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Net Worth Principle: Build Wealth Without Budgeting

By Paul Ebisch

Once you have been pastoring 5 or more years, many of the early adjustments to ministry have occurred. This is the time to change your focus from surviving financially to building a financial infrastructure for the future. During this period in your life and ministry, you will make many decisions that will influence your financial future. The choices you make will either put you in bondage or free you to do whatever God calls you to do.

Along with budgeting or investing, there are other ways to flourish financially. Most people can reach their financial goals by focusing on their net worth. You need to realize that a battle is taking place for your net worth. Be on guard to protect and grow it.

Getting ahead and increasing financially eludes even the best. Many successful and sophisticated people miss the mark when it comes to accumulating wealth. But instead of focusing on accumulating wealth, the main factor you need to focus on is your net worth. No other factor is affected by every financial choice you make as is your net worth.

The key is not the amount of your net worth. The key is that you focus on your net worth when making financial choices. Your net worth can serve as a means to bring balance to your living and keep you from making costly mistakes.

Net worth does not bring personal value. That is why some are afraid to look at it. A small net worth does not mean you are worth less than another person, nor does a large net worth denote greater personal significance. Many people try to appear successful, but their bottom line does not match up. Many times people who have a large net worth do not appear wealthy. They are confident and comfortable with whom they are because their significance is not tied to what they own.

Every financial guru has some recipe for achieving wealth or becoming a good steward. In my opinion, many of their formulas do not seem to connect with most people. Most of these recipes are built on the premise of budgeting and/or investing your way to financial success. While budgeting is important, Americans in general seem to dislike budgeting. They are also afraid to make choices when investing.

Understanding And Calculating New Worth

Simply put, your net worth is the difference between your assets and liabilities. Assets are the things you own that have worth. Their value is determined by what someone else would pay for them. Liabilities are the amounts you owe to someone else. (See Sample Net Worth chart.)

Sample Net Worth Chart

Assets

 

Liabilities

House

$150,000

Mortgages

$120,000

Automobiles

$10,000

Auto Loans

$12,000

Savings (Bank accounts and CDs)

$3,000

Credit Card Balances

$8,000

Investments (Mutual Funds, Stocks, Bonds)

$0

Student Loans

$15,000

Retirement Accounts

$5,000

Home Equity Loans

$10,000

Real Estate

$0

Alimony

$0

Art

$0

All other debts

$0

Collectibles

$0

   

Jewelry (100–300 percent overpriced retail)

$0

   

Stuff (everything else)

$0

   

Total Assets

$168,000

Total Liabilities

$165,000

Net Worth is $168,000 – $165,000 = $3,000

This is a sample chart of a typical person who appears to have nice possessions, but does not have much net worth.

Assets need to be viewed in two different categories. They either appreciate (increase in value over time) or depreciate (lose value). (See Appreciating/Depreciating Chart.)

Appreciating/Depreciating Chart

Appreciating

Depreciating

Home

Automobiles

Savings

Electronics

Investments (hopefully)

Clothes

Retirement Accounts

Furniture (in general)

Real Estate

Food

Art

Almost everything else

Collectibles

 

Jewelry

 

Calculating your net worth is not difficult. Credit unions and banks ask you to complete this information when you apply for a loan. A close estimate of your net worth can be accomplished in a matter of minutes. Many people, however, have no idea what their net worth is or even if it is a positive one or not.

Increasing Your Net Worth

1. Calculate your present net worth.

Using the example above, list all your assets and liabilities on a sheet of paper. This new worldview will start you on a good course. Plus, eventually, your banker will ask for it.

2. Set goals for how much you want to increase your net worth each year, and every 5 years.

Without goals you will never arrive at where you want to go. Goals are the difference between increasing your net worth or not. Your goal in life is not to accumulate wealth but to increase your net worth.

Balance your net worth with your charitable giving by setting goals for each. Set goals for you to have a certain net worth and/or amount of charitable giving by certain points in your life. This way you can measure your progress and more freely obey when God asks you to give.

3. Focus your income toward net-worth building by regularly adding to accounts or assets that appreciate in value.

The best way to accomplish this is to budget. Focusing on your net worth may inspire you to develop a budget and succeed at following it. Learn to save automatically off the top of your income and not spend more than you make each month. Do not use credit cards unless you can pay them off at the end of each month.

One way to accumulate net worth is to regularly add to retirement accounts that are diversified. The MBA 403b account at AG Financial is one of the best ways for AG ministers to save for retirement. Their Frank Russell Funds provide many levels of diversification.

4. Evaluate every major purchase with how it will affect your net worth.

Common mistakes to avoid:

Moving too often. Most people incur a real-estate sales commission (usually 6 percent) every time they sell a home. The closing costs each time you finance add up even though they may be rolled into the loan. This will immediately decrease your net worth each time you move. Moving also incurs additional costs that may prevent you from saving for a period of time afterward. But when you do sell, making sure you buy right and sell right will increase your bottom line over time.

Buying vehicles. Vehicles are probably more detrimental to your net worth than any other item you regularly buy. First, they are expensive, causing you to take out a loan on a depreciating asset, which conflicts with step 5. Second, they depreciate in value and sometimes quickly. Third, many people do not drive their cars long enough.

Consider buying a used vehicle over a new one. Do research before buying to determine if you are getting a good deal. Drive new or slightly used vehicles for 10 years instead of 5 or less.

Do not buy electronics with debt. Whenever you buy electronics, such as televisions and computers, they are simply a large expense unless you are generating income from them. Be aware that you take a direct hit to your net worth when you buy these items. Watching your net worth fall may give you the will power to say no to some tempting items.

5. Avoid or minimize debt that does not have corresponding assets that appreciate in value.

There is bad debt, and there is good debt. Only incur debt if you have done your homework and determined that it will enable you to gain an asset that will increase in value quicker than the corresponding debt and increase your net worth. Many millionaires have used good debt, but they hate the other kind.

6. Assess investments prudently and critically to avoid major losses.

There are few free lunches in this world. Do not expect to invest your way to financial success. This rarely happens. What the market gives it often takes away. Be wise, and make investment decisions with thought and research. Otherwise, diversify well and seek to achieve a nice average rate of return. It is amazing how haphazardly people put large amounts of their net worth into investments without understanding the risks. Take risks, but do not jeopardize the bulk of your net worth while doing it.

Conclusion

You can get ahead and make good choices by keeping your net worth in focus during these crucial years of your life and ministry. Between the fifth and fifteenth year you will most likely make most of life’s major financial choices at least once. Use these simple steps to ensure they will be wise decisions versus choices that haunt you for years to come. Remember, each phase of life builds on the previous. Until you get a grip on the steps mentioned earlier you will have a hard time moving on to any other financial phase.

Richard L. Dresselhaus

PAUL EBISCH is chief financial officer of Assemblies of God Credit Union and founder of Blaicol Capital Management, LLC. For more on this subject read Ebisch’s book Net Worth Principle: Build Wealth Without Budgeting. It can be ordered at http://www.networthprinciple.com.

 

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