Net Worth is something very simple but it tells you a lot about your situation. By spending the time to aggregate your various financial accounts, home, car, business, or other valuable ‘stuff’, you can start to get organized. And it also helps surface ways of saving of making more money in the future! Maybe you have a fund with a high cost or can combine multiple accounts to simplify your life.
The other thing that I like to do at the start of the new year is to come up with a Savings Plan. This is where you decide how much money you will save in 2022 and where to put it. This is important so you start the year with a proactive plan!
Tune in to hear the details!
[00:00:00] Matt: Welcome to real financial planning, broadcast on WK, Excel, and available wherever you get your podcasts. I, Matt Robinson and I'm joined as always by Mike Morton of Morton financial advice and the host of financial planning for entrepreneurs and outstanding podcast on which you might sometimes hear me as well.
Mike happy new year.
[00:00:23] Mike: Yeah, happy new year, Matt. Good to see you again this year.
[00:00:26] Matt: Yeah, good to see you this year. We just finished a set of show. Focused around the end of the year. What is the end of the year mean from a financial standpoint for you, your financial planning, your goals, everything that goes with taking stock and maybe taking care of your stocks.
[00:00:44] Mike: Oh,
nice. Very good. Very
[00:00:46] Matt: I get that one for the year, but somewhere somehow by wife and children are rolling their eyes at me. Okay. Now that we've crossed the barrier we're in 2022. I think you wanted to tee up some things that you should think about at the start of the year.
[00:01:01] Mike: Yeah, that's right. So I thought for this episode here, the start of the year.
I would bring up a couple of financial planning tips, a couple of financial planning, things that I do with my own clients that I thought would be useful for the listeners to hear about and maybe implement themselves in order to start up the year, start the year on the right foot.
[00:01:21] Matt: Can I make it a little bit of a guess here? I could be. I could be totally wrong, but I know you, and hopefully our listeners have. I listened to you long enough on, on our shows that they have says you don't just focus on the financial planning, part of financial planning. You have everything pivot off of goals.
So I'm going to guess here I could be wrong is the very first step in the process to have a clear idea of what your goals overall and for the year are.
[00:01:49] Mike: If you don't know what your goals are.
met, how do you know.
[00:01:52] Matt: I just route around doing stuff
[00:01:54] Mike: got to do stuff.
[00:01:55] Matt: yeah, I mistake activity for achievement, I'm
[00:01:57] Mike: If you don't know where you're going, be careful because you might end up there.
[00:02:00] Matt: Just remember wherever you go. There you are.
[00:02:02] Mike: Exactly. It is super important to obviously know what you're trying to shoot for. Otherwise you can't come up with a strategy nor execute that strategy.
Without knowing that, so that is the first piece, but I'm not going to talk too much about that today. We've talked about a few times. I'm sure it'll come up on the show throughout this year. Today is a little bit more nuts and bolts that I want you to automate some things and get set up for success for this year.
That I do at the start of the year with my clients. One is track their net worth and we'll talk about what that is and why I do that. But I do that here right at the start of the year. Just as a landmark to do that once a. And the other thing that I like to do with all my clients is set up the 20, 22 savings goals, budgeting or savings.
However you want to phrase it, but knowing where you're going to be putting money throughout the year. Now this a precursor to that, Matt is knowing your goals. So I'm not gonna talk about your goals or the listener's goals in particular, but once, you know where we're trying to go this year, five years, 10 years, Then you need a savings plan.
And so that's what I've met with my clients is the saving plans. We had one in 2021, right? Hopefully everybody executed Well, on that one. And I would like to set up at the start of the year, getting that plan, agreeing to the plan here in January. Yep. This is what we're going to do throughout this year, in terms of where we're putting our money.
[00:03:19] Matt: I assume I know why it's important to assess your net worth at the start of the year, but maybe you might as well tell me, is that just to get a sense of where you are and it, before you decide where you're going?
[00:03:33] Mike: it's to get a sense of the progress that you're making throughout life. I find it very useful to track your net worth. And the first time you do it, it's just a number. And it's Hey that's great. Okay. But it's really, when you track it quarter to quarter. You know, Every three months or you do it once a year and see , where you've been and where you're going and give you a sense of confidence about where you're headed.
[00:03:56] Matt: I, of course, I'm not going to ask you what to do if you go through the exercise and discover that you're worthless, but Dell, how do you do that? How do you determine your net
[00:04:05] Mike: Yeah. So net worth is everything you own. All the stuff, your cars, your house, your financial accounts, whatever's in your wallet. That's the stuff that you own. And you can put a dollar figure to it and you add all those things up. We call those your assets and then you subtract out everything you owe. So if you owe somebody some money or you have a loan or you have a mortgage, then you subtract out those things.
And that gives you a single number that is quote-unquote how much you are worth?
financially in a, in dollars.
[00:04:40] Matt: I assume this isn't like the game of life, where at the end you sell your house, your spouse and your kids. As you go through this process, how important is it for your clients to simplify? I mean, You. Most people, I think, it's not like we're billionaires and we have assets strewn across the globe, but nonetheless.
It's actually getting a lot harder for even regular people to keep track of their assets, because you probably had a job at some point that had a 401k. Then you had another job that had a 401k, and then you had another job that had a 401k and you had all of those things and they're managed in different ways.
And when you started the job, you had to sign a piece of paper saying you're in favor of that. And. You may be still getting statements. You may have only a loose idea of like how to log into a program and figure out what's in those accounts. How hard of a process is this really in, as you said, nuts and bolts fashion, is this a laborious thing to go through?
[00:05:45] Mike: So once you've set it up, Matt, hopefully this is a five to 15 minute process. It should be really pretty quick, but as you say, the first time you do this and I find this all the time with my clients, they come in. Part of the reason I get hired is they come in, with questions about financial topics, but as we're going through, okay, let me see all your accounts are everything that you.
They're like, oh yeah, I had this old account back at this other thing, and it's got a couple thousand dollars in it. And so part of the process, if you haven't done this before, is building that awareness, where are all your accounts? What, how much money do you have in them? What is it invested in?
And then you might say geez, should I move that? Do I need this old account with 3000? Should I consolidate? Should I move that? So the first time you go through this exercise, we'll take. And it's building that awareness of, oh yeah, this is everything that we own.
[00:06:38] Matt: I went through this a little bit myself. I Not only the generalized process of, we, you have a job out of college and, 401k not just that piece, but I actually went through an experience where I discovered through my aunt, that my grandparents had as an investment.
Bought a small piece, a share in the building of the empire state building. And so if you watch the old 1933 king Kong movie, you can see where king Kong puts his right toe. As he's holding Fe Ray over the skyline of New York that belongs to me.
[00:07:11] Mike: That one brick.
[00:07:12] Matt: that brick is mine. And, but the thing is that apparently has some value.
Do I have any idea where those shares are? They're in my name, kind of me. I don't know. I just don't know. Okay.
[00:07:26] Mike: Well, that's good though. You're, you're building an awareness of the things you own, even if they're just,
[00:07:30] Matt: Am I though I have my though, or am I building an awareness of what? I don't know. That's valuable, but like I, anyway, it's best. If I do, as part of this process, do you advise your clients to try to consolidate in order to get a better handle and control? The roll over process from a 401k to your.
Is a pain in the butt. I believe that's been my experience, but do you try to have your clients go through that?
[00:07:56] Mike: Yeah, it's a very, that's a really good question because that's the first thing that comes up often is, oh, I've got all these accounts. Can I consult, how do I consolidate this? Or should I simplify this? And the first thing you think is, oh, that sounds really good. Yeah. We want more simplicity in our life.
So we don't have so many things floating around. Unfortunately, there can be consequences. So sometimes you do not want to write. Those 401ks into an IRA. In fact, I often do not want to do that. The reason why is we're getting into Roth conversions. And if it's, if you have money in an IRA, then you have tax consequences for doing that.
So therefore it's a complicated picture depending on your situation. It's not a no brainer to just say, oh yeah, take the old thing and roll it here and take my old stuff and roll it over. You may or may not want to do that?
depending on. Your tax situation.
[00:08:48] Matt: on the other hand, you might discover as part of this process, that you're in a bunch of 401ks that are in managed funds that assess a fee. And so you're playing, you're paying an implicit compounded tax of 1% a year. Maybe you would do better in a simple, low fee
[00:09:02] Mike: Absolutely. We find that also that there's limit, you know, some of these 401k plans don't have the best access to funds. And so then you can't, we would want to roll that over potentially. And the other thing is sometimes you can roll it into your current 401k. So there's just so many things you can do.
So getting a picture of I've got four different 401ks and a couple of IRAs, and then I've got my spouse or partner has a couple of things. Building that picture first, put it all together, add it all up, see where you stand. Then you can start making some pragmatic choices about how to simplify or consolidate or move things so that you are in a better financial position than when you started.
[00:09:40] Matt: Consolidation is often a good idea. A friend of my wife's was once in, early in Tom Brady's career was late night in a convenience store and he saw Tom Brady in the back of the store, just piling ice cream into a shopping cart. It turned out this was after a really tough law. That he had sustained and Brady sees himself being watched and looks up at the friend and says consolidation food.
I'm pretty sure he meant constellation. And I don't think constellation food as a thing and whatever Tom Brady is the greatest quarterback of all time. He's not a road scholar. All right. You said there are two things you do at the beginning of the year. One of them is getting a sense of net worth and then you get into some savings goal setting.
[00:10:24] Mike: Yeah, before I leave the net worth again, the important thing is the first one we'll be building that awareness, adding everything up. But the second thing is just taking stock over time of watching that grow. I was talking with a young couple this morning, in fact, and they were just starting a new job, with a better salary and doing some aggressive savings.
They didn't have much yet, but I could just really see in even three months in six months, how this was going to start growing for them. And so it gives you that confidence that, oh yeah, I'm saying, everybody knows in your saving account, you're getting nothing right now, no interest or anything, but that doesn't mean not to save.
So it's a really great metric for watching that. Now you lose the nuance, we're boiling everything down to a single number. So you lose the nuance of where things are. But the flip side is it's easy to understand it's one number. And when you go to say, buy a house, you're saving for the down payment and then you go use that money and buy the house that net worth doesn't change.
Okay. That's, what's great about it. It's not, you'll suddenly see our account values go way down, but then you own a house on the other side. So that's why, again, I like the net worth and tracking it over time to watch your progress and see if there's any ways of boost. Results by, like you said, looking at different accounts or even the liabilities on the, how many debts you have, how, what the interest rates are.
You're reviewing that once a year. So it's a really great building awareness and tracking over.
[00:11:50] Matt: And then it does inform that annual goal setting process for savings.
[00:11:55] Mike: Yep. So now we're into the savings and I like to start the year with the savings.
goals. So assuming you already know where you're going, whether that's retirement or saving for kids' education or for that vacation, next year, whatever your goals are in the near term and long term.
You set those targets and then we want to save towards them if there's money that we want to spend in the future. And so I like to have that laid out here at the start of the year. Okay. I'm going to save 6,000 into my Roth IRA. I'm going to save 10,000 into my 401k. Broke a 401k account. That could be a plan for the year.
It could be a maxing out, my IRA, my 401k. And then I also want to save towards vacation just in my savings account for that Christmas vacation, this year. So whatever your goals are, I like setting that here in January. What are we saving? Where are we saving it? So we set the expectation right away, and then we can start automating those sales.
[00:12:52] Matt: Do you find that the goals shift for your clients? Substantially throughout the year or are you pretty much are you pretty much able to lock in, in January and stay consistent?
[00:13:05] Mike: Yeah, you're pretty much able to lock in. It would be rare That you're shifting because we're talking about bigger goals typically for these savings. So it's bigger goals of the retirement or being financially independent or whether it's gifting. Hey, I'd like to do gifting, late in the year.
So I want to spend, I want to save $200 a month so that I can support organizations I believe in. Or we're taking a big family vacation next year. I think it's going to be $6,000. I want to save, 400 a month, to reach that goal, whatever it is, setting it up front, because the way I do budgeting, Matt, it flows from this too, is that I want you to spend everything that's left over.
I don't want you to track a budget and try to manage, how much we're going out to eat and things like that. What I'd like you to do is say I'm saving towards these. Automate all the savings and everything left in your checking account, you can spend.
[00:13:59] Matt: That makes some sense. It's because I used to drive myself crazy on the budgeting side, worrying about the outflow, which look you should do at a certain point in your life. You should sweat how much you're spending if you can't afford it. But I think what you're suggesting. Equally smart.
If you have long-term goals and you're hitting your targets there, then you don't need to worry about that side. And look, if you don't spend everything and you have extra. Okay. That's something else you can do with your money. It's great. Or you can give it to charity or whatever, but it, it does seem a simpler way to do it.
How long does this process take? Is this like a major enterprise that we're talking about over the next few weeks? Or are you able to bang this out in about an hour with your clients?
[00:14:42] Mike: Yeah, it's way less than that. It's literally taking last. Year's taking stock, reviewing it and writing it down. And again, the point, the biggest point of this exercise is writing it down. I read, and I really recommend you get a piece of paper. You put it on a, put it in an email or a sticky note or notepad pad or somewhere write it down and communicate.
If you're with a partner, say yes, we're going to save the max in our 401ks. We're gonna. Some Roth IRA's, we're gonna do our 5 29 plans. We're gonna, whatever it is, write it down together, agree and save it right off the top and then automate as much as possible. It's not a very lengthy process, but like you to commit towards the savings first, because if you save first, then whatever's left.
You can decide how it is. You want to spend it, Hey, I want to buy this new thing or I want to go out to eat. We'll look, I've got money left over at the end of the month. We can go ahead and do that, and it will help you prioritize. That money instead of worrying all the time, are we saving enough?
Do we need, can we go out tonight? I don't know. You've already saved right off the top. So it gives you that confidence about using being flexible with the rest of your money.
[00:15:46] Matt: Since not all of our listeners will be your clients. That's just mathematically true. Are there things at while I am very confident that going through the process with you is extremely helpful. How would you go about this? If you're going to DIY this at home, are there any tips or shortcuts or tricks that you would employ?
[00:16:10] Mike: Yeah, it's pretty straightforward in a sense. So what I would do is set aside a little bit of time, half an hour, or like after dinner or something, hang out with your partner or if it's just you by yourself, schedule a little bit of time, get a notepad and figure out what it is that you're saving towards.
Hey, maybe it's just a retirement, like I just want to be saving towards retirement. Okay. So what accounts do you have access to? Does, do you have an employer account, 401k or 4 0 3 B. Do you have a, an IRA? Have you already opened one up or can you use one? Do you have an HSA now? You can listen back.
The Powercast I did last week had this account funding. So you can listen to that episode And go through where you should save dollars, in a waterfall method. But first it's just, how much am I going to save this year? Here's my salary. Here's what I want to put away. Where are you going to put it away?
Write it down. I'm going to put away this amount. So how much is that per month? And then can you automate any of it? Can you go into the website? You don't automate it. So all of that won't take very long, but the critical piece to me is just thinking of. Just making sure it fits with how you want to live this year.
That's the whole point about planning. This is what I want to do this year. This is what I'll commit to. And the nice thing about this one, it's not like I'm asking you to commit to hitting the gym three times a week. All I'm asking you is what do you want to save? Go on the website, automate that $200 a month, click it over to another account.
And there you go. You're set for like the whole year. And so you can feel great about that.
[00:17:36] Matt: And I imagine it is as an analogy, a little bit like the gym, which is maybe you're not going to be able to get going to the gym three times a week done, but Hey, if you go to the gym once a week, even for 20 minutes, it's better than nothing. So it sounds like with this kind of a process, look if you have time and energy and focus to do just one.
What would that thing be? And is that still beneficial? You make sure that you have maxed out the, your contributions to your 401k. I assume that's a good thing.
[00:18:03] Mike: Yeah, I would, again, you can listen to the previous episode with the number one thing I would. Is save first, you have to have money left over and I would put that look first towards a Roth IRA, if it is for longer-term savings.
[00:18:15] Matt: That sounds like a great way to kick off what is hopefully. A good year, 20, 22, maybe it won't. But at the very least, at the very least you could go through this process and feel good about having started off, right. mike Morton of Morton financial advice and investing for entrepreneurs. Thanks for being on the show.
[00:18:36] Mike: Thanks, Matt.
Thanks for joining us on financial planning for entrepreneurs. If you like, what you heard, please subscribe to and rate the podcast on Apple iTunes, Google play Spotify, or wherever you get your podcasts. You can connect with me on linkedin or mortonfinancialadvice.com. I'd love to get your feedback. If you have a comment or question, please email me at . Until next time thanks for tuning in