My Financial Goals

As you have probably noticed I have some financial goals listed to the right in bar graph form. I thought i should explain what these goals are and why i have chosen these.

Emergency Fund

The first goal is an emergency fund. Due to a recent layoff (temporary) I have come to realize the importance of having an emergency fund. I have set a goal of $5,000, as this should provide for about 3 months of expenses should i ever lose my job. I hope to achieve this goal over the next 2-3 yrs. You can check out an earlier post about why you should set up and emergency fund.

Dividend Income

I have set a goal of $40,000 of dividend income. This is the amount of income i would like to be collecting from dividends when i retire. As you can see it is currently at $0, as i have been investing inside of an RRSP until just recently. I am changing my strategy to invest outside of an RRSP in companies that grow their dividend year after year. I hope to retire in about 20-25 yrs if all goes well.

Down Payment

The third goal is to have $10,000 for a down payment on a home. I am currently renting and want to get out of that rut so i am building my own net worth and not someone else's. I am well on my way to this goal and have about 75% saved thus far. I am trying to decide what to do with my tax refund and I may put it toward my down payment. We will see. I hope to achieve this goal in the next 6 months.

Bike Loan

I have a bike loan for a motorcycle I bought a couple of years ago. At this time i have no plans to pay off the loan early, as i want to concentrate on some of the other goals. For now i will be paying the monthly amount until the loan expires. As you can see i have about $8,000 left in the loan and it will be paid off in May 2011.

Net Worth

The final goal is a net worth of $1,000,000. I pretty much just pulled this number out of the sky. It is not nearly important to me as the dividend income of $40,000/yr. However, I would still like to achieve this goal even though it will take quite a long time. I obviously have a long way to go on this one but hope to achieve it by the time i retire. You can learn how to calculate your net worth here.

These are my current financial goals. Hopefully they will inspire you to set your own!

What are your finacial goals?

How I Calculate My Net Worth

Today we are going to look at how I calculate my net worth, and how you too can do the same.

Definition

Net worth is defined as:

Net Worth= Assets-Liabilities

A liability is anything on which you owe money. It could be a credit card balance, car loan, mortgage, money you owe a friend etc. An asset is anything you own that has a dollar value. This could be a home, a car, cash in a savings account, stocks, bonds, baseball cards, etc. The list of both assets and liabilities can be long and varied.

Now some people would say a car or a home is not an asset. Robert Kiyosaki, from Rich Dad Poor Dad, believes a home is not an asset but a liability. Why? He defines an asset as something that generates positive cash flow for you. If it is not generating positive cash flow, then it is not an asset. He believes a home is a liability because it is costing you money in mortgage payments, property taxes, upkeep, etc. Most people though, consider a home or a car an asset because they have a market value and if they sell it they receive money in return. I fall into this latter camp of thinking.

An Example

As an example, here is my net worth statement from Jan.1/08

Net Worth Statement		Date:	Jan.1/08
Assets	Value		Liabilities	Value
Home	$0.00		Bike loan	$9,043.55
RBC	$4,934.91		Visa	$0.00
Shareowner	$7,356.73
Bike	$7,000.00
Car	$2,200.00
Etrade	$1,072.51
ICICI	$3,022.43
Sunlife	$1,543.49
Total	$27,130.07		Total	$9,043.55
Net Worth	$18,086.52

Now, my net worth statement needs some explaining. Normally one would list assets, such as a home, stocks, bonds, cash, mutual funds, etc. This makes it easier to see your asset allocation, which is good to know. I have done things a little different and listed assets by the different accounts i have, such as Sunlife or Etrade. I find this easier as i just go in and grab the numbers from the different accounts to calculate my net worth. I am not concerned with my asset allocation on my net worth statement, as all i am looking for is my net worth. You will probably want to list your assets under their proper asset allocation though.

Determining Values

You may be asking how I determine the value of my vehicles when i list them in the asset column. Easy. I just go online and check out the auto trader or ebay to find an asking price for my model of vehicle. Not obviously this is not totally accurate, as what people ask for the vehicles and what they get can be two different things. I think this provides a good rough idea of what my bike and car are worth though. The only true way to find out what they are worth, would be to sell them, and i'm not going to do that! If i owned a home i would do the same thing and check prices of homes in my neighborhood or go online and check the MLS for homes similar to mine in my community.

How Often?

How often should you calculate your net worth? I have seen other blogs where they calculate net worth once a month. Personally, I don't think it is necessary to do it this often. It reminds me of the person who checks if their stocks are up or down every day. Once a year or once every six months is enough to give you an idea of how your net worth is doing. Ideally, it will be going up and not down! If it is not going up, you should be asking why? I calculate my net worth once every six months.

Net worth is an easy calculation and gives you some insight into how you are doing financially.