How to Achieve Proper Financial Management?
Personal Finance is about both:
a. Managing outflow (expenses) while Growing what you have (investing), AND
b. Protecting that income from things like inflation and emergencies
Remember, it is a combination of efforts.
How do you start your Journey
1. Start setting financial goals to give clarity on how to move forward
2. Know your Net Worth
What is Net Worth?
- Your net worth can be an extremely useful tool in measuring your status and overall financial progress from year to year.
This means that even if you are getting a high salary every month yet your liabilities are higher than your assets, you are BROKE.
Net Worth Formula:
Assets (what you own) - Liabilities (what you owe) / Net Worth
Assets include cash, investments, real estate, and other properties, vehicles, retirement savings, and valuables that have significant worth.
Liabilities include mortgages, personal loans, credit card debt, car payments, or any other debt you might have.
How to Calculate your Net Worth?
Step 1. List your assets (what you own), estimate the value of each, and add up the total. include the ff:
- Money in your bank accounts
- Value of your investment accounts
- Receivables
- Time deposits
- Car
- Real Properties ( Land, Condo, Etc.)
- Business Interests
- Personal properties such as jewelry, art, and collectibles
- Insurance policy
Step 2. List your liabilities (what you owe) and get the outstanding balances, include the ff:
- Mortgage
- Car loan
- Credit card balance
- Personal Loans
- Loans to other people
Step 3. Subtract your liabilities from your assets to determine your personal net worth.
So if you have assets worth P150,000 and your Liabilities sum up to P150,000 as well, then you have a Net Worth of P0.00.
If you have assets worth P150,000 and your Liabilities sum up to P200,000, then you have a Net Worth of -P50,000.00.
Yes, you can definitely have a negative net worth.
If you have a POSITIVE NET WORTH...
Every financial move you make should be aimed at increasing your net worth. This means either increasing your assets or decreasing your liabilities.
If you have a NEGATIVE NET WORTH... it's alright!
What does it mean when I have a negative Net worth?
- You haven’t earned or invested enough money yet to overcome the weight of your loans/debts.
- Can also be due to overborrowing. If you’ve racked up huge credit card bills, and are not paying them religiously, this creates a large number in the liabilities column.
- You should increase your assets to offset your liabilities to come out with a positive Net Worth.
Several Ways to Increase Your Net Worth
1. Save More Money
2. Ask for a Raise/Promotion
3. Get a Side Hustle
4. Get Out of Debt
5. Invest in Stocks
6. Invest in Mutual Funds and UITF
7. Invest in Index Funds
8. Invest in Bonds
9. Consider Minimalist Living
10. Buy Insurance
11. Run a Franchise Business
12. Run an online business
13. Get Cash Flow from Passive Income