How to give yourself an Instant Wealth Check

Discover the true state of your finances – and which areas need your attention in 2014 – with this easy template from money mentor Nicole Pedersen-McKinnon’s brand-new 12-Step Prosperity Plan.

There probably isn’t one of us who can say we haven’t splurged instead of making an extra repayment on the credit card or chipping away at that mortgage debt. Or worse, spent when we’ve had no money to begin with.

But while paying off debt is one of the cleverest money moves you can make, giving you an instant wealth boost, letting it get away from you is the very worst. And that goes double in a more challenging economic environment.

Debt is really the financial equivalent of quicksand: once it sucks you in, it is incredibly difficult to fight your way out. You will find yourself paying for things long after they are broken or you are sick of them – and at a time you want/need more things.

So Step 1 of my three-step Instant Wealth Check is a debt inventory. Where does your credit card bill stand? What about any personal loans or store finance? And, probably your biggest debt if you have one, your mortgage? Here’s what you should record…

Step 1: How much money you owe to others (your liabilities)

  • Credit cards
  • Personal loans
  • Store finance
  • Mortgage
  • Investment loans
  • Other

TOTAL =

If these figures look pretty large, don’t get despondent – it’s only one side of your financial scorecard. To get a proper idea of your financial position, you need to look at your assets too. These are items that are held in your name, whether you own them outright or have an outstanding loan for them. Step 2 is the quick asset assessment below.

Step 2: What items you hold in your name (your assets)

  • Car/s
  • Home
  • Shares
  • Managed funds
  • Investment properties
  • Savings
  • Other

TOTAL =

Now for the Step 3 acid test: how your two totals from above compare.

Step 3: Your net result

Total assets

Total liabilities

ASSETS MINUS LIABILITIES

If my Instant Wealth Check yields a negative number for you, alarm bells should be ringing. You probably flash the plastic on a regular basis and may well have borrowed either for an asset that was immediately worth less than what you paid for it… like a car or, worse still, something experiential like a holiday. You need to implement a plan today to arrest your financial slide.

Congratulations if your Instant Wealth Check is positive, but by how much? And is that enough to reach your goals and dreams?

In either case, you need to ditch any debt. Think about it: once you banish your liabilities you are left with unencumbered assets: assets you own in your own right. At that point you can start channelling all the money you now spend servicing debts into building wealth… and enjoy the control, options and freedom that brings.

This is an edited extract of Nicole Pedersen-McKinnon’s just-released 12-Step Prosperity Plan, available exclusively on TheMoneyMentorWay.com. Together with a fully-customisable prosperity tracking tool, it forms a money makeover system that is delivered 100 per cent online and accessible to all.

How to give yourself an Instant Wealth Check was last modified: January 21, 2014 by Nicole Pedersen-McKinnon

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  1. One of the assets you mention is a car. We have found that once your car has done a high mileage (e.g. over 150.000 km) it is often more viable to trade it in on a later model with low km, otherwise you are replacing a significant number of worn parts, spending far more than the vehicle is actually worth. A new set of tyres and a full service can cost almost as much as an old car is worth. If parts(some are expensive even without labour costs) are necessary to keep it mobile, they alone may cost more than the car is worth.

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  2. Be wary and have your wits about you when applying for a home loan. A relative of mine applied for a home loan and was given interim approval after the builder’s specifications and costs were given. A few weeks later they received a latter from the bank saying that the house was worth $20,000.00 than the builder had quoted. In fact the builder had allowed them some bonus products which were listed but no charge levied against them. They cancelled that appication after going to another bank and getting approval.

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  3. Some great tips Rosemary. The trick is to keep the value of your assets and liabilities updated so that you can see how your equation is changing over time. You want it to become more and more positive over time until you are debt free – and the sky is then the limit. And yes, a car loses value fast! Best, Nicole

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  4. we have nearly paid off our house, the mortgage is down to about 50,000. it is a large house and is valued at about 410,000.

    we have used our equity to build 2 investment properties. 1 was in Bendigo wich will be a display home for 2 years, this is nearly built. the other house is in holden hill Adelaide. has not started getting built. are we going about it the right way by building our wealth using our equity on our house. all of the properties have been set up with there own bank account except we have had to use our equity to fund some of the funds because the bank will only pay 80% of the mortgage. Are we going about it the right way?

    Reply
    1. Mozo

      Hi Michael,

      Using equity in your home and leveraging it to purchase and develop property is one of the most powerful ways to create wealth. So absolutely you are on the right track.

      Good to see the display home will have a guaranteed income for 2 years. The things to look out for however are: is the property going to deliver a great return? Am I going to rent it out or sell them and what gives a better return? Do you have enough income to cover the repayments during construction when there is no income from property coming in? Could I have invested in a property that would have given a greater return.

      So before you go out and the use the equity, do your homework, get financial and legal advice and research the suburb you are buying in so you know the prices inside out before you commit. It is good to know 2-3 suburbs really well then try to invest everywhere you only know vaguely.

      Good Luck!

      Team Mozo

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