Net Worth vs Income

The difference between net worth and income is misunderstood by many people.  I hope that this blog post will bring more clarity to our understanding.

Income is simply the money a person makes from employment or other means over a given period of time.  For instance, if Bob works and earns $100,000.00 annually and earns $100.00 in interest this year from his bank accounts and another $2,000.00 from a piece of real estate he owns (after all rental expenses are paid), then Bob's annual income for the year would be $102,100.00.

Net worth is the amount by which a person's or a company's assets exceeds their or its liabilities.   So let's take another look at Bob.  He has $5,000.00 saved in his bank accounts, an investment portfolio with a market value of $25,000.00, primary residence valued at $180,000 (outstanding mortgage of $160,000.00), rental property valued at $100,000.00 (outstanding mortgage of $75,000.00), credit card debt of $4,000.00 and student loan debt of $75,000.00.  So let's figure out Bob's net worth:

Total Assets are as follows: Bank Accounts: $5,000.00, Investment Portfolio Value: $25,000.00, Primary Residence: $180,000.00,  Rental Property: $100,000.00. Bob's total assets are currently worth $310,000.00.

Total liabilities: Unpaid / Outstanding Mortgage on Primary Residence: $160,000.00, Unpaid / Outstanding Mortgage on Rental Property: $75,000.00, Credit Card Balances: $4,000.00, Student Loan Remaining Balance: $75,000.00.  Bob's total liability is currently: $314,000.00  Therefore Bob's net worth is: -$4,000.00 ($310,000.00 minus $314,000.00).

You can see that although Bob's annual income was over $100,000.00, his net worth is negative $4,000.00. A person's net worth and income is equivalent to their financial health.  The healthier a person's finances are the higher their net worth will be.  

Speaking of health, think about an individual who looks healthy but really isn't,.  Bob would be considered a person who looks healthy on the outside (annual income over $100k) but is actually not healthy right now (net worth below zero).

As times goes on Bob's financial health could increase or get worse.  The future of Bob's financial health depends on financial conditions and the financial decisions he makes in the future.  What is your net worth?.

Seven Steps To "Get Your Money Right" In 2016

Did you know that 76% of Americans are living from paycheck to paycheck according to 2013 research done by Bankrate.com? Here are seven steps to break that cycle in your household:

1.      Establish and follow a budget.

Your budget is your spending plan for your money.  Without a plan you are bound to work outside of the boundaries of your income.  It is important to establish and then follow a budget on a monthly basis.

2.      Educate yourself financially.

An educated choice is always the best choice to make.  Educating yourself financially means to begin reading books, articles and blogs that are related to finance, especially personal finance.  It also a good idea to listen to some podcasts and television shows that relate to the subject area.

3.      Clean up your credit.

There may be some things on your credit report that is causing your score to be lower than it should.  These are the items that need to be straightened out.  Your credit report should also be checked for accuracy – late payments, credit balances, etc.  Have your report review and make it a priority for the first quarter of 2016 to “fix” your reports and scores.

4.      Establish and Continuously Fund Five Funds.

There are at least five funds that everyone should establish:

Ø  G.O.O.D. (Get Out Of Debt) Fund

Ø  Vacation Fund

Ø  Retirement Fund (outside of your employer sponsored fund)

Ø  Investment Fund

Ø  Replacement Savings Fund

5.      Investment Plan.

Create an investment plan.  Simply saving money is outdated and no longer works effectively in this economy.  Therefore your ability save money has to be mixed with a good investment plan in order to generate wealth. Be sure to read my free e-book entitled, Income Producing Assets, which can be found at www.fredericktowles.com.   

6.      Put your blindfold on.

Forget about the Jones’ unless they are related to you!  Don’t look at what anyone else acquires.  This is the largest cause for debt – living like the Jones’.  Therefore set your plan, stick to your plan and put your blind fold on, enjoy the ride.

7.      Get a professional finance coach.

There are several benefits of working with a professional finance coach: your coach offers a fresh perspective on your financial challenges, enhanced decision-making skills, increased confidence and a depth of financial expertise.  For more information on working with a finance coach please visit: http://unlimitedexp.com/services/. 

What you need to know about your network marketing income

Many people these days are apart of at least one network marketing company. This article is not meant to discuss which of these opportunities is the best, but it is to speak about the income derived from network marketing.

If you are in network marketing and you are serious about your business, it is important that you continue to read this blog.

Networking marketing companies do not give this level of information because it is not there specialty, but I will alert you of this right now. If you are serious about your network marketing business, even if you aren’t making your desired income right now, you need to incorporate. That’s right, you need to INCORPORATE ASAP!

Why you might ask? There are three major reasons why:

(1) As an independent business associate, or a sole proprietor, your net income from network

marketing is subjected to self employment taxes. Self employment tax comprises Social
Security and Medicare that you are liable for if your net income from network marketing is
over $400 annual. A corporation is not subjected to the self employment tax.

(2) There are several deductions that you are able to take as a corporate entity that you may
not be able to take as a sole proprietorship.

(3) Many of the top earners in your network marketing companies are utilizing this same
strategy, you just don’t know about it.

There are other reasons as well. If you are interested in forming a corporate entity send an email to info@mrbizcoach.com and some from our staff will assist you with this process.