Are You Playing the Net Worth Game?

monopolyToo many people are playing the wrong game with money.

I have devoted my career to helping home buyers and homeowners make smarter financial decisions to achieve their short and long-term goals.  I’ve become a student of cash flow and liability (a.k.a. debt) management so I can be a more valuable resource to our clients.  If someone was to ask me what the biggest mistake most people make throughout their lives as it relates to money, I would answer, “They aren’t playing the right game.”

Here are some examples of the wrong games that too many people are playing:

  • The debt-free game
  • The increasing income game
  • The low interest rate game
  • The savings game

It’s not that the above examples aren’t important.  They absolutely are.  But they are components of the bigger game we must play with money…net worth.

net worth

Net Worth = Assets – Liabilities

Put simply, let’s say your assets (savings, checking, retirement, home value, autos, etc.) add up to $500,000.  Assume your debts (student loans, credit cards, mortgage, auto loans, etc.) add up to $400,000.  Your net worth would be $100,000.  Most people understand this concept and math pretty easily, even if they don’t always understand how to play the game.

Why Net Worth as the Focus?        

Generally speaking, a positive net worth gives you options.  Making decisions that always work to increase your net worth over time will lead to more options and freedom with your money in the future.  This could mean the financial freedom to change careers to something you enjoy, help your children get through college without being burdened with an avalanche of student loans, or a parent able to stay home with a new child.

So how do we make sure we are playing the proper game, and focusing on increasing our net worth overtime?

One of the first things I help most people begin to understand is how their weekly or monthly decisions with money impact their overall net worth (or possibly don’t).   By learning key fundamentals around personal finance, everyone can learn to adjust their focus to decisions that improve their net worth.

Imagine you are preparing to buy a new home and you have $100,000 in your bank account from the sale of your previous home.  Here’s a question:

Does your net worth change depending on how much of that you decide to use for the down payment on the new house?

Think about it.  You already have the $100,000 as an asset.  If you shift all $100,000 over into your new home, you now have $100,000 of a different asset called “Home Equity”.  At the same time, you no longer have that $100,000 in your checking account.  This is called a “net-worth neutral move”.  Often the new homebuyer is so focused on having less mortgage debt that they don’t realize they are also reducing an asset they already had…their checking account.

This is just one example of helping homeowners get really clear on how we make smarter decisions with their cash and cash flow as it relates to buying and owning real estate.  By no means does it mean someone shouldn’t put all $100,000 down on the house.  Rather, we run this decision through more “filters” to make sure it’s the smartest thing to do, given their other financial goals and fears.

Much more to come on this, as there is a lot to this topic that we can help with!  Please share any questions you have, or contact someone on our team for any specific advice.

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About Trevor Hammond

As a veteran of the mortgage industry, Trevor Hammond is the co-author of "Borrow Smart, Retire Rich," a Certified Mortgage Adviser and a founding Faculty Member and Contributor to the National Institute of Financial Education (www.niofe.org). And he has provided thousands of homeowners with the clarity and confidence to make smarter decisions when it comes to their mortgages and money. In 2013 he launched an entirely new kind of mortgage company: Aspire Mortgage Group, which is committed to educating and empowering homeowners to increase savings, eliminate bad debt, and safely increase net worth. The specialized group of mortgage professionals at Aspire Mortgage Group have redefined what homeowners should expect from a mortgage company. To learn more about Trevor Hammond and our team of mortgage advisors please visit our website at www.aspiremortgagegroup.com or email Trevor directly: trevor.hammond@sierrapacificmortgage.com. Aspire Mortgage is a Sierra Pacific Mortgage Partner.
This entry was posted in Blind Spot 1: Developing a Plan, Blind Spot 2: Increasing Fiscal Literacy, Blind Spot 3: Storing Money Efficiently, Uncategorized and tagged , , , , , , , , , , , , . Bookmark the permalink.

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