That Home Loan Hub
Welcome to That Home Loan Hub, your ultimate guide to mastering the world of home loans and property. I'm Zebunisso Alimova, here to simplify the complexities of real estate and provide you with expert insights and the latest trends.
Whether you're a first-time homebuyer, an experienced investor, or simply curious about the property market, this podcast is for you. Join me each week as we unlock the secrets to property success and help you make informed decisions. Let's dive into the world of property together!
That Home Loan Hub
James Shares Ep #1 - Net Worth Made Simple
Get ready to dive deep into the essential process of calculating net worth. This episode explores how knowing your financial position can clarify your decisions and help shape your future. We break down the simple formula of assets minus liabilities, making it easy for you to assess where you stand and where you want to go.
Through engaging discussions and real-life examples, we guide you on identifying your assets, be they property or investments, while also examining common liabilities like loans and debts. Understanding this balance is not just about tracking numbers; it’s about mapping out your goals, whether it's buying a home, saving for a dream trip, or planning for retirement.
Gain practical insights that inspire you to take charge of your finances! Tune in, discover your net worth, and let us know your goals! Share your experiences with us, and don’t forget to subscribe and leave a review!
Hello and welcome to our new series of James Shares. James, welcome back.
Speaker 2:Thank you, very nice to be here.
Speaker 1:Yay. So for our first episode together about where you're going to start sharing your knowledge, let's talk about the topic you've prepared. What are we going to talk about today, James?
Speaker 2:Well, there's a couple of things. Firstly, I want to talk about how purpose and net worth connects and why it's important to calculate your net worth so it can help you achieve the things you want to do in life.
Speaker 1:Awesome. So let's dive straight into this Net worth. What is it and how do people calculate it?
Speaker 2:Okie dokie. So it's a pretty straightforward idea. It's kind of like a balance sheet for a business, but it's for yourself, for your own household. So the easiest way to calculate it is simply assets, less debt or liabilities, and that gives you your net worth. So for a normal person and I can use myself as an example, if you think I'm a normal person- you seem pretty normal to me, James.
Speaker 2:Cool. So I could just throw out some random numbers about what my net worth is today. So you know, I've got a property, a small lifestyle property about $750,000. I've got a couple of older cars that you could possibly include at $8,000 total. I don't really have any cash because I spend, we pay off our mortgages as quick as possible and I have about $75,000 in some shares. Okay, so that's my assets. So, if I added all those up, I haven't actually added them up.
Speaker 1:But if you were?
Speaker 2:Yeah, that would be my total assets. Then on the other side is you have your debt. So I've got a house. So therefore I've got a mortgage. Most younger people will have a mortgage. My mortgage is about $200,000, so we can say that I've got $200,000 in debt. So we can say that I've got $200,000 in debt, I've got about $3,000 on a credit card that I pay off every month. I don't have any student loans. I don't have any store cards. I don't have any high purchases or any of that sort of thing, which are other things that you could include on that side. So to work out your net worth, it's just assets there's your liabilities the totals of both of those.
Speaker 1:Why would someone want to undertake this?
Speaker 2:Okay.
Speaker 1:And in what point of life.
Speaker 2:I think you want to do it right from the beginning because you want to see that the decisions that you're making you know life decisions or financial decisions you're going to see improvement in your net worth. If you want to buy a house and you're starting with nothing and you know you need everything $50,000 deposit, or whatever it is you need, or $100,000, you've got to improve your net worth to a situation that you can use your net worth to show how your financial position is improving. And the easiest way to do that, as a young person, is either by saving you know KiwiSaver those are all really good assets.
Speaker 1:Okay, so let's run through this again. So what goes on your asset side? So we talked about property yep. We talked about deposit yep. We talked about kiwi savers, savings yep. What about your pets?
Speaker 2:I would say a pet is definitely a liability, and so is a car in some ways. We just spent two grand on our dog, so there's plenty of arguments on whether that dog was worth two grand. We paid $500 for it. Where's the payoff?
Speaker 1:Exactly, so you're in the minus position there with the dog. Okay, so for the young people listening these days, in order to understand their net worth, they can sit down, put through all of their assets, including cars, and also, like a lot of young people these days, they may have a car loan. So that will go on the other side of the ledger.
Speaker 2:Yeah, and you need to be brutally honest about what you think the values are of some of your assets or liabilities. So if you've got a car and you bought it five years ago new, it's not going to be worth the same amount of money now, so you wouldn't put on your. In my opinion, I'm really conservative because I don't want to make my net worth. Look good.
Speaker 2:I want it to be an honest appraisal of where I'm at. So you need to be brutally honest. So, to figure out what your car might be worth, you could go on Trade Me or something like that and see similar models similar year and what they're going for To give you a realistic idea, because cars go, generally speaking, they'll go down in value.
Speaker 1:Yeah.
Speaker 2:Pretty significantly.
Speaker 1:What about contents? Do you have contents in you?
Speaker 2:Yeah, we do have contents and you put that in the same Probably in the same category as the car, in a way, because your contents are not going to be worth the same amount at a market value than what you bought them at.
Speaker 1:Depreciate quite a bit, yeah, yeah.
Speaker 2:So that's the way I tend to look at it, because the assets that I'm trying to accrue are the ones that are going to get me what I want. So, if you're wanting a mortgage, having more house and sorry, having more contents is probably not going to be the thing that sticks out on your uh um application you can't use I don't think you can use contents as a deposit for a house, unless it's a great, great grandmother's ring that you can sell for $50,000, and people normally wouldn't.
Speaker 2:Exactly so. You want to be building up those assets that are actually going to contribute to what you want, ie it's going to be your KiwiSaver, it's going to be your cash in your bank and you can look on the other side of your liabilities what's going to, on the other side of your net worth, what's going to hold you back?
Speaker 1:What do you need to bring down?
Speaker 2:Yeah, yeah. So you've got to get rid of that credit card debt as much as possible. If you've got a car loan, you know both of those things have high interest rates on them, so you want to be trying to avoid those kinds of debt. If you're looking to buy a property, the credit card is an interesting one because the higher your limit, you don't realize this until you go to buy a house. But even if your credit card is paid off and you've got a $20,000 limit, it actually detracts from the amount that you can borrow from the bank.
Speaker 1:Yeah, absolutely. And a lot of people don't know that I don't think yeah, absolutely Automatically it takes away about 3% of your servicing ability. So 3% of the credit card limit affects your ability to borrow yeah. Okay, so let's just quickly recap. If you want to know where you are right now in life, a good way to start is calculating your net worth, and we're looking at things like your assets minus your liabilities.
Speaker 2:Yep, and if people want to think of that in an easier way, instead of saying liabilities, just think of debt. You know money you owe people, and then the key thing is you need to know what you're actually going to use this for. What are you working for? Why are you improving your net worth? Not just for the sake of it. There's something that you want to get, and improving your net worth will help you towards what you want to do.
Speaker 1:Yeah, fantastic, awesome. James, thank you so much for this quick and easy episode and come back for more.
Speaker 2:Super, thank you.