• Rise in home prices.
• Upward trend in the stock market.
• Paying down debt.
• Debt write-offs.

Most of this is good news. Indeed, the fact that Americans have been reducing their debt and relying less on credit is quite encouraging. The fact that we are likely to have a long recovery from this recession is also a good thing, in my opinion.

Americans are just now re-evaluating the spending practices of the last couple of decades and are working to get their personal finances in better shape. Some of the habits being developed are good for individual financial situations. A gradual economic recovery will help Americans cement some of their frugal practices into true lifestyle adjustments. A fast recovery would not give us time to make a true shift in mindset.

Hopefully, many Americans will see their increase in household wealth and net worth and realize that this is a good way to take steps toward financial freedom.

Image source: sxc.hu

Post from: EveryJoe

Household Wealth Increases

Household net worth fell at a 9.9% annual rate in the first three months of the year to $50.4 trillion, the lowest in more than four years. Net worth — assets minus liabilities — peaked at $64.4 trillion in the spring of 2007, the Fed said in its quarterly flow of funds report.

This is the 7th consecutive quarter that saw a decline in household wealth. While there are some bright spots in the report (more disposable income, lower credit card debt), the fact remains that many people are seeing their overall net worth decline. Home values are declining and investment portfolios are experiencing losses. Since many people have a great deal of their assets tied up in their homes, it is little surprise that the bursting of the real estate bubble has hit net worth. Additionally, with the losses to the stock market, the assets many had in their retirement accounts are dwindling. As I see it, there are two things you can do to reduce the psychological burdens that come with these losses:

1. View your primary residence as a purchase: Instead of thinking of your home as an investment, think of it as a long-term purchase. Consider the intangibles that come with your home (a yard for your kids, your own space, etc.).
2. Remember the long-term value of the stock market: Even though your retirement account may be suffering now, over time stocks gain overall. If you keep investing now, there is a good chance that in 10, 15, 0r 20 years, you will see significant gains.

This still doesn’t change the fact that your net worth may have fallen. However, if you stick with the sound personal finance fundamentals of reducing debt, building your savings, engaging in prudent investing and making your mortgage payments, your net worth will recover — and eventually thrive.

How has your net worth been affected by the recession?

image source: Wikimedia Commons

Post from: EveryJoe

Has the Recession Affected Your Net Worth?

One of the more interesting books I’ve ready in the last few weeks is The Cure for Money Madness by Spencer Sherman. He tackles the ideas that have grown up in our consumer culture about money and wealth, and offers insight into how we can get over the “money madness” that makes normally rational people behave irrationally when money is involved. The book is easy to read, and contains actionable (and common sense) ideas for better wealth management:

• Don’t hide your spending from your spouse.
• Spend your money in a mindful manner.
• Employ diversity in your investing.
• Buy low and sell high – don’t give in to the culture of panic.
• Save money regularly.
• Spend less than you earn.

The Cure for Money Madness also challenges long-held assumptions about money. Sherman delves into such treasured concepts as leaving money to your kids (something I don’t really care to do), buying a home v. paying rent and the concept of true wealth. Sherman also spends time on cash flow and true net worth, and the importance of understanding how you use your money, rather than just figuring out how much you have and where it is going.

The Cure for Money Madness includes helpful worksheets to help you evaluate where you are at, and to make a plan for the future. Sherman also includes a chapter (”The Rainbow Portfolio: Madness-Free Investing — The Boring Way to Make More Money) on investing and asset allocation. The key is to plan to make money over the long term, rather than try to get rich quick. This means that now is a good time to buy, since investments are so inexpensive.

One of my favorite points of this book, though, comes in Chapter 10. It tackles the way we entwine money and status. Chapter 10 is all about looking at what you have and deciding how much it is worth to you, rather than always comparing yourself to others and deriving feelings of self-worth from your net worth. He also includes some feel-good stuff about how — with your talents, abilities, health and intelligence — you are worth more than your net worth, because of your future ability to make more down the road. But there is merit to “calculating…the market value of the resources you possess that are enabling you to gain those earnings.”

In the end, I found this a supremely useful book, and would recommend it to anyone. You can find out more on The Cure for Money Madness at the Web site Sherman set up to complement the book (take the test!).

Have you read The Cure for Money Madness? What did you think?

Post from: EveryJoe

Personal Finance Book Review: The Cure for Money Madness

Develop a net worth mentality.

This is about the long term, and looking at the big picture of your overall finances, rather than just managing them month to month. My guest post on Moolanomy looks at the difference between a budget mentality and a net worth mentality.

This post is part of the b5media Business Channel Great Blog Off! Find out more about the Blog Off here: http://www.b5media.com/b5media-blogs-for-a-cause-and-raises-money-in-support-of-charity/

The Business Channel is supporting Accion International for the Great Blog Off. You can make a donation directly to Accion (http://www.accion.org/b5media). Donations are tax deductible.

Post from: EveryJoe

Personal Finance Tip #23: Develop a Net Worth Mentality

In a guest post for Moolanomy (yes, I’ve been hitting up the guest posts pretty hard), I expound on the idea of a net worth mentality v. a budget mentality.

Which mentality do you have?

Post from: EveryJoe

Net Worth v. Budget: Guest Post on Moolanomy

Budget v. net worth

While a budget can be a useful tool, it is important to note that a budget is really more about teaching yourself to be disciplined and to look seriously at your cash flow. The idea is to try an set up a system where you are living within your means. But it really doesn’t do much in terms of advancing your wealth because it focuses you on the minutae of your cash flow and your expenses.

When you focus on your net worth, you are looking at what you have now, in terms of assets minus your liabilities (debts and other obligations). This means that you can get a snapshot of where you are at in terms of building wealth. When you have a net worth mentality, you focus on creating goals that will help you increase your wealth (which is not the same thing as income) and/or decrease your obligations.

The idea is to set goals that will allow you attain financial freedom with wealth, rather than merely managing your resources with a budget.

What financial goals do you set for yourself?

image credit: Oxxo

Post from: EveryJoe

What’s Your Net Worth?

The easiest way to calculate your net worth is to add you your assets and your liabilities. Then subtract your liabilities from your assets. The result is your net worth. This net worth calculator from Dinkytown.net is a fun way to figure your net worth, and then project it out over the next 10 years.

Post from: EveryJoe

Do You Know Your Net Worth?