The Dowager Countess of Grantham, the Patriarch in the hit PBS show, Downton Abbey is vehemently against “technology” and all things new.
Not me. I am a big advocate of using technology, but I think it can often be overused. The use of eMoney and MoneyGuidePro is becoming more pronounced. Here is one suggestion to help you be a little more like Violet, the Dowager Countess of Grantham: create a personal balance sheet for yourself and for your clients.
You can do this with a paper and pen, or just use a spreadsheet. It is quick to implement and update with clients on a regular basis. Using a personal balance sheet enables you to become more aware of your client’s net worth and what impacts it.
I use a personal balance sheet to monitor where I am going. I often think of increasing my wealth by adding more assets. I (and you) can do that in two ways: save more money from my income or invest in items that increase in value.
Reduce Your Debt to Increase Your Assets
But, there is actually a third way: pay off debt. Paying off debt has two positives. It reduces the led weight that is dragging down your net worth, and second, it reduces the interest payment you have to pay each month, allowing you to save more in order to help increase your assets.
As a sales trainer for financial advisors, I am a big proponent of helping clients determine their net worth, which is calculated by subtracting your liabilities from your assets. Basically your net worth is how much you own minus how much you owe.
Liabilities include what you owe on a credit card, your loan on an automobile, a college loan and your mortgage.
Your assets are broken down into current assets, long-term securities (retirement accounts), real estate, personal business (if you are a business owner or entrepreneur) and personal property (jewelry, art, and cars).
I recommend updating your personal balance sheet once a year. When I update the sheet, I track two things: net worth and assets growth. Net worth is the difference that is found when subtracting liabilities from assets. If this is growing, my wealth is growing.
The second item is the value of assets. This shows if what I am investing in is growing. Tracking these two things over time provides you with a picture of where you are and where you are going.
Updating Your Personal Balance Sheet to Assess Current Financial Situation
I only recommend updating your personal balance sheet annually, or when assessing a decision about a big investment or paying off debt. Otherwise, you get caught up and concerned about your wealth going higher or lower.
What you will have to do is collect year-end statements for all the items you own. The personal property might be difficult as you will have to create a guestimate for the value of the cars, jewelry and art. Second, to value your property, you can use websites like Zillow.com. But be careful, as the more unique or out of the way your home is, the less likely Zillow is to accurately assess your home value.
Below I will provide a simple sheet you can use. I have included the specific items under each category. However, if you have several savings accounts, or have an IRA, ROTH and or 401k, you should list these out separately and total the entire category.
Once you complete your personal balance sheet, you will have an accurate depiction of your financial situation. My next article discusses how your net worth is likely to change in your 20s, 30s, 40s, 50s, 60s, 70s, and 80s and how you can keep track of it using the personal balance sheet.
Once you do this for yourself, you should also do this for your clients. Tracking your client’s net worth is helpful and easy to do. You will also gain satisfaction in knowing you are helping your clients reach their goals.