Action!

Actions of the Week

You’ve already done a lot in this module, but you go through the rest of your week this week and catch yourself thinking in financial moments, question your thinking.

  • Where did you learn what you know about money and are the people that taught you financially happy?
  • What did your mother teach you about money?
  • What did your father teach you about money?
  • What did you learn at school about money?
  • Did anyone ever teach you how to manage your money?
  • What patterns do you have around money that get you in trouble?
  • What do you believe about yourself and money?

Every time you find yourself doing something with money, STOP! ….and ask yourself if you are doing it because you really think it is a good idea, or if it just something you have always done, or is it something you picked up unconsciously from your parents/school/friends.

See you in module three when we’ll be having some fun learning about spending money!