When challenging financial conversations pop up between you and your partner, keep these lyrics in mind, which essentially say that you need to work toward an appropriate solution rather that trying to avoid the obstacle. As the song and real life would suggest, avoidance doesn’t get you anywhere closer to your goals.
Team Approach
To begin planning a great financial future, you need to start on the same page and work toward your goals as a team. There’s simply no room in any relationship for unilateral decision-making, especially with your money.
1 A financial adviser is different from a money coach in that financial advisers can manage your investments and provide investment advice. A money coach, on the other hand, cannot manage your investments, nor provide specific investment advice. Rather, they focus on growing your knowledge on savvy investing strategies.
CHAPTER 2
The Drivers of Net Worth
Couples that make it, and are happy, have what I like to call “sticky glue” between them. It’s the bond that keeps them together even when times are tough. What strengthens that bond is building toward common goals that make the couple’s life better — things like family, travel, or a new career path.
Some of the strongest sticky glue between partners is financial security because that’s what funds the future you and your partner want to create. When you don’t have financial security, or are building your own versions of it independently of each other, you’ll grow apart.
Couples become financially secure by building real net worth.
Rolling your eyes while reading this? Seriously, stop. I get that money matters can’t dominate the core tenets of your relationship; love, respect, trust, and intimacy do. But you need to respect the power money has in your relationship. It’s what rips people apart or pulls them together, and that’s fact, not fiction.
Couples become financially secure by building real net worth. Net worth is the amount of money left over when you subtract your liabilities (what you owe) from your assets (what you own). If you own a home worth $250,000 and have investments worth $25,000, you have assets that total $275,000. But let’s also point out that you owe $175,000 on your mortgage and have an outstanding consumer loan of $20,000. Your liabilities total $195,000. If you take your assets — $275,000 — and subtract your liabilities of $195,000, you have a net worth of $80,000.
Your net worth is what you’ll live off in retirement. It’s what supports your dreams of travelling, getting your master’s degree, or putting your kids through university. The greater your net worth, the more financial security you have.
Building net worth has absolutely nothing to do with how much money you make; it’s about protecting and keeping the money you’ve worked so hard to earn. There are thousands of six-figure-income earning households that, in fact, have negative net worth because they’ve spent every dollar they have. Meanwhile, some of our clients at MeVest earn modest five-figure incomes and still manage to grow their net worth by thousands each year.
A good lot of people spin a web around their life to make it appear as though they have a high net worth. For example, one of our clients came to us driving a brand new Denali, having newly renovated her home, and wearing a huge two-carat rock on her ring finger. Shortly after she arrived for her appointment, her husband rolled up in a Mercedes-Benz and Hugo Boss suit. By all accounts, Gretta and Tom looked rich. But their MeVest money coach quickly discovered the wealth they were showcasing for their friends, family, and colleagues was financed entirely by credit cards and lines of credit. All tallied up, their net worth was negative $235,000, and they were ready to wring each other’s necks.
In contrast, my savvy aunt and business mentor, a Toronto-based multi-millionaire interior designer, doesn’t necessarily look the part by driving a flashy car and living in a mansion. She drives a practical used Audi station wagon, carries a stylish Roots bag, wears second-hand jewellery, and travels in economy class. Unlike Gretta and Tom, she can afford her lifestyle. According to my Aunt Marian, not living how rich people “should” live, with expensive material possessions that don’t build wealth, has been critical to her financial success.
If you’re guilty of keeping up with the Joneses, you now have a choice — to live like a millionaire or actually be one. And along your journey to building your net worth together, just remember — the Joneses are broke.
Why Bother Tracking Net Worth?
Building your net worth starts with understanding where you are today. Your net worth is the number that we will focus on growing throughout this book. When you know where you are starting from, you can plan where you want to go. It’s kind of like hopping on that dreaded scale in your bathroom to see how much you weigh. If the number disappoints you, then you make plans to change your fitness regimen and diet. Every week you weigh in to see your progress relative to where you started. If you find your weight heading in the opposite direction of where you want it to go, you can quickly course correct.
The same concept applies to tracking net worth. Today you might jump on the net-worth scale and be disappointed about where you are, like Gretta and Tom, and see that significant changes to your financial behaviours are required. Or you might weigh in and discover that you’re satisfied with your net worth, and you simply need to keep up your regular financial-fitness regimen. On the opposite end of the spectrum from Gretta and Tom is my friend Sean, who paid off his mortgage in three years by sacrificing just about everything. Sean’s net worth is high, but at the expense of furniture, worldly experiences, and relationships. His house and heart are empty and he’ll need to make changes to his ultra-frugal financial habits to fill those voids.
The point is, when you take an honest look at your net-worth scale today, you can create a plan to grow your net worth through two actions. First, reduce debt like your car loan, mortgage, and credit card balances, and second, grow assets like your house, investments, or business.
When you know where you are starting from, you can plan where you want to go.
Did you know that people who track their net worth either on paper, with an app, or by way of a spreadsheet make greater progress on their money than those who do not? That’s because tracking your net worth adds an important layer of accountability to your net-worth goals. It forces you to face the financial music that you and your partner have created.
In his book What They Don’t Teach You at Harvard Business School, Mark McCormack references a 1979 study on setting goals conducted with Harvard MBA students. Students were asked, “Have you set clear, written goals for your future and made plans to accomplish them?” At the time of the study, researchers found that 3 percent of the participants had clear, written goals, 13 percent had unwritten goals, and 84 percent had no specific goals. Ten years later, people with unwritten goals earned twice as much as those without any goals at all. Individuals with clear, written goals earned 10 times as much the other two groups combined!
When you track your net worth, you’re more likely to accomplish the goals you’ve set to grow it. And if something goes off track, you can take immediate action to correct the situation.
Jump on It
Ready to jump on the net-worth scale? Let’s go!
If you’re a busy person, or if you’re using more than a simple bank account, keeping track of your money can be challenging. Many people have more than one bank or investment account, loan, credit card, or debit card. And when you layer on the fact that people often use multiple banks, passwords, and advisers, it’s even more confusing. Wade through it by laying all your most-recent financial statements — either electronic ones that you’ve printed out or the hard copies you’ve received in the mail — on your kitchen countertop. Also sign into your accounts online so you can have your current balances on hand. It also makes sense to open up your wallet and