“I really want to quit my job but I understand as much about my financial situation as I do about quantum physics!” (If you are a quantum physicist, please insert other difficult things to understand here)
One of the biggest hurdles for people leaving their job (aside from generally freaking out about the ‘what ifs’) is money.
How will you have enough money to quit, how much do you need, where you should you save the money?
These are all very valid questions, but really the starting point needs to be working out your net worth.
Your net worth is basically a clear view of your entire financial situation.
You list out everything you OWN vs everything you OWE to see whether your overall net worth is a positive number or a negative number.
If it’s a positive number, that’s good, you are growing your wealth. BUT (I like big buts and I cannot lie) there could still be some work to do to improve your financial situation.
If it’s a negative number, you definitely have some work to do. And that’s okay, at least now you know and can get on with it.
We’ll go into this in a bit more detail further down the post (including an example of a net worth spreadsheet).
To start with, I want to use an example. If you wanted to lose weight, you could try and do it by saying, “I’ll just eat fewer calories” and see how that went (probably not very well).
Whereas if you spent a week noting down everything you ate and the calories you consumed vs the calories burned in exercise, you would have a very clear view of where you stood right now.
Then you could make a plan of action. Not enough exercise to counteract the eating? Okay, how much more exercise do you need to do to balance the calories.
Or, too many calories sneaking in from buying lunch at work? Okay, plan to batch cook something healthy on a Sunday night and take that to work instead.
There could be any number of potential actions you could take depending on what your personal situation looked like.
My point is, you are starting with a true and clear starting point. You can see the problem in black and white and therefore make a plan to do something about it.
It’s the same with your finances, it’s very easy to bury your head in the sand about credit cards and savings (or lack of) but until you stare it in the face, you won’t make a plan to change it.
And if you don’t make a plan to change it, you won’t end up leaving your job to do what you want to do instead.
Okay, so on to the ‘doing bit’.
If you don’t mind excel, I would recommend using it as it’s awesome and I love it. (Totally unbiased opinion there).
If excel makes your eyes bleed then a pen, paper and a calculator will do just fine.
What you want to do is list all of your assets which is everything you OWN in one column. And a column for everything you OWE, which are your liabilities.
Total up both the columns. Then subtract your liabilities from your assets to see what your overall net worth looks like.
Here’s the calculation:
Assets – Liabilities = Net Worth
Here is what the spreadsheet could look like if you are using excel.
So as I said, assets are everything you OWN. So this is everything in your current (or checking) accounts, savings accounts, investments, pension, residential home (current value), rental property (current value) car (current selling value).
You can find the current value of a property by looking on Zoopla or Rightmove. I would recommend looking at the sold prices rather than what homes are listed for as this can be overestimated sometimes.
If you remortgage regularly (every 2 years for example) you could use the last mortgage valuation assuming there haven’t been any huge market crashes in the meantime!
Just a word of warning here. There is a lot of debate (especially in the financial independence world) about whether you should include your residential home and car or not.
If you were trying to build enough wealth not to work ever again, then including your home and car would be misleading as it’s not like you would sell them to live off the money. As then you would have nowhere to live or potentially any transport.
I do think it’s useful for the purposes of this exercise though. For example, let’s say you have a paid off car that you barely use, and a whacking great credit card bill charging you interest.
When looking at your net worth, you might decide that selling the car to pay off your credit card bill is a much better use of that money.
Or, for another example, your residential home is worth a lot of money with a very small mortgage. You might decide to downsize and use the excess money to invest.
I absolutely not saying this is what you should do, everyone’s personal situation is different.
The point though is that you have all the facts in front of you and can make the right decision for you.
Liabilities are the opposite of assets. So whatever you owe money on.
This includes credit cards, mortgages (on residential and rental properties), student loans, car loans, overdrafts etc.
If when you actually sit down to do it, you draw a sharp intact of breath looking at how much credit card debt you have etc, don’t beat yourself up.
The shock of it is good. That means that you can finally start to take action rather than continuing to rack up more debt.
It might mean some major adjustments to what you spend but you are setting yourself up for a much healthier financial future, even if it is a bit painful now.
I’ve listed out the exact actions to take. I LOVE a plan.
Knowing your net worth is really important starting a business for two reasons.
As you start to make more money than you need to live on, you have two choices:
The temptation would definitely be to upgrade your lifestyle.
However, when you understand the difference between assets and liabilities, spending money on nicer stuff, decreases your net worth. Bigger mortgage, higher car payments, less money in investments or current accounts.
I’m not saying you shouldn’t allow yourself a few nicer things if you really want them but what if 5/10 years down the line, you want to do something different again? Maybe you want to travel or take a year or two off as a mini-retirement.
If you’ve continued to keep firm control of your money and channelled your business profits into increasing your net worth, you’ve given yourself a lot more options for the future.
I’ve tried to explain it in the best way I can but a great book to read is Rich Dad Poor Dad by Robert Kiyosaki.
This book was my ‘aha!’ moment to really understand how my money should be working. I definitely recommend you read it. The link is not an affiliate link, I just think it is an awesome book to really understand how to manage money.
Even if it all feels really daunting, just do it anyway. After the first couple of months of reviewing your net worth, it will start to feel a lot easier.
And I can’t tell you what a weight it lifts off your shoulders. Not only because you finally know where your money is at, but that you have actually taken action towards leaving your job.
No more staring out the office window daydreaming about the life you could have. Now you are on your way to actually get it!
Hi, I am Laura. I set up the 'I Want My Life Back Project' after burning out in a corporate job. I quit in May 2017 and set about getting my life back. I now freelance 2 days a week, run this blog, manage my rental properties and am SO MUCH HAPPIER! All the content on this blog is to help you to get your life back too :-)