I’ve made a real effort to understand as much as I can about my personal finances. It allows me to see where I spend, how I spend, know from where exactly my income is deriving, and figure out what my net worth is. And while gaining such an education can pay off in a variety of ways – helping me budget better, forecast future expenses, know what my personal inflation rate is – at times, it can also be somewhat depressing.
Many people just buy a home and accept all the costs that go along with it as “just part of owning a home”. They largely choose to look past all the repair, maintenance, and carrying costs, and focus instead on a purchase, sale price, and what they “netted” on the sale. They consider the rest just par for the course as a homeowner.
I however, have tracked our home costs to the penny over the years. And when you start adding up things like mortgage interest, repair and maintenance costs, utilities, closing costs – both when buying and selling a property – and property taxes, it’s amazing just how fast and in what amounts housing costs can accumulate.
In our first year of homeownership, we paid $21,089.75 in mortgage payments (a 15-year mortgage on $165,000) with escrowed property taxes and insurance included, and about $1,700 related to the costs of moving into the home and making it our own. Such expenses can come as a shocking – and sometimes somewhat depressing – revelation.
For many of us, when we hear the word “taxes”, income taxes on our paycheck are likely the first thing that comes to mind; and those taxes can certainly take one of the biggest bites out of our dollar’s spending power. However, consider for a moment all the other taxes that might fall into our daily lives. When you sit down and figure out all those extra taxes – income both state and federal, and sometimes local depending upon location, employment, sales, entertainment, utility, property, excise, gas, toll road, capital gains, and possibly inheritance – they can really add up.
According to NPR, “When the Tax Foundation looks at this larger picture, it finds that Americans on average pay 28 percent of their income to taxes – though it varies widely by income.” However, understanding where taxes lie and how they apply to your personal financial situation can help combat such fees and find ways to reduce their effects.
According to Nasdaq.com, “Over 65% of American adults have a net worth under $100,000. In Australia, over 65% of all adults have a net worth exceeding $100,000.”
With statistics like that, it might be easier for many just to ignore trying to put together a net worth total that is far below what they are hoping for.
However, as depressing as it might be, recognizing and understanding net worth can be a valuable financial tool in helping to plan for the future as well as review the present and past. Being able to see where assets lay, in what amounts, and how they are increasing or decreasing can be crucial to making better decisions as to how to put that money to work or put it to work more effectively.
Putting together a relatively simple comparison of assets and liabilities may only take a few minutes, but gathering such information – as well as the other information touched upon in this article – while potentially depressing at first, could be the spark that lights the fire to push harder to rectify a poor or inefficient overall financial situation.
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The author is not a licensed financial, real estate or tax professional. This article is for informational purposes only and does not constitute advice of any kind. Calculations have not been verified by a professional. Any action taken by the reader due to the information provided in this article is solely at the reader’s discretion.