“Every man from his worth can build and increase his net worth.”
― Sunday Adelaja
Have you ever calculated your Net worth? What is the value of your direct and indirect assets? Have you ever thought of how much cashflow and profit you can generate from the assets you own? It is time that individuals and businesses looked at themselves as profit maximizing entities and came up with strategies to maximize their profitability and cash generation. If you have read the book Good to Great you might have understood how the great companies have done to transform to greatness and maintain the same. It starts with understanding where you are, knowing where you can get and being disciplined on your march to greatness.
These are the 5 steps you can take to maximise your net worth:
1. Generating personal financial statements:
For companies it is a requirement that you work on your accounts to ensure you get to know whether you are progressing or not. For the people running kiosks they always look at basic things like if their stock is increasing or not. All this could be an informal way of looking at the financial statement. The key financial statements that one needs to look at are:
a. The Balance sheet; this is the summation of all the assets and all the liabilities that one has. Assets are things that you own and can be used for economic gain. They are not limited to physical assets like land, buildings, cars etc but include your innate talents as well as your time that can be used for cash generation. The liabilities include not only debts but also the bad habits you might have taken along the way. One needs to avoid liabilities for as long as the return on investments is lower than the cost of the liability
b. The Profit and loss account: You need to look at yourself as a company and decide that what you shall do is increase the revenues while reducing the expenses. The only way to grow your balance sheet is through ensuring that your earnings are positive. The steps for growing your revenue is through either looking for a better paying Job, commercialising your talents, passive investments where you have some idle assets etc. Some of us have had this talent but we have never thought of converting it to be income generating.
c. The cashflow statements: we have heard that cash is king. There are people who are asset rich but cash poor and cannot afford basic needs. Despite how much you are worth it is always good to ensure that you have cash that is accessible incase of an emergency. Generally, the amount of cash required ranges between 5% to 20% depending on the size of your portfolio but as things have changed, it would be good to invest at least three to six months of your living expenses in a near cash investment like deposit and lower risks unit trust. Coming up with you cashflow statements helps you see how well you can navigate the economic shock if it ever happen and how you can take advantage of any opportunities that come your way.
2. Calculating your Net worth:
An individual’s Net worth is the difference between their total Assets and their total liabilities. Some assets are easier to value than others eg stocks, unit trusts value since they are observable in an open market while some of the assets like your talent are not easily valued. Whatever you have and are using your time to nurture it and if it has the potential of generating cash then it has economic value and should be valued. Understanding your net worth creates an opportunity to come up with a good strategy on how to maximise the income and also reduce your expenses in a bid to grow your overall financial net worth.
3. Converting assets to income:
We all have idle assets especially land, the main question is what do we eventually intend to use the assets for? Knowing that we are not sweating the assets we have is a starting point to the realization that we can do more. Looking at your talent and knowing the alternative ways of commercializing is the first step to value creation. There are some assets that are very far from being able to generate cashflows so a clear and decisive action needs to be taken. So when you are investing it is good to have the whole plan cut out and to always know that not all investments should be commercial in nature eg a family home provides more than financial satisfaction.
An idea that is never executed remains just that, an idea, so the only way to know if something makes any sense is through execution. So take the steps required to actualize the plan you have and make the changes that you must.
5. Monitoring and Evaluation:
starting on a particular path does not mean that you shall get to the intended destination, it is therefore important to ensure you have stops along the way to ensure that if there are adjustments to be done they are done on time. You can have formal and informal evaluations but key is to always reconfirm that you are on the right path
The process seems simple but at times it might require that you seek the help of a professional investment advisor. Always seek help when you must just the same way you occasionally have to see a doctor for general checkup. Getting an accountability partner could also help as they will ensure that you are always on track.
At Liz Consulting, we want to walk with you on your journey to wealth creation. We will provide all the advice and resources we can to help you with this. Join our Prosperity Blueprint here or buy our book, THRIVE, that guides you through this. Contact us on firstname.lastname@example.org. We also have a free e-book on goal setting here.