Top 5 Financially Fab Essentials
- Know your credit score—the bank does, you should too!
- Track down your cash
- Knock out fees
- Save!
- KISS – Keep It Simple, Stupid
This is the 2nd in a 5-post series on the Top 5 Financially Fab Essentials. In the last post, I wrote about how your credit score is revealing, like your weight–not the weight on your driver’s license–your real weight.
This week’s focus is tracking down your money. An initial step to being Financially Fab is knowing what you’ve got (your net worth), which includes how much money you have (assets) and how much you owe other people (liabilities). Your current net worth is the starting point for your upcoming Financially Fab goals!
For most people, it’s pretty simple to find their net worth. Check out the steps below. If you want, I can send you an Excel template with instructions and pre-filled information.
1. What are your assets?
- The first step to figuring out your net worth is listing your asset accounts and their values. It may sound complicated, but it’s simple. And when I use a financial term in this post, I’ll highlight the definition in blue.
- Assets are accounts that hold cash or make you money. That includes checking, savings, CDs, 401K, IRA, and non-retirement brokerage accounts. Also, don’t forget accounts that you haven’t touched in a while. (Old money is still good money!)
- As an example, check out my friend Jessica’s assets below (name changed) after she finished the process.
Jessica’s Assets
| Asset Types | Current or Average Balance | Fees | Interest Rate |
| Checking | $6,000 | $15 monthly maintenance fee $180 – thrown away yearly to the bank | 0% |
| Savings | No savings account | None – $847 in interest lost by keeping $5,500 in checking instead of a savings account |
No savings account |
| 401K | $ 300 | None | To be discussed in week 4 |
| CD | $ 500 | None | .7% |
| Total Assets | $6,800 |
2. What does it cost to access your OWN money?
- Next, list the fees and other costs that the account holder (usually the bank or credit card company) charges you to maintain or access the account. Identifying the fees is the first step to knocking them out. You shouldn’t pay to access your own cash. It’s already your money.
- Also, when banks hold money in a checking or savings accounts, they loan that cash to other people who pay interest on the loan. They’re already making interest on your cash.
- Sometimes, but not always, banks list your fees in the monthly statement or online banking website. Usually, asking customer service is the easiest way to learn about your fees. No worries, they’re used to answering these type of questions.
3. What are you making on your money?
- Now, it’s time to list the interest rates you’re making on your liquid assets. (Nope, the assets aren’t wet. Corny joke, I know.) Liquid assets are accounts or securities that can be easily converted to cash at little or no loss of value. In laymen’s terms, if you wanted to sell the account to someone else, would you have to sell it for less than the account value? If the answer is no, then it’s a liquid asset. Examples include savings, checking, and Money Market Accounts (MMAs) accounts as well as CDs. Check out Jessica’s interest rates to see how to add rates to your own chart.
4. What do ya owe?
- This step is all about liabilities. A liability is something that loses you money or causes you to owe someone else money. Examples include credit cards, loans, and home equity lines of credit.
- List the total owed for each account. For loans, that’s the total amount remaining on the loan. For credit cards, you can use the 6-month average credit card balance. Now who knows that offhand? Almost nobody. I recommend calling customer service to find out. Don’t work any harder than you need to. 😉
- Also, list the past due amount for each liability. The past due amounts on credit cards are charges from earlier months that haven’t been paid off completely. Again, you want a 6-month average. For loans, the past due amount is the total of all missed payments that are still unpaid.
- Next, list the credit limit or monthly loan payment, fees for the account, and interest rates. See Jessica’s liabilities as an example.
Jessica’s Liabilities
| Liability Types | Amounts Owned | Past due Amount | Credit Limit / Monthly loan payment | Fee | Interest Rate |
| Credit Card – A | $1,300 | $300 | $6,000 | $9 | 15% |
| Credit Card – B | $ 500 | $0 | $5,000 | None | 17% |
| Student Loan | $8,063 | $0 | $ 64 | None | 3.7% |
| Total Liabilities | $9,863 | $300 | $8,000 | $9 |
5. Net worth
- Now, it’s net worth time! Many recent college grads have a negative or small positive net worth. That’s fine. College is a great investment that usually pays off in the long-run. Also, most student loans have the lowest interest rates around. Student loans should only be a concern if the monthly payments are a large chunk of your salary. Otherwise, no worries. I recommend checking out your net worth with and without student loans to see what the difference is.
- Jessica’s net worth (listed below) is negative. Not a big deal because she’s a recent college grad with little consumer debt. Consumer debt is debt used to fund consumption instead of investment. Examples include using credit to buy electronics, shoes, clothes, and other non-investment goods. Frequent use of consumer debt typically means you don’t have enough cash to fund your lifestyle and are likely to be in financial hot water later on. The Financially Fab are NOT in hot water. We like the water cool and relaxing.
Jessica’s Net Worth
| Liability Types | Amounts Owned | Math |
| Total Assets | $6,800 | Total assets – Total Liabilities |
| Total Liabilities | ($9,863) | $0 |
| Net Worth including student loans | ($3,063) | Total assets – Total Liabilities |
| Student Loans | $8,063 | Total student loan values from liability chart |
| Net Worth without student loans | $5,000 | Add the student loan total to the net worth including student loans |
That’s how to calculate your net worth. It’s not that complicated or scary. After a few calls to customer service, voilà, you have your net worth. You’re miles ahead of most Americans and moving closer to being Financially Fab!
Action Item: Now go find out your net worth. Let me know how it goes. Also, got questions? Post a comment.
Financially Fab 
Posted by The Biz of Life on March 16, 2010 at 9:21 am
I’ve always been an advocate of looking at your finances as if you were a corporation– http://thebizoflife.blogspot.com/2009/07/me-inc.html– income statement, balance sheet, cash flow statement to really understand your financial condition. This is easy enough to do with spreadsheets (OpenOffice.org) or even personal finance software (such as GNUCash, though admitted a little tough to get use to using).
Posted by financiallyfab on March 17, 2010 at 5:49 pm
Nice idea. Essentially, all financial systems can be managed like a business (personal finance, nonprofits, . . .). In any situation, you need to meet expenses, have short-term cash flow, and plan for long-term needs.