Earning · Investing · Spending

Do You Know Your Net Worth?

Have you ever read those articles about people who have lots of investment properties? You know the ones, where the headline screams ‘How I bought $4 million worth of property in 2 years’ or something equally click-baity.

The focus of these types of articles is usually the asset value (the value of the houses) rather than the investor’s net worth.

They may have $4 million worth of property, but often they also have $3.8 million in debt. If they had to sell all that property tomorrow, they would be left with $200,000 – less once you include selling costs.

This difference between the value of their assets and the cost of their debt is their net worth.

Net worth

How to Calculate Your Net Worth

There is nothing complicated about calculating your net worth — it’s a simple equation. You add up your assets and subtract your liabilities (your debts).

Money Smart has a great net worth calculator to make it really simple for you.

What Does My Net Worth Mean?

If the figure is negative, it means you owe more than you own. If the number is positive, you own more than you owe.

Why Your Net Worth is Important

Focusing on the value of assets is not an accurate measure of wealth. The true measure of your wealth is your net worth.

Many people never bother to calculate their net worth, but it is important because it allows you to measure your financial progress from one month or year to the next. If your net worth grows over time, it shows you are moving forward financially. If it is declining, you have some work to do.

How Do I Improve My Net Worth?

Calculating your net worth can be an intimidating experience, particularly if the net worth number is either low or negative. But net worth is simply a number that exists today, and you can change it in the future.

In fact, the whole idea of calculating your net worth is to establish a baseline from which you can improve your financial position.

There are two ways to improve your net worth:

  1. Increase your assets, and/or
  2. Decrease your debts

You can do this in any combination you choose — building up your assets while keeping your debts level, paying down your debts while keeping your assets level, or a combination of both.

Always remember: your plans for your net worth are more important than where your net worth is at right now.

Do you know your net worth?

Her Money Matters tips:

  1. Knowledge is power. Calculate your net worth using the Money Smart net worth calculator Make a note of your net worth, as at October 2017.
  2. If you have significant liabilities, get laser-focused on reducing them.
  3. In April 2018 (six months from now) we are going to do this again to see how your net worth has improved.  

Her Money Matters Fundamentals: What are Shares?

A key reason I started Her Money Matters is to educate women on investing.

I want to explain investing concepts in simple, easy to understand language.  Today we are going to look at what shares are.

Let’s get started.

What are shares?

Imagine you are driving home after work. You are low on petrol, so you pull into Caltex to fill up your car.

You briefly consider ordering some KFC or maybe a pizza from Dominoes and a cold Coca Cola, but instead you drop into your local Coles to buy a bottle of a2 milk, an Ingham’s roast chicken and some Bega cheese. Then you drop into Pet Barn to buy a new toy for your pet.

Once you get home, you settle down with a glass of Wolf Blass shiraz and jump online to check your bank balance with ANZ bank, but end up being distracted on carsales.com.au searching for your dream car and then on Flight Centre’s website search for your dream holiday.

You need a new TV so you look online to see whether Harvey Norman, JB Hifi or Kogan.com have the best deal.

What do all of these products have in common? The companies that produce them are all listed on the Australian Stock Exchange. And this means that you can buy shares in them.

Shares are sometimes called equities, securities or stocks, but I prefer to call them shares – because you are buying a share in that company.

Even though it may only be a small share, when you buy shares in a company, you are buying a stake in that business and the opportunity to make a profit when the company does well.

You become a shareholder in that company.

Okay, that makes sense, but how do you make a profit from shares?

When you buy an investment property, you can make a profit two ways – from the capital growth (how much the property increases in value over time) and/or the rent you receive from the property.

Shares are the same – there are two ways you can make a profit.

  1. Instead of getting rent, you receive dividends. Dividends are a payment from the company you have invested in. When a company makes a profit, it may choose to distribute a portion to its shareholders through dividend payments. Not all companies pay dividends nor are they required to. If a company does decide to pay a dividend, they will typically make a public announcement the size of the dividend so you know how much you will receive.
  2. Just like a house, shares can rise in value over time. You may be able to sell them for more than you bought them, with the difference in those prices known as your capital growth. For example, if you had bought 20 shares in Flight Centre this time last year, you would have paid $687.80, but today they are worth $929.20. This increase in value is called capital growth.

As a rule, the larger, well-established companies (think big banks, insurance providers, supermarkets and telecommunications) are generally more likely to pay dividends than smaller, newer companies.

You also need to remember that just like share price growth, past dividend payments are no guarantee of future ones.

Hmm, this all sounds a bit risky to me…

All investing is a trade-off between risk and reward.

Buying shares has historically given a better chance of making your money grow over a long period than other investments, but with that potential higher return comes a higher risk. Shares are considered to be the most risky of the asset classes.

If you want risk-free or very low risk investing, you should put your money into a bank account. But your returns (particularly with the record low interest rates) will also be low.

Let’s look at what you would have earned if you had invested $1,000 this time last year.

Initial investment (as at 24 October 2016)

Investment vehicle Value one year later (as at 24 October 2017)


$1,000 High interest savings account at 2.60% for one year $1,014 $14
$1,000 Shares in the ASX $1,242 $242

As you can see, shares have provided a higher profit over the last year.

You do need to remember that the price of shares can fall as well as rise, which means you could lose money especially in the short term. The price of shares can go up and down each day – this is called volatility.

But if you are a longer term investor, and you hold your shares for a number of years, the market should continue to trend up.

But what if the share market crashes?

It will.

The share market will crash or correct at some point. But then it recovers and continues the upwards trend.

You need to think about this as an investment over the longer term. Any crashes or corrections will even out over time.


But I am not an investing expert. I have never done this before and I’m not sure I would be good at it.

That’s okay.

You weren’t an expert the first time you rode a bike or drove a car either. But you had to start somewhere and you learnt over time.

Even just reading this post is increasing your investment knowledge.

I have two pieces of good news for you.

First up, small investors (like you!) have an advantage over professional money managers. Small investors invest in companies they believe in and deal with every day.

I did this with The a2 Milk Company earlier this year. I found a2 milk as it made me feel less bloated that normal milk.  I became interested in the company and read more about their history and their research in developing the milk.

In total, I have bought 415 shares in a2 milk which cost me $1,601.50 (including purchase fees).

As of today, these 415 shares are worth $3,050.25.

There is no fancy investment technique. I just bought shares in a company whose product I believed in.

And the second bit of good news?

Research shows that women tend to make better investors than men. We are more likely to hold shares over the longer term, and we make less trades. We also save more before investing. Which brings me to my last point.

Under no circumstances should you consider investing in shares until you have:

  1. Paid off your bad debt (such as your store or credit cards, and your car loan) AND
  2. Saved three months’ worth of your salary in savings as your Safety Net.
Earning · Saving · Spending

Is it Better to Spend Less or Save More?

If you are trying to get ahead financially, you will need to consider spending less or earning more. But which one works best?

Let’s start with spending less.

The quickest way to increase your savings in the short term is to cut back on your expenses. You can make this change very quickly and see immediate results.

I know that if you print out your credit card or EFTPOS card statements for the last three months you would find items you could have done without. Taking a long, hard, honest look at your spending habits and identifying what you can cut back can be tough, but you will feel all the better for it.

But you can only cut back so far.

There are certain expenses that you either can’t remove or cut down on. Rent payments or home loan, car loan and other repayments must be made regularly.

Unless you are living off the grid, you need working water, electricity and broadband (I think we can all agree this is now an essential utility!).

You need to eat. You need transport to school or work, whether that is in the form of a bus, train or car – which has all of the associated costs of petrol, registration, insurance and ongoing servicing.

You need to make sure you are looking after yourself. Investing in your health through exercise, healthy food, regular visits to the dentist or the doctor when you are unwell are all important.

And finally, you need to make sure you have a Safety Net stashed away.

I call all of these expenses your Necessity Spend. You need to make sure you are getting the best deals and asking for discounts with all of your Necessity Spend. I also want you to make sure that what you are calling Necessity Spend actually falls into the category of necessity.

You should never cut down on your Necessity Spend, because it will cost you more in the long run. Trust me, it will come back to bite you every time. When I was younger, I would never have the money to service my car when it came time to be serviced. Inevitably I ended up with a much more expensive mechanical problem months or years later that could have been avoided if I had just spent the money on the service.

Your Discretionary Spend is everything that doesn’t fall into the Necessity Spend. This is where you can cut back if you are trying to spend less. You can choose not to go out to dinner, skip the cinema, decline birthday drinks or give up your holidays.  But there is a limit on how much you can cut down. If you are earning $4,000 a month, and your Necessity Spend adds up to $3,200, you are left with $800 Discretionary Spend per month. Even if you save every single dollar (read: literally abandon your social life) the amount you can save tops out at $800.

To increase your savings beyond the point of your Discretionary Spend, you also need to earn more.

The best way to change your financial situation in the longer term is to earn more. Increasing your income will make a huge impact – because unlike cutting down on your expenses, there is unlimited potential.

There are lots of options on how to increase your income so I won’t go over them again here, but they fall into two categories:

  1. Getting an increase in pay – either in your existing job, or taking a higher paid role somewhere else.
  2. Supplementing your income through your side hustle.

But here is the thing. You can’t just increase your income and not worry about your spending.

The classic example I think of is Johnny Depp. He has made more than $650 million in his career but is in financial distress. How is this even possible? Because of his spending habits. Johnny got paid $20 million for his last Pirates of the Caribbean movie, but his living expenses are estimated to be around $2 million a month – meaning he would need to star in a new Pirates movie every 10 months just to sustain his lifestyle!

It is scary to think that someone earning millions of dollars can be in financial distress but it happens all the time. When people increase their income they also tend to increase their spending habits. You need to make sure you save and invest your additional earnings as well as any savings you make from spending less.

Her Money Matters tips:

  • If you want to increase your savings in the short term, cut back on your Discretionary Spend. How to Tell the Difference Between Your Necessity Spend and Your Discretionary Spend. 
  • Over the longer term, you should identify ways to increase your income – 50 ways to increase your income. 
  • Ideally you will do both. Make sure you are saving and investing this additional money – not living like Johnny Depp!
Investing · Spending

Afterpay and the Culture of Instant Gratification

If you have recently been shopping online or in a real shop (remember those?) you have probably seen Afterpay.

Afterpay allows you to ‘buy’ what you want and pay for it over four equal fortnightly installments. You can pay using your debit or credit card.

Just like like lay-by, you buy now, and pay later, with one key difference – you get to have your product or service straight away. You don’t have to wait.

And, best of all, Afterpay doesn’t charge you the buyer anything, except late fees if you don’t make your four payments on time. The cost is put back onto the retailer who pay Afterpay a commission for each sale.

Sounds great right?

Sure. It’s a clever business idea, but let’s think about the sort of behaviour Afterpay encourages.

You don’t need to save.

You don’t need to wait.

You can have what you want, when you want it and that means RIGHT NOW.

Have a think about why so many e-tailers and retailers would sign up for Afterpay, when THEY are the ones bearing the cost. Because it encourages you to spend. Spend more and spend more often.

Over 70 per cent of Afterpay’s users are millennnials (those born between 1980 and 2000) and the biggest group of retailers that offer Afterpay are female fashion brands. It would seem Afterpay’s target audience are young women which is no surprise.

The concept that you need a ‘new outfit’ for any and all upcoming occasions doesn’t seem to register with men, but for women it is standard fare. We also spend more on beauty and hair products.

When I see Afterpay offered on a $30 dress on The Iconic it makes me worry about the effect this has on young women. This facility encourages you to purchase items that you want, but probably don’t need.

Afterpay also encourages instant gratification. Why does that matter? Because studies have shown that when you have easy availability of something, it becomes less valuable to you. Easy come, easy go. Your hard earned dollars are precious and they shouldn’t be frittered away on things you don’t really need.

Do you actually need a new dress? Can you make do with what you have? Or borrow from a friend?

If you really do need (not want, need) a new dress, I recommend you save up for it and make sure you are buying quality over quantity.

Or, even better, don’t buy that dress and use your savings to buy some shares in Afterpay Touch Group Ltd (ASX: APT). The share price has risen nearly 30 per cent since July 2017 and is currently sitting at $4.13.

After all, it is a clever business concept, but you should be making (not spending) money with Afterpay.