Have You Had Your Annual Wealth Check-up Yet?

Doctors will often advise their patients after a certain age, usually when they turn 35, to make sure they get a comprehensive check-up every year to ensure that they are healthy and to detect anything unusual. Some health insurance policies have these check-ups as a perk built into their coverage. What I talk about an annual wealth check up, there is little difference. Although it’s important to note that in this case you are playing the part of patient, doctor, lab technician and most likely, pharmacist, and the problems you are looking for aren’t with your body but instead with how you are building personal wealth.

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An annual wealth check-up helps you COMPARE yourself with the most important person, YOURSELF (but in the past). Think of it like how companies measure their past performance when they publish their company accounts every year. They do it to see how much they’ve grown with their balance sheet listing their assets, liabilities, and equity.

When I started doing this for myself and others, it induced all sorts of negative feelings. I believe that’s normal because of the way most of us have been brought up to think about money. Talking about money makes us uncomfortable but it doesn’t have to be if we think of ourselves as a company . We are creating a balance sheet for our company (us) and with that in mind we can (hopefully) look at things more objectively, realistically and honestly.

You might be asking what’s the point of doing all of this? Why do I want compare myself to a past version of myself? I’m the same person! And I’m going to get to that soon but allow me to break down my process for how I did my most recent wealth check-up before I talk about it’s importance.

My Steps for a Wealth Check-up:

  1. Make a list of everything that you own and everything that you owe – I have money in my checking & savings account, shares of companies, and other financial instruments. I don’t own a lot of assets but lucky for me, I also don’t have anything that I owe (i.e. student loans, a mortgage, any credit card debt, or any outstanding on any loan apps).

    This is a great starting point for anyone to be able to put down on paper and see how much wealth they already have. Whether you are pleasantly surprised or not, this will be an eye-opener if you haven’t done it in the past. I urge you to this one thing if you decide to ignore all the other steps.

    If you have a mortgage, then you can count the amount (not including interest) you have paid as an asset and the loan amount (this time including the interest) as a liability or something that owe.
  2. Organize your list from the most accessible to least accessible – This is the idea of liquidity. For example, I have money in my current account that’s fairly easy to reach, I just have to go to an ATM or use the mobile app, and I can get access to it very quickly. However, to be able to get the “cash out” from my share portfolio, I would have to put in a sell order, then wait for that to be accepted, and wait for 3 days before the money is credited into my trading account before finally I can withdraw it to my bank account. That is NOT having easy access to your money and would show up much lower down on my list.

    When you are looking at the liabilities, think about the time period you have to pay off the loan. Credit card debt needs to be repaid within 45-60 days, depending on your bank’s terms, but a mortgage has a longer time horizon of anywhere from 10-30 years. The debt you need to pay sooner will be higher on your list (it’s also likely to have a higher interest rate) and it’s the one that needs your attention.
  3. Subtract your Liabilities from your Assets – Now some of you might be thinking that I’ve missed one key part of the accounting equation (Assets = Liabilities + Equity) and you are correct. Equity means something entirely different in the context of a company and when you’re trying to determine your own wealth base I would suggest ignoring it for the purpose of this exercise.

    Once you’re done , you’ve just established the starting point of all future wealth check-ups. You have quantified your wealth and have a base to work with moving forward. It will allow you to adjust your goals and strategies going forward and keep it as realistic as possible.

    Congratulations! I know it wasn’t easy but you did it!

    BUT, it doesn’t end there. Remember earlier on I said I would explain why we need to do all of this? Know I’m going to tell you why!

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Now that you have all the numbers in front of you, it’s time to formulate a plan. Having this information will allow you to do a number of things including but not limited to:

  • Identifying what debt you need to pay off first– By looking at the interest rates and the time period of the loan you can decide. For example, if you have a 10% per annum loan with 20 years left on it, compared to a 7% per month debt that has been on your credit card for 3 months already, then you need to start diverting more attention and resources into paying the more costly debt. If you are in debt, then paying off your high-interest debt will actually earn you more money than you would have earned by investing. Read that again.
  • Answer the question that has you up in the middle of month, “Am I making as much as I should and would like to?” – Whether you are an employee or an entrepreneur, we all work for somebody. For an employee, it is our employer and for an entrepreneur, it’s their customers. When you look at how much you have, you’re probably going to think, “No, I need to make more.” I think 98% of people will share that sentiment. It’s human nature and that’s not necessarily a bad thing.

    Looking at how much you have is the first step in determining what you want and more importantly, what you need. If it’s more money at your job, then you know how much you want to make and you can ask for it if you’re delivering that value. Or it might mean that you need to look elsewhere at a place that values you closer to how much you value your own work.

    If it’s making more from your business that you desire, then you have to decide if you are going to target more customers or raise your prices. Similarly, if you are a freelancer then this might be a point for you to consider what other skills you need to learn to be able to bring in that additional income with your current and prospective clients.
  • Define your short term & long term goals – Once you have your numbers, you can begin to craft your strategy for the years ahead. If you are going to do a wealth check-up in the middle of the year like I did, then that also means that you may need to alter your plans and goals for year if things change unexpectedly i..e a global pandemic. Your short term goals can change and that’s fine but your longer term goals shouldn’t. One of my goals for the next 5 years is to own a piece of land that I can build on and can serve as a sanctuary away from the city. I did have to change my goals for this year but I am single minded and know that the end goal remains the same.
  • Hold yourself accountable, reduce your financial anxiety and show growth – This might not seem like the most important reason for doing this but it’s THE REASON why I do one every year. Money is a big cause of stress among adults. We often feel helpless about keeping money, saving money and making money. Having a well-laid out plan can help reduce your worries and show you the progress yop have made. Sometimes we need a pick me up and to celebrate how far we’ve come, and this can do it. It also keeps us accountable when we are working to align our work and personal lives to a goal that we have.

I will end with perhaps the most important thought that I hope you can take out of this post, be intentional. Sounds simple enough? Don’t think of money as something that comes and goes because then that is exactly what will happen. If you don’t have a plan, you might strike it rich but it will go just as quickly as it came. Why? Because you think money comes and goes. It doesn’t have to be a super detailed plan, but being intentional with money will allow your to work on your goals and keep you on track. Money is just a tool, make it work in your favour.

If you enjoyed this post or any other post you may have read, please join my mailing list below so you don’t miss the next one! I look forward to your comments & reactions.

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