Tracey Sofra Blog

Get Real with Your Finances


"A year from now you'll wish you started TODAY!"

Karen Lamb


Kris and her husband Joel both worked in public hospitals. They didn't earn high salaries but had good benefits - including generous superannuation. They planned to retire in about eight years' time, and were looking forward to having more time for travel - which they loved.

They thought they had enough money put away to live comfortably in their retirement. However, when they examined their financial position more closely, they were shocked to discover it was all an illusion. They had four credit cards, a personal loan, and a significant balance to pay on their mortgage. Although they were earning reasonable money now, it was mostly going towards paying these debts, which they certainly wouldn't be able to cover in retirement.

To their credit, they decided to take action immediately. They refinanced all their debts and created a new structured payment plan to be debt-free at retirement.

They learned about cash flow and the need to make their income work harder for them. They valued every dollar they earned, and realised they could even use small amounts (as little as $10 or $20) to make long-term gains. They soon regained control over their financial position, and were back on track for their retirement plans.

They didn't have to do this while living on two-minute noodles, either! They were still able to live a comfortable lifestyle and finance their regular holidays - while still planning for a happy and comfortable retirement.

What's The Point?

You need a Reality Check NOW!! It's the first important step to understand exactly where you are NOW and to see how much work you have to do. When you have decided to draw a line in the sand; a reality check will help you determine exactly where to draw that line.

You might discover that you're already well on the path to a secure financial future, or you might discover - like Kris and Joel - that you're on shaky ground. Either way, you'll be better off knowing exactly where you are and what you need to do.

Let's look at two very important concepts to make this happen:


  • Your net worth statement, to assess what you own
  • The reality check, to assess your current financial situation and how it's preparing and positioning you (or not!) for your financial freedom

Calculate Your Net Worth

The secret to a secure financial future is not the wage or salary income from your job, but the income from the assets you own. You will eventually stop working, but those assets will continue generating income for you. So your goal is to use your income during your working life to increase these income-generating assets. More to the point, it's not just about increasing your assets, but increasing your net worth.

Net Worth = What You Own - What You Owe

Take a Reality Check

Are you ready for your reality check? It's time to be honest! When I work directly with clients, we start by conducting a comprehensive reality check to determine their current financial position. That involves a lot more detail than we can cover off here, but I can give you a simplified version.  Even though it's not comprehensive, it will give you a reasonable idea of your current situation and what you need to change.

1) Highest priority

Start by identifying your top priority for your future - for example, financial freedom, time, helping others, and meeting people.

Understand why this matters to you, what it means to achieve it, and what it means if you don't achieve it. This is often related to your purpose and values.

2) Cash cushion

You might have heard that the average employee is only "two pay cheques from poverty". That's an exaggeration, but it's uncomfortably close for too many people.

You need to discover your own "cash cushion", which examines what happens if you suddenly stopped earning money.

  • Do you have only one source of income of more than a few hundred dollars a week?
  • If you lost that (main) source of income tomorrow, how long could you maintain your current standard of living (1 week, 1 month, 3 months, 6 months, 1 year, or longer)?
  • How long would you be able to survive without becoming dependent on government welfare or on family and friends (1 week, 1 month, 3 months, 6 months, 1 year, or longer)?

3) Assets

Too many people spend their entire working life earning money, spending it all, and retiring with nothing except their superannuation funds (and if they hadn't been forced to save that money, they would have spent that as well).  I can show you how to avoid that situation, but for now it's worth knowing exactly how many income-generating assets you have.

  • For how many years have you been working?
  • How much are you currently worth in net income-producing assets?

In other words, how much money do you have invested in residual income businesses, investment property, shares or superannuation funds (nothing, $5,000, $10,000, $50,000, $100,000, $500,000, or more)? Do not include the value of your home because it doesn't create income for you.

The point I'm trying to make is simply to measure where you are now - without judgement - so you can make a realistic plan to take the next steps.

For some people, it comes as a rude shock to discover just how big a gap they have between their current net income-producing asset base and their desired net income-producing asset base. If you fall into this category, don't despair! I can help you bridge that gap.

If you don't have a big gap, congratulations! You're well on the way to finding financial freedom.

You can download all of these exercises and worksheets from the Online Resource Centre that supplements my book, "Finding Financial Freedom". This is available free to you as a reader. Make sure to buy your copy now.

Posted by Tracey Sofra at March 3, 2017