Net Worth - Part 2

OK, so assuming you have a list of all the things you own and all your savings accounts etc. it's time to tally them up.

This will introduce an important distinction between two classes of "stuff": Assets and Liabilities. The definition is simple - an Asset is anything that earns money and a Liability is anything that costs money.

In its simplest form, an asset is money in a savings account earning some interest. One of the most obvious forms of liability is a loan or credit card debt.

A more complex example is a car. This is an assest because it's worth something, but it's also a liability because it loses value each year. The same is true of "stuff" (TVs, furniture etc.)

The most disputed is probably that of a house, but we'll leave that for a later post. For the moment, it counts as an asset.

1) Total up the assets - savings, pension, value of your home, stuff you own etc.

2) Total up the liabilities - loans (don't count a UK student loan remember), credit cards, outstanding mortgage remaining

3) Assets - Liabilities = Net Worth

Time...

In a way, time is what this blog is really about. We all want more time to do the things we enjoy. By becoming and staying healthy, you increase the amount of time you have available, both through life expectancy and through reduced periods of illness. By becoming better informed about your finances, you can perhaps pay off your debts / mortgage sooner and even retire earlier. Therefore a little time spent learning about health and finances, in my eyes, is worthwhile.

This brings me on to another health and diet-related post: Time is another reason I had previously failed on my mission to lose weight / change my body. This is also something the supplement-promoting companies know all too well. People expect to be able to "go on a diet", for example trying really hard to eat weird and wonderful things, for a short period of time, lose lots of weight and then go back to eating what they ate before. This tends to lead to weight loss but weight gain once they return to their "normal" diet.

Successful fat loss (or muscle gain) is the result of a small amount of effort over a long period of time, not a large effort over the course of a few weeks.

You know those adverts you sometimes see on the internet? Get ripped in 4 weeks!; Mum loses 3st in 3 weeks with this one simple tip!; Secret to a flat belly - follow this one weird rule!. They are all playing up to our hopes that there is one simple thing, one miracle pill that will enable us to lose fat / gain muscle as fast as possible.

Want to know the real secret to fat loss / muscle gain? Time.

When you stop thinking about the end goal and start enjoying the journey, it becomes a lot easier. Fat loss / muscle gain is the byproduct of the food you eat and the exercise you do, not the goal. It takes a little effort each day (for example, a conscious effort to eat more vegetables, more protein and less sugar) over a long time (weeks, months, years) rather than a lot of effort (for example, restricting food choices to rice cakes and cabbage soup or other diet fads) over a short time (days, weeks).

Patience is absolutely critical. The results will come, but you need to give them time. A realistic length of time for significant changes in either fat loss or muscle gain is six months. A realistic time frame for changes to be noticed in the mirror is eight weeks.

In a future post, I'll summarise the key points for fat loss / muscle gain I have found through research and experience, but I've introduced the main three so far - Calories, Protein and Time.

The Money Game

If you want to "win" at the money game, you need to know the rules and you need to know the layout of the board. (I'll introduce the rules in a later post). Having a clear picture of your current finances is important for two reasons - it helps make decisions about what to spend money on and, more importantly, provides peace of mind that you have taken the first step towards getting things under control. There are two steps involved in seeing the "state of play" and I'll introduce the first here - your Net Worth.

I'm sure most people have heard the term net worth before. I had previously assumed it only applied to millionaires and such, but it's an invaluable figure for everyone to know. For some people, their net worth is going to be negative (more debt than savings / assets), for others it's going to be about zero (some debt and some savings) and for others it will be a positive number of some sort. Remember that no matter what it turns out to be for you, it's just a number.

Get a pen and paper (or spreadsheet or whatever works for you) and start to make a list of all of the following that you have:

Credit cards
Savings Accounts / ISAs
Pensions / SIPPs / Company Pension
Mortgages
Overdrafts
Store Cards
Houses
Shares / Funds
Loans (don't count a Student Loan if you are in the UK - it's not a normal loan)
Cars
Stuff you own (only include the more expensive stuff)

Now you need to do some research into how much money each of these items is right now - e.g. log in to your accounts online or dig out the latest statements. For the house, try to be as honest as you can about its present value and the same for the car (don't use the purchase price in either case). For the expensive "stuff" you own, like TVs, furniture, jewellery etc. use their second-hand value too - either try to be honest with yourself or use Ebay to get an idea of how much they would sell for.

Don't start to add up the total figures from these things yet - I'll explain how to do that in another post. For now, just make the list and get the numbers.

Depending on how active you are with your finances, this could be a fairly simple exercise or it could be a big fat pain. Try to make it as fun as possible, knowing that this is an important step in working towards improving your life. This is, after all, what this blog is about. Speaking from personal experience, I'm a lot happier since I improved my finances and my health. Not because money makes me happy (it doesn't, it's just a tool), but because understanding money and knowing you have it under control allows you to relax and get on with the things that are important to you.

You are what you eat...

If calories are the number one priority when trying to change your body (whether gaining muscle or losing fat), then protein is next in line.

If you think about it, it makes sense: 1) Muscle is predominantly protein. 2) A lean body is mostly muscle, therefore a diet that is based around protein is necessary to achieve a body that is lean.

The suggested starting point for protein intake is 1g per pound of body weight. Now, this will be a little high for people who are significantly overweight and a little low for people who are especially lean, but it's a good ballpark figure.

Lean protein sources and vegetables should form the major component in the diet. For example, chicken breast, fish, lean beef, egg whites and low fat dairy.

I myself am vegetarian so I use alternatives like Quorn and supermarket's own-brand vegetarian "meat".

You can make significant improvements in body composition simply by exchanging or reducing the "normal" components of a meal, such as pasta, potatoes and rice, and increasing the helping of vegetables and lean meat (or vegetarian alternative).

Finally, I think it's worthwhile pointing out that changing the diet should be 1) gradual and 2) permanent. Don't think that you can "diet" for a few months and then go back to whatever you were eating before. After all, you are what you eat...

(I'll be posting some thoughts on time and effort required in a future post)

Change the way you think about money...

For me, one of the most important factors in my ongoing financial journey has been changing the way I think about money.

I used to live paycheck to paycheck, and apart from a company pension (which was obligatory at my place of work, so there wasn't any choice on my part whether to join or not) I had no savings and no desire/discipline to put money aside. That changed when I started thinking more about my life and what I wanted from it.

Without getting too philosophical about it, you only get one chance in life (depending on which spritual ideals you subscribe to). Think about how you want your life to be. Do you want to travel? See the world? Spend time with family and friends? Retire to a place in the sun? Party and live the life of luxury? Drive sports cars? Help others by giving your time and/or money?

No matter what it is you want from life, money is merely a tool; an enabling factor, and like any tool, you need to learn how to use it. Stop thinking of money as a thing and start thinking of it as just a number. When I "let go" of money in this way and concentrated on thinking about what was important to me in life, it enabled me to make better financial decisions using the goals of travel, helping others, learning and seeing the world as motivating ideals.

Now, for me personally, I enjoy games. I also enjoy numbers, so I turned money into a game. I'm sure we're all pretty pissed with the banks and financial institutions right now, so perhaps use these negative feelings as motivating you towards winning the "game". For example, I use a cashback credit card for all my purchases and always pay it off every month. The bank pays me to use their card. Now, I realise that the amount of money is very small, but it's an example of trying to win the "game".

I'll give some more tips in future posts, but for now, start thinking about what it is you want from life and try to think of money as nothing more than a tool or a number in an account (even if that number is negative right now).

It's just a number.

Weekly weigh-ins

In conjunction with counting calories, it's vital that you measure your bodyweight (and ideally body fat) on a weekly basis to determine if the calories you are eating are correct for your goals.

For example, I'm currently "cutting" (i.e. trying to lose body fat while keeping lean tissue - muscle etc.) and because I'm 113 lb, I'm eating around 10x that per day. I had my weekly weigh-in this morning and the scales show no change from last week.

There are two important points to take from this:

1) I need to reduce the calories slightly for next week.
2) I mustn't get discouraged by the lack of "progress".

Changing your body is a long process. There are no miracles, despite the numerous "Mum loses 4 stone in 3 weeks using this one weird secret" adverts on the internet and such. Those are the ones designed to take the pounds from your wallet instead... Realistically, you are looking at 6 months of effort, more likely 12 months for significant changes. This can sound arduous, but adherence to the diet needn't be 100%. If you diet strictly (counting the calories) 5 days a week, then a couple of days a week (ideally only one) are not going to impede progress. As long as you don't go crazy on those one or two days...

So, next week I'll reduce my calories slightly (about 10%) and see how I get on. I've been doing this for since the start of February and have almost achieved the levels of leanness I'd like (think Brad Pitt in Fight Club and other such cliches). This is the first time in my adult life where I haven't had a spare tyre around my waist and I have calories, protein, exercise and patience to thank. More on these fundamentals in a future post...

House Price Graph

As promised, here is the graph showing house prices (blue and purple lines, corrected for inflation) from 1975 and the population aged between 40 and 42 inclusive (grey line).

Click for a clearer version (opens in new tab).

Source data for prices is Halifax and Nationwide. Population is from ONS.

It's also interesting to note that the average age of a first time buyer is now 38...

House Prices

Everyone in the UK seems obsessed with house prices. so I figure it makes a good first financial post.

I found a factor affecting house prices that almost everyone overlooks, especially in the media: Population, or rather, the population contributing to the housing market.

I've often seen comments like "the population is always increasing" and "people always need houses". Hence, the conclusion is that house prices always increase.

However, think for a moment about who is buying the houses. I think it's safe to assume that it's not, for the most part, anyone under the age of 18. I think it's also safe to say that anyone older than retirement age will typically be selling / downsizing / emmigrating. That leaves people in the 18 - 65 bracket. I think it's also safe to assume that those who contribute the most to the housing market, in terms of both volume and value, are those in the middle of this age range: those who have worked their way up to a decent salary; the ones who are perhaps considering buying a second home as an investment.

Enter a paper written in 2005 by a member of the US Fed:

IFDP847.PDF

I don't pretend to understand the maths in this paper but if you read the beginning of the paper and scroll to the last few pages, you will see that, using simply the population of working age as an input, the price of houses in the US, Japan and the UK has been pretty accurately modelled.

Bear in mind that this paper was written in 2005, before the "Credit Crisis".

What does this mean for the UK's house prices? Check this out:

Interactive Population Pyramid

Moving this to 2010 shows a distinct bulge centred around the 45 year olds. Moving forwards in time, this means that the population of middle age (and let's assume major contributors to the UK's housing market) is falling.

Add this to the heady mixture of VAT increases, wage freezes, public spending cuts and I can only see one way for house prices to head for the next few years.

I'll post a graph later showing the uncanny correlation between the middle-aged UK population and house prices...

Pudding...

Had the most awesome pudding last night. Here's the recipe:

125g cottage cheese
25g peanut butter (I prefer the crunchy stuff)
1 teaspoon cocoa powder
1 teaspoon Splenda
handful of frozen blueberries (you can pretty much put as many of these in as you like)

Works out to about 300 calories and 20g of protein.

Calories - the cornerstone of dieting

UPDATE 20th Sept 2017 - I've since changed my thinking on this, and although the 1st law holds, the human body treats calories from different sources differently. You'll see this evolution in later posts, where I concentrate more on lowering calories from carbohydrates, as these have a more significant impact on things like hunger and fat storage. I'll leave the rest of the post as-is.
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If there's one reason why people, including myself, have failed on their dieting goals then it's calories. Or rather, not counting them.

For those of you with a scientific leaning, the First Law of Thermodynamics states that energy cannot be created or destroyed and this of course applies to the human body. Previously, I had wondered why I seemed to be doing everything right - eating the right foods, cutting down on sugar and fat, getting plenty of exercise - but not getting slimmer / more muscular / whatever. It turned out that I was missing the most important point - to get bigger I needed more calories and to get slimmer, I needed less calories.

It sounds obvious and it is.

So why was I and so many other people failing to achieve the goals they set for themselves? As it turns out, we had no idea how many calories we needed or how many calories we were getting.

I'll make no claims that counting calories is easy or convenient. It's not. There are ways you can make it easier and I'll cover them in a future post. For now, simply realise that if you count calories you are guaranteed to achieve your goal.

To get you started, you need to know how many calories to eat. An excellent estimate is to take your bodyweight in pounds (There are 2.2 pounds in a kg and 14 pounds in a stone) and multiply by 12 if you wish to lose weight and multiply by 16 if you wish to gain weight. This gives you a starting point for daily calorie intake.

Simply weigh yourself once per week (ideally at the same time of day) and if you have lost about 1 lb after one week, then the calories are about right (assuming you want to lose weight). If you haven't lost any weight, reduce the calories by 10% and repeat for another week. Repeat this process, aiming for about a 1 lb per week loss, adjusting the calories down on a weekly basis as required (as your weight drops, so will your calorie requirement).

If you wish to gain weight (let's assume that you want to gain muscle, not fat - gaining fat is easy!) - repeat the above step but aim to gain 1/2 lb per week. Any more than this and it's likely to be the wrong sort of gain.

In both cases, exercise is extremely important, but details on that too will be in a future post.