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In the Smith household, sundays are reserved for three things: church, family meals, and business meetings. Since taking their marriage vows four years ago, Latrice Mosley-Smith and Ervin L. Smith, who reside in a suburb of Chicago, have looked at ways to increase their income and savings. Even the newest member of the family, 17-month-old Ashlyn Tiffany, has a seat at the table, observing her parents handling money matters. “During our business meetings we have our net worth statements listing assets and liabilities. We have a chart with the life insurance policies and motor vehicles — we own two cars and lease another — real estate properties, and anticipated assets,” explains Latrice, a 35-year-old pre-sentencing investigator with the U.S. Probation Office. “We talk about our bank accounts and retirement plans as well as expenses and future goals.” The couple also does their homework by regularly reading personal finance books.
The agenda for their Sunday business meetings, run jointly by Ervin, a 36-year-old truck driver for Canteen Corp., and Latrice, includes a weekly review of paid bills and financial goals. For instance, the couple plans to buy two rental properties over the next two years and have set target dates for these purchases. Right now, they own three properties, including their home (a three-bedroom townhouse), a single family home, and a two-flat building.
Together, the couple earns six-figures. While Ervin makes less than his wife — his annual salary is $50,000 and she earns $85,000 a year — he realizes that engaging in sound financial practices will help him acquire wealth and attain financial freedom in retirement. The couple’s biggest liabilities are their mortgages: a $80,000 balance on the townhouse, purchased in 2001 for $115,000; $65,000 owed for the single-family rehab that they bought in 2004; and a $122,000 mortgage on a two-flat brick building they purchased in 2005 for $130,000. Also, Latrice has a $75,000 student loan balance. The Smiths no longer have any credit card debt since they believe in using cash to buy low-ticket items. They factor in personal and household expenses, such as groceries and grooming, with their other bills.
Due to the value of their properties and their savings and retirement funds, the Smiths have been operating in the black. In fact, their total net worth is roughly $329,530. The couple has fully embraced DOFE Principle No. 5: to measure personal wealth by net worth, not income.
Many people make the mistake of evaluating their net worth based on the size of a paycheck or the draw from a business. If you owe more than you own, you have negative net worth. Being in such a financial position signals that, in most cases, you are overburdened by debt and that your loved ones may be in dire straits in the case of your untimely demise. If you have positive net worth, you are likely to be on track to secure a solid financial future for your family.
Through this wealth-evaluation process, you can structure a comprehensive financial plan. Here are a few things that