Increasing Your Net Worth: The Measurement of Real Wealth

The following is a guest post contributed by Tom Cleveland, who writes for Forex Traders.

Each year, Forbes magazine publishes a list of the wealthiest people in the world.  Of course, the names at the top of the list are household names—Warren Buffet and Bill Gates.  Forbes rates the wealthiest people in the world by their net worth.  Net worth is simply a person’s total assets minus their liabilities.  Although you may not be fighting to get your name on the Forbes’ list, chances are good that you have a definite interest in building your net worth.

Practical Step to Building Net Worth

Let’s return to the definition of net worth once more.  It is defined as a person’s assets minus their liabilities. Now, this is important to understand.  It doesn’t really matter how many assets a person has.  If they have too many liabilities, the inflated assets will not mean anything.  We see this play out in the business world all the time.  A company may have hundreds of millions of dollars in assets, but it attempts to expand too fast and takes on unsustainable debts, which are liabilities.  In corporate America, this eventually leads to bankruptcy.  A company that has hundreds of millions of dollars in assets, but also has $2 billion in outstanding liabilities, is headed for total collapse.  Thus, the way to build net worth is not to necessarily focus on building assets or a forex account, but to rather eliminate liabilities.

Eliminating Liabilities

The three primary liabilities that most middle-class Americans have are a mortgage, a car loan, and credit card debt.  The real way to build true, lasting wealth is to focus on eliminating the most destructive of these three types of liabilities—credit card debt.

Credit card debt is a major hindrance of wealth creation.  Ultimately, it is wise to buy assets in order to build net worth.  When hundreds of dollars are being spent each month paying credit cards off, this money could be going toward purchasing those assets.  Thus, one of the first steps that must be taken to build real wealth is to pay off all credit card debts in order to eliminate this liability.

Adjust the Budget

The most practical way to quickly pay off credit card debt is to honestly analyze your monthly spending habits and discover every area that could be cut back and eliminated.  Once you find out how much can be eliminated each month, then decide to shift this extra capital toward paying down your credit card debt.  This will not necessarily be fun and exciting, but it will help put you into a place of financial strength once the liability is eliminated and you can direct that extra capital into purchasing assets.

Further Reading:

How to Fight a Credit Card Interest Rate Change

Should You Spend Money on Budgeting Software?

Increasing Your Net Worth: The Measurement of Real Wealth

The following is a guest post contributed by Tom Cleveland, who writes for Forex Traders.

Each year, Forbes magazine publishes a list of the wealthiest people in the world.  Of course, the names at the top of the list are household names—Warren Buffet and Bill Gates.  Forbes rates the wealthiest people in the world by their net worth.  Net worth is simply a person’s total assets minus their liabilities.  Although you may not be fighting to get your name on the Forbes’ list, chances are good that you have a definite interest in building your net worth.

Practical Step to Building Net Worth

Let’s return to the definition of net worth once more.  It is defined as a person’s assets minus their liabilities. Now, this is important to understand.  It doesn’t really matter how many assets a person has.  If they have too many liabilities, the inflated assets will not mean anything.  We see this play out in the business world all the time.  A company may have hundreds of millions of dollars in assets, but it attempts to expand too fast and takes on unsustainable debts, which are liabilities.  In corporate America, this eventually leads to bankruptcy.  A company that has hundreds of millions of dollars in assets, but also has $2 billion in outstanding liabilities, is headed for total collapse.  Thus, the way to build net worth is not to necessarily focus on building assets or a forex account, but to rather eliminate liabilities.

Eliminating Liabilities

The three primary liabilities that most middle-class Americans have are a mortgage, a car loan, and credit card debt.  The real way to build true, lasting wealth is to focus on eliminating the most destructive of these three types of liabilities—credit card debt.

Credit card debt is a major hindrance of wealth creation.  Ultimately, it is wise to buy assets in order to build net worth.  When hundreds of dollars are being spent each month paying credit cards off, this money could be going toward purchasing those assets.  Thus, one of the first steps that must be taken to build real wealth is to pay off all credit card debts in order to eliminate this liability.

Adjust the Budget

The most practical way to quickly pay off credit card debt is to honestly analyze your monthly spending habits and discover every area that could be cut back and eliminated.  Once you find out how much can be eliminated each month, then decide to shift this extra capital toward paying down your credit card debt.  This will not necessarily be fun and exciting, but it will help put you into a place of financial strength once the liability is eliminated and you can direct that extra capital into purchasing assets.

Further Reading:

How to Fight a Credit Card Interest Rate Change

Should You Spend Money on Budgeting Software?

Quick and Painless Ways to Start Saving Money Regardless of Income Level

The following is a guest post by Mick Archard.

With gas prices rising and the job market and economy unstable, most people are doing whatever they can to save money. There are some big changes people can make, such as renting a cheaper apartment, or small changes such as brown bagging lunches instead of eating out. Even people with small incomes can usually find a way to save, and small savings add up. Even just $10 per month adds up to $120 per year. The savings add up even faster if they are earning interest in a savings or investment account.

Rent a Smaller Apartment

Renting an apartment is a great way to save money. Renter's insurance is usually way cheaper than homeowner's insurance. The National Association of Insurance Commissioners reported that rental insurance in Michigan costs an average of $164 year. This breaks down to just $13.67 per month. According to the Insurance Institute of Michigan, average premiums for homeowners insurance in MI were $797 in 2004. This breaks down to about $66.42 per month. If you are already renting, moving to a smaller place will usually result in lower monthly rent and lower utility costs because there is less space to heat and cool. There are many Edmonton apartments for rent that are in great locations and have low monthly rental fees.

Budget

Creating a budget is important whether the income level is $1,000 per month or $8,000 per month. Listing all monthly bills with amounts and due dates paints an accurate picture of your finances. Treating savings like a bill is important. There should be a line in the budget for savings, even if it's only $25 per month. Budgeting also gives consumers an idea of how much money they have available after the essential bills. It helps people to not overspend when they know there is only $75 a week in the budget for groceries, for example.

Pay Off Debt

According to Outlaw Finance freeing yourself of debt is one of the first steps you should take. Paying extra on your debts is will free up money faster and you will pay out less money in interest and fees. When one credit card is paid off, the payment you were making can be put toward the next debt to get it paid off sooner. Talking to credit card companies may not help, but it won't hurt. The companies may agree to lower interest rates or take less money than you owe in a lump sum payment. Credit card companies can be difficult to work with, but they don't want you to go bankrupt, so they will sometimes work with you on a payment plan.

Taking back items that still have tags on them or having a garage sale is a quick way to make money for debt payment. Many people are selling used items on online auction sites for extra money. It may not seem like much at first, but any payment that is more than the minimum usually goes straight to lowering the total amount owed.

Invest in a 401K

Having money taken out of each paycheck before it's deposited is a great way to save. This money is not part of the budget, so it's easier not to spend it on something else. Increasing 401k contributions with each raise adds even more money to savings without making a dent in your monthly budget. Many companies have a fund set aside to match the amount of money that employees deposit into their 401k accounts, up to a certain percentage. Talk to the human resources department of your company if you're unsure about a company match. This is free money that employees often turn down by not investing.

Set Goals

Saving money can be difficult, especially for people who need most of their income for necessary bills like rent, food, and gas. Setting a goal to save for something you really want makes it easier to save money. For example, people may be faced with the decision to buy a new pair of shoes or save that $75 toward the car they really want. Having pictures of the savings goal in prominent places will remind you what you're saving for. It's also helpful to break down the goal into manageable amounts per month. If the goal is to have $5,000 saved in a year from now, this breaks down to $416.67 per month or $96.15 per week.

Trim Expenses

Even small amounts of money add up. If someone spends $2 every week on movie rentals, this money adds up to $104 after one year. Switching to a cheaper cell phone or TV plan is another way to save money. Many people are not using the services they are paying for and can easily make cuts.

Eating out is one expense that most people can cut. Bringing lunch to work instead of buying lunch every day can save most people around $50 per week. Eating out is a social event for many people. Inviting friends over for dinner or drinks and rotating houses each month is a fun way to spend time with friends and save money. Soup and bread is a meal that feeds a large amount of people on a small budget. It's also nice to not have people you don't know interrupting the conversation of your group. Your house never closes, so friends can talk all night if they want to.

Additional Reading:

How to Avoid Crisis Living

Saving in 2011

Quick and Painless Ways to Start Saving Money Regardless of Income Level

The following is a guest post by Mick Archard.

With gas prices rising and the job market and economy unstable, most people are doing whatever they can to save money. There are some big changes people can make, such as renting a cheaper apartment, or small changes such as brown bagging lunches instead of eating out. Even people with small incomes can usually find a way to save, and small savings add up. Even just $10 per month adds up to $120 per year. The savings add up even faster if they are earning interest in a savings or investment account.

Rent a Smaller Apartment

Renting an apartment is a great way to save money. Renter's insurance is usually way cheaper than homeowner's insurance. The National Association of Insurance Commissioners reported that rental insurance in Michigan costs an average of $164 year. This breaks down to just $13.67 per month. According to the Insurance Institute of Michigan, average premiums for homeowners insurance in MI were $797 in 2004. This breaks down to about $66.42 per month. If you are already renting, moving to a smaller place will usually result in lower monthly rent and lower utility costs because there is less space to heat and cool. There are many Edmonton apartments for rent that are in great locations and have low monthly rental fees.

Budget

Creating a budget is important whether the income level is $1,000 per month or $8,000 per month. Listing all monthly bills with amounts and due dates paints an accurate picture of your finances. Treating savings like a bill is important. There should be a line in the budget for savings, even if it's only $25 per month. Budgeting also gives consumers an idea of how much money they have available after the essential bills. It helps people to not overspend when they know there is only $75 a week in the budget for groceries, for example.

Pay Off Debt

According to Outlaw Finance freeing yourself of debt is one of the first steps you should take. Paying extra on your debts is will free up money faster and you will pay out less money in interest and fees. When one credit card is paid off, the payment you were making can be put toward the next debt to get it paid off sooner. Talking to credit card companies may not help, but it won't hurt. The companies may agree to lower interest rates or take less money than you owe in a lump sum payment. Credit card companies can be difficult to work with, but they don't want you to go bankrupt, so they will sometimes work with you on a payment plan.

Taking back items that still have tags on them or having a garage sale is a quick way to make money for debt payment. Many people are selling used items on online auction sites for extra money. It may not seem like much at first, but any payment that is more than the minimum usually goes straight to lowering the total amount owed.

Invest in a 401K

Having money taken out of each paycheck before it's deposited is a great way to save. This money is not part of the budget, so it's easier not to spend it on something else. Increasing 401k contributions with each raise adds even more money to savings without making a dent in your monthly budget. Many companies have a fund set aside to match the amount of money that employees deposit into their 401k accounts, up to a certain percentage. Talk to the human resources department of your company if you're unsure about a company match. This is free money that employees often turn down by not investing.

Set Goals

Saving money can be difficult, especially for people who need most of their income for necessary bills like rent, food, and gas. Setting a goal to save for something you really want makes it easier to save money. For example, people may be faced with the decision to buy a new pair of shoes or save that $75 toward the car they really want. Having pictures of the savings goal in prominent places will remind you what you're saving for. It's also helpful to break down the goal into manageable amounts per month. If the goal is to have $5,000 saved in a year from now, this breaks down to $416.67 per month or $96.15 per week.

Trim Expenses

Even small amounts of money add up. If someone spends $2 every week on movie rentals, this money adds up to $104 after one year. Switching to a cheaper cell phone or TV plan is another way to save money. Many people are not using the services they are paying for and can easily make cuts.

Eating out is one expense that most people can cut. Bringing lunch to work instead of buying lunch every day can save most people around $50 per week. Eating out is a social event for many people. Inviting friends over for dinner or drinks and rotating houses each month is a fun way to spend time with friends and save money. Soup and bread is a meal that feeds a large amount of people on a small budget. It's also nice to not have people you don't know interrupting the conversation of your group. Your house never closes, so friends can talk all night if they want to.

Additional Reading:

How to Avoid Crisis Living

Saving in 2011

Sales Tax Meets the Internet

The following is a guest post by Mariana Ashley, a freelance writer who particularly enjoys writing about online colleges. She loves receiving reader feedback, which can be directed to mariana.ashley031 @gmail.com.

Over the past few months, several states have been pushing legislation designed to tax online businesses. While online companies already pay state sales taxes to the state of their headquarters, The Main Street Fairness Act, as named by Illinois Senator Dick Durbin (D), proposes to collect taxes on all purchases made in states that have company affiliates.

For example, companies like Amazon.com with affiliates in Illinois, which already has the Fairness Act in effect, will experience tax for all sales to Illinois residents. Amazon severed its ties with affiliates in Illinois immediately after the bill, to escape the effects of the law.

Many fear that the effects of this bill nationwide will cause some companies to leave the United States, thus removing jobs from the company. Others are worried that the tax will decrease spending and destroy online retailers.

Proponents of the tax argue that tax-free online sales give an unfair advantage to Internet retailers that don't maintain operations in every state. And with some retail businesses closing down their brick-and-mortar locations but continuing online sales, states are looking for ways like this to retain any revenue possible.

I'm by no means a member or supporter of the Tea Party Movement. In fact, I support taxes in most cases. But this bill poses some problems that are a bit more alarming than simply paying another sales tax.

Think about the pros and cons of shopping online versus in a store. In a store, you get to test and touch merchandise, you have the item in your possession as soon as you buy it, and you can easily return it by going back to the store. Online, you have many resources for research and comparison (although those with smartphones have these in stores as well), but you have to pay for shipping, wait for the product to ship, and deal with the hassle of return-shipping if something is broken.

Consider how the added sales tax will affect people's shopping habits. There would be no benefit to shopping online unless online vendors had extremely low prices. Otherwise, you're pretty much paying the same price or more to have something shipped to your home instead of having it immediately once you leave a store.

Online retailers would also have to use more resources to simply comply with the bill. Online companies would be flooded with significant paperwork and periodic audits regarding all the new taxes from each state; this might be enough to make online retail simply out of the question for small or up-and-coming businesses.

While this proposed bill is aimed at providing fairness for small local business, its biggest supporters and lobbyers are paid by huge brick-and-mortar retailers like Wal-Mart. This is yet another reason to question who this bill will really help and whether it's worth the amount of businesses it may significantly hurt.

The bill has some time before it's in any position to come into effect, but in the meantime, I suggest people get their online shopping out of the way.

Further Reading:

Five Great Catalog Shopping Sites

Four Leading Causes of Overspending

Sales Tax Meets the Internet

The following is a guest post by Mariana Ashley, a freelance writer who particularly enjoys writing about online colleges. She loves receiving reader feedback, which can be directed to mariana.ashley031 @gmail.com.

Over the past few months, several states have been pushing legislation designed to tax online businesses. While online companies already pay state sales taxes to the state of their headquarters, The Main Street Fairness Act, as named by Illinois Senator Dick Durbin (D), proposes to collect taxes on all purchases made in states that have company affiliates.

For example, companies like Amazon.com with affiliates in Illinois, which already has the Fairness Act in effect, will experience tax for all sales to Illinois residents. Amazon severed its ties with affiliates in Illinois immediately after the bill, to escape the effects of the law.

Many fear that the effects of this bill nationwide will cause some companies to leave the United States, thus removing jobs from the company. Others are worried that the tax will decrease spending and destroy online retailers.

Proponents of the tax argue that tax-free online sales give an unfair advantage to Internet retailers that don't maintain operations in every state. And with some retail businesses closing down their brick-and-mortar locations but continuing online sales, states are looking for ways like this to retain any revenue possible.

I'm by no means a member or supporter of the Tea Party Movement. In fact, I support taxes in most cases. But this bill poses some problems that are a bit more alarming than simply paying another sales tax.

Think about the pros and cons of shopping online versus in a store. In a store, you get to test and touch merchandise, you have the item in your possession as soon as you buy it, and you can easily return it by going back to the store. Online, you have many resources for research and comparison (although those with smartphones have these in stores as well), but you have to pay for shipping, wait for the product to ship, and deal with the hassle of return-shipping if something is broken.

Consider how the added sales tax will affect people's shopping habits. There would be no benefit to shopping online unless online vendors had extremely low prices. Otherwise, you're pretty much paying the same price or more to have something shipped to your home instead of having it immediately once you leave a store.

Online retailers would also have to use more resources to simply comply with the bill. Online companies would be flooded with significant paperwork and periodic audits regarding all the new taxes from each state; this might be enough to make online retail simply out of the question for small or up-and-coming businesses.

While this proposed bill is aimed at providing fairness for small local business, its biggest supporters and lobbyers are paid by huge brick-and-mortar retailers like Wal-Mart. This is yet another reason to question who this bill will really help and whether it's worth the amount of businesses it may significantly hurt.

The bill has some time before it's in any position to come into effect, but in the meantime, I suggest people get their online shopping out of the way.

Further Reading:

Five Great Catalog Shopping Sites

Four Leading Causes of Overspending

double guest posts!

I am guesting on two great blogs today:

First, check out my contribution to the "What would you do?" series at Simplified Bee to see how I would design around a Jonathan Adler console. There may be gold and grasscloth involved.

And second, check out what I think my blog might look like if it were a room on Simple Dwellings. I'd be interested to hear what YOU think Roost might look like as a room!

double guest posts!

I am guesting on two great blogs today:

First, check out my contribution to the "What would you do?" series at Simplified Bee to see how I would design around a Jonathan Adler console. There may be gold and grasscloth involved.

And second, check out what I think my blog might look like if it were a room on Simple Dwellings. I'd be interested to hear what YOU think Roost might look like as a room!

Top 10 Ways Working from Home Saves You Money

The following is a guest post by Ripley Daniels, an editor at Without The Stress, a passport, travel visa, and immigration advisory firm located in Los Angeles.

As a bona fide home-based business person, I know a thing or two about the benefits of commuting one flight of steps, working in my pajamas, going for a run in the middle of the day, and of course, saving a whole lot of dough. Anymore, it just doesn't make sense for me to show up at an office, especially considering how expensive that arrangement really is. Here are the top ten ways I have saved money by working from home, compared to my previous career as an office worker. While your own circumstances are likely to differ from my own, the savings are real.

Dry Cleaning - This used to be a big one since logo-ed shirts were part of my attire, making a weekly or bi-weekly trip for dry cleaning and laundry a regular expense. Annual savings: $240-360

Wardrobe - Not needing to "keep up appearances" on a daily basis has meant that most of my recent spending on clothes has been purely casual. Annual savings: $300 -$500.

Auto Insurance and Repairs - I didn't think much about this one at first, but it's big. Driving almost 5,000 fewer miles a year meant that one call to my auto insurer reduced my rate by 8%. I change my oil less often, and of course brakes, tires and other parts last longer. All told, my car expenses have dropped about $400 annually.

Do-It-Yourself Chores - Tired from a long day, slow commute, and feeling protective of time off, I was keen to outsource yard work, and other home-related jobs. Now I look forward to those things as a way to relax with productive, rewarding activities. No, I don't always love pulling weeds, but it's a great excuse to be outside and take a mental break. We've probably saved $600 a year, doing more tasks ourselves.

Gas - My commute to work used to be 13 miles each way, or about 6500 miles a year. At 22 mpg, that's 295 gallons of gas, or $1032.50 at $3.50/gal. That total is now reduced certainly by more than 75%, making my savings over $775 a year.

Day Care - Having a three year old around the house is not conducive to getting work done, and so we do send her to day care. However, I can take her in late, pick her up early, take random days off, and have even kept her out of day care altogether for a couple of spells, working reduced hours or swapping day care duties with friends. Shortened days don't affect the cost of day care, but extended absences do, and my flexibility meant I could choose a less expensive option. Total savings: about $1000.

Coffee - I do love my coffee, and still grab a big ol' latte from time to time. Used to be at least four each week, averaging $8 with tip and a snack. Substitute that with freshly ground coffee at home, and I'm saving more than $20 a week or $1000 annually.

Eating Out - While it's always possible to be responsible about workday meals, reality seldom cooperates. Packing a lunch or saving leftovers is an extra hassle, and it's more fun to eat out with the team. Estimating that I ate lunch out just three times in a typical work week, I now spend at least $30 less per week, or $1500 for the year.

Tax Deductions - As a consultant, a lot of the things that I would typically pay for outright now fall under the "business expense" category, such as a portion of my cell phone, internet and even mortgage. Of course I still pay for these things, but since they are required to do business, counting them against earnings saves me about $1600 in taxes.

Time - It's hard to quantify the value of the time saved by having my work with me. It is by far my most prized reward. True, balance can be a challenge, but how to deal with it is my choice, unlike the constraints of office work that are far less flexible. I don't have mindless meetings, 500 hours of commuting, or the daily drip of losing an hour or so to the chatter and "catching up" that being in a office entails. I find it a lot easier to catch up with friends now, instead. I get more work done in less time, and I spend more time on my home, my family and myself.

The truth is, you couldn't pay me to return to an office environment!

Further Reading:

What Would You Do With an Extra 35 Hours a Week?

10 Ways to Earn Fast Money

Top 10 Ways Working from Home Saves You Money

The following is a guest post by Ripley Daniels, an editor at Without The Stress, a passport, travel visa, and immigration advisory firm located in Los Angeles.

As a bona fide home-based business person, I know a thing or two about the benefits of commuting one flight of steps, working in my pajamas, going for a run in the middle of the day, and of course, saving a whole lot of dough. Anymore, it just doesn't make sense for me to show up at an office, especially considering how expensive that arrangement really is. Here are the top ten ways I have saved money by working from home, compared to my previous career as an office worker. While your own circumstances are likely to differ from my own, the savings are real.

Dry Cleaning - This used to be a big one since logo-ed shirts were part of my attire, making a weekly or bi-weekly trip for dry cleaning and laundry a regular expense. Annual savings: $240-360

Wardrobe - Not needing to "keep up appearances" on a daily basis has meant that most of my recent spending on clothes has been purely casual. Annual savings: $300 -$500.

Auto Insurance and Repairs - I didn't think much about this one at first, but it's big. Driving almost 5,000 fewer miles a year meant that one call to my auto insurer reduced my rate by 8%. I change my oil less often, and of course brakes, tires and other parts last longer. All told, my car expenses have dropped about $400 annually.

Do-It-Yourself Chores - Tired from a long day, slow commute, and feeling protective of time off, I was keen to outsource yard work, and other home-related jobs. Now I look forward to those things as a way to relax with productive, rewarding activities. No, I don't always love pulling weeds, but it's a great excuse to be outside and take a mental break. We've probably saved $600 a year, doing more tasks ourselves.

Gas - My commute to work used to be 13 miles each way, or about 6500 miles a year. At 22 mpg, that's 295 gallons of gas, or $1032.50 at $3.50/gal. That total is now reduced certainly by more than 75%, making my savings over $775 a year.

Day Care - Having a three year old around the house is not conducive to getting work done, and so we do send her to day care. However, I can take her in late, pick her up early, take random days off, and have even kept her out of day care altogether for a couple of spells, working reduced hours or swapping day care duties with friends. Shortened days don't affect the cost of day care, but extended absences do, and my flexibility meant I could choose a less expensive option. Total savings: about $1000.

Coffee - I do love my coffee, and still grab a big ol' latte from time to time. Used to be at least four each week, averaging $8 with tip and a snack. Substitute that with freshly ground coffee at home, and I'm saving more than $20 a week or $1000 annually.

Eating Out - While it's always possible to be responsible about workday meals, reality seldom cooperates. Packing a lunch or saving leftovers is an extra hassle, and it's more fun to eat out with the team. Estimating that I ate lunch out just three times in a typical work week, I now spend at least $30 less per week, or $1500 for the year.

Tax Deductions - As a consultant, a lot of the things that I would typically pay for outright now fall under the "business expense" category, such as a portion of my cell phone, internet and even mortgage. Of course I still pay for these things, but since they are required to do business, counting them against earnings saves me about $1600 in taxes.

Time - It's hard to quantify the value of the time saved by having my work with me. It is by far my most prized reward. True, balance can be a challenge, but how to deal with it is my choice, unlike the constraints of office work that are far less flexible. I don't have mindless meetings, 500 hours of commuting, or the daily drip of losing an hour or so to the chatter and "catching up" that being in a office entails. I find it a lot easier to catch up with friends now, instead. I get more work done in less time, and I spend more time on my home, my family and myself.

The truth is, you couldn't pay me to return to an office environment!

Further Reading:

What Would You Do With an Extra 35 Hours a Week?

10 Ways to Earn Fast Money