In the comic book world, when a character is “OP”, it means they’re “over-powered”. They have so many abilities that it’s almost annoying because there’s literally no way to beat them. Like a character that can bend the fabric of reality – really?? My goal is for you to become financially OP – meaning that you have total control over your finances to the point where you’re making way more money than you need. And yes, to some it may seem annoying. But to the OP character, it’s not so bad 🙂
To Know Where To Go, You Must Know Where You Are
You can set all the financial goals you want, but I promise it’ll be very hard to reach them if you don’t know how much money you have, where your money is, and how much you’re saving. So let’s do a “power-level” check. I try to go through this process every month. We’re going to figure out your net worth and your monthly savings rate. I’ve tried making it as easy as possible for you by creating this template for you to download and fill out.
Your net worth is roughly how much you’d have if you liquidated (turned into cash) all of your major assets (people argue all the time about what an “asset” is – for now, just think of something of value that you own). This would be your various bank accounts, house if you own it, business if you sold it, etc. What you choose to consider an asset is up to you. For example, I don’t consider my car to be an asset because it’s constantly depreciating (decreasing in value – if you already know these terms, just bear with me – trying to be inclusive here).
Your savings rate is how much you’re able to save compared to your gross (total, pre-tax) pay. If you make $2000/month and spend $2000/month, your savings rate is a big, fat 0%. If you spend $1500/month, then your savings rate is ($2000 – $1500)/$2000, or 25%. Don’t worry, the template makes it even easier to understand. Now let’s get to it!
Step 1 – download this free “Financial Snapshot” worksheet I created. Step 2, fill it out! By the end, you’ll know your net worth and your savings rate. I’ll explain why this is important in a second. I tried to put lots of notes in the template, but if you have any questions, put them in the comments below and I’ll respond as soon as I can. Don’t be shy – this is all about making you as financially knowledgeable as possible.
How to Use the Financial Snapshot Template
There are a few things I want to point out to make the template easier to use. I track my expenses using Personal Capital. They offer lots of services, but the only one I use is their free tool that tracks your expenses and income. It lets you aggregate all (or most) of your accounts into one place to see all your transactions on a single page. It then lets you categorize your expenses (assuming it’s auto-categorizer was wrong, which it rarely is for me). This makes it so much easier than having to login to your checking account and then your credit card account, etc. to then try and add all your expenses yourself.
Sign in, go to Banking (on the header), Cash Flow, click on Expenses and then set the dates for the past month. When you’re dealing with something as monotonous as finances, use any sort of automation you can find!
Next, the values in the template are meant to be changed and added to. I tried making the formulas as robust as possible, so if you have more “assets” than what is currently listed in the asset column as an example, just add another one on the next empty line. And if you have less than what’s there, just delete a row. They’re all just example values so you can see how the template is meant to be used. For the assets column, I would recommend putting as few (if any) material possessions as possible (like a car, Xbox, furniture). They tend to depreciate over time, are difficult to estimate exact worth, and are likely not very liquid.
Remember, there’s no wrong answer here – you’re just looking for an accurate view of your current financial situation. Once we have that, we can train you and give you the skills you need to go from a Kiteman (one of the worst villains ever – I mean, look at him) to a financial Wonder Woman or Batman (the Christian Bale version, of course).
Why This Matters
In almost every mentor-mentee movie like the Karate Kid or Men In Black, there’s a scene where the mentor tells the mentee to do something that seems ridiculous and unnecessary. Like painting a fence or using a comically small gun. But the mentor knows this is making the mentee better in some way. In this same way, calculating your net worth and savings rate every month may seem unnecessary when you just want to learn to have more money, but it’s just as important.
By calculating your net worth, you gain an intuitive understanding for how your money grows with time. How your savings is paying off. If your goal is financial freedom, you’ll be motivated by seeing yourself get closer and closer to your goal. And if you’re not improving over time, hopefully you’re motivated to change something so that you are. We fear what we do not understand and sometimes finances can seem daunting until you slowly grow your understanding – first by understanding how much money you have.
Your savings rate is important because it allows you to set small goals each month. If your savings rate was 10% this month, what can you do to make it 11% next month? I’m not going to say it should be X%, but I will say that you should try and get this as high as you can (without affecting your health or overall comfort) so you can reach your financial goals faster. And you’ll definitely want to know if your savings rate is below 0%. By calculating your savings rate, you also gain a better idea of where your money is going each month. Use the template’s Notes section to write out ideas on how to lower certain expenses each month. You may even find that you have monthly subscriptions you don’t even use anymore. Get rid of that mess!
And thus concludes our first training session. I’m positive that by the time you fill out the Financial Snapshot template and have concrete numbers to look at, you’ll already start feeling more financially powerful than ever before. Remember, you don’t just train once and stay fit for the rest of your life. This training should be done monthly. Let me know if you have any questions below, and I hope you’re happily surprised by the results!
Stay tuned for Part 2 of this series – Next Level Financial Improvement By Saving and Playing It Safe!