Do You Know Your Own Net Wealth?
By Saghir A. Aslam
Rawalpindi, Pakistan
(The following information is provided solely to educate the Muslim community about investing and financial planning. It is hoped that the Ummah will benefit from this effort through greater financial empowerment, enabling the community to live in security and dignity and fulfill their religious and moral obligations towards charitable activities)
Many of us are relieved that 2020 is over and we are beginning a new year. Last year was not a year that any of us would have wished for. The firestorm arrived in March when the whispers of COVID-19 became a reality. Our rug was pulled out from under us and life quickly changed. The stock market fell, unemployment levels climbed and anxiety became an emotion we felt daily. In the end, with the year full of highs and lows, the market recovered, some business failed while the other thrived, and all the while we quarantined.
In some manner or other, life was different. This year we may have the same solutions as in the past - such as losing weight, exercising or eating healthier. Or our normal solutions may feel frivolous because our needs have significantly changed. Our goals may be much direr this year such as ab finding a job or putting food on the table for our family.
No matter where you fall on the spectrum, as we enter the new year, take a bit of time to review your finances.
Know your net worth?
Whether your net worth is high or low, you should understand what it is without understanding where you are now financially, how to do plan for your future? Calculating your net worth sounds complicated, but for most people, it’s not. Make a list of your assets (what you owe) to determine your net worth. If you have never done this, use this year’s net worth statement as a benchmark going forward. Every January, compare your statement of net worth with those of prior years.
Is your net worth growing or decreasing? Understand why it changed. Are you saving more, has your debt increased or was the stock market up or down?
Create a budget?
Do you know where you are spending money? Most people know their mortgage or car payment, but fewer pay attention to the amount they spend on food, Instacart or online purchases, especially if they are using a credit card.
Budgeting will help you’re spending. Track all your expenses for a minimum of 30 days or, better yet, the entire year. Write out monthly expenses first, then add any up additional spending. After you’ve tracked expenses for a month, think about the following:
... Where you can reduce spending? If your income has decreased and there’s a monthly shortfall, examine which expenses can be eliminated or minimized.
... Are you using credit cards monthly because you’re short on cash? If so, does the card come with low interest rate? Do not avoid looking at the statement to understand the rate and your options.
... How can you eliminate outstanding debt?
... Are you maximizing your annual contribution and employer match in your retirement plan?
... How much will you need to save to maintain the same standard of living in retirement?
... Are you saving enough to meet goals?
Plan for big- ticket items
Are you planning on moving, buying a car, replacing your roof or paying for college tuition in future? Do you know how much this expense will cost, and have you thought about how to pay for it? If the money is not readily available in the saving account, pencil out a timeline, break the expense down to a monthly cost and plug the expense into your budget.
Expect unexpected
As we were reminded in 2020, life can change unexpectedly and fast, are you prepared for a job loss, illness, disability, natural disaster or lawsuit? Insurance and saving can protect you against unforeseen events.
... Do you have an emergency fund with at least six months (or more) of expenses in a saving or money market account?
... Are you adequately insured to meet your risk?
... Do you have a disaster plan in place and supplies readily available in case of an unexpected natural disaster?
If you are tech-savvy, consider storing inventories and important documents on a portable hide drive. It’s also a good idea to retain copies of birth certificates, passport, wills, trust documents and insurance policies in a small, secure evacuation box (the fire proof, water proof kind you can look is best) that can be grabbed in a hurry in the event of an evacuation.
Protect your estate
Without proper beneficiary designation, a trust, a will and other basics documents, the fate of your assets or minor children may be decided by attorneys and tax agencies. Probate fees, tax and attorneys fee can erode your estate and delay the distributions of the assets when heirs may need them the most. If estate planning documents are not in place, meet this year with an attorney who specializes in estate planning. As we enter a new year and ponder the outcome of 2021, though our future may be uncertain, understanding where we stand financially provides the opportunity to make sound financial decisions, not emotional ones. Though we cannot control our future, we can control our actions, understand where we stand and take financial decisions based on that knowledge.
(Saghir A. Aslam only explains strategies and formulas that he has been using. He is merely providing information, and NO ADVICE is given. Mr Aslam does not endorse or recommend any broker, brokerage firm, or any investment at all, nor does he suggest that anyone will earn a profit when or if they purchase stocks, bonds or any other investments. All stocks or investment vehicles mentioned are for illustrative purposes only. Mr Aslam is not an attorney, accountant, real estate broker, stockbroker, investment advisor, or certified financial planner. Mr Aslam does not have anything for sale.)
