net worth

 

Financial Terms - Money Investing EducationDo you want to win at wealth, but find all of that financial lingo confusing? Learn the glossary of money words from wealthy real estate investor Rob Rowsell. Sit under Rob’s learning tree! Find out how to make smart investments with your money by applying these financial terms and formulas.

Financial Terms You Should Know For Wealth Wins

Rob jumps right in by explaining a few key financial terms every investor should know. Then, he outlines his wealth glossary. The definitions, as well as a few useful formulas, are outlined below.

Your Net Worth Defined

When we simply put it on paper, your Net Worth is the measure of everything you own, minus everything you owe. What is the net worth formula, then? Your assets minus your liabilities equal your net worth.

Income: Active And Passive Categories

Rob groups Income into just two main categories: Active Income and Passive Income. He defines each of them as follows:

What Does Active Income Mean?

W2 Income, 1099 Income, and Active Business Income are three specific types of Active Income. Basically, if you work directly in order to earn that money, we classify it as Active Income.

Passive Income Defined

Rob then defines the category of Passive Income as money that you earn, even though you did not directly work for it. If you received Capital Gains income from the sale of one of your real estate assets, that is one example. Appreciation of one of your assets will also count as falling in the passive income category.

What Is Passive Residual Income?

Some property investment experts refer to this income category as Horizontal Income. Passive Residual Income could possibly refer to your dividends earned from investments, the rent paid from your properties’ tenants, or royalties you have earned from your own Intellectual Property. Regardless of where the money came from, this can be an outstanding income source. Everyone should seek it out, since it is literally mailbox money that arrives regularly in your bank account.

Financial Terms Continued: Vitality Factor

Rob then fills us in on a financial formula he calls the Vitality Factor. This calculation is hugely important to know if you really want to understand the nuances of the financial world. A specific formula must be used in order to arrive at your Vitality Factor. You must add your own Personal Expenses to your Deductible Business Expenses. These factors will add up together to produce your TRUE Cost of Living, before you subtract your taxes and your charity contributions.

An example of deductible business expenses Rob has written off in the past is auto repair. Years ago, when Rob owned several independent auto repair shop locations, he could write off his own automotive repair expenses. That is to say, if he had to get his oil changed or install new tires, it counted as a write-off when one of his shops performed the task. However, he sold all of the automotive shop businesses, so those expenses are solely personal ones. He can no longer write off those expenses.

How Do You Calculate The Horizontal Income Score?

We talked about the concept Passive Residual Income earlier, which is also called Horizontal Income. The Horizontal Income Score is a formula that we use to best measure your ability over time to convert your Net Worth to your ultimate goal, Horizontal Income. When you divide your Horizontal Income amount by your Net Worth, then you will arrive on your Horizontal Income Score.

Do you want an example? Here it goes. Let’s say that you currently have a Horizontal Income that adds up to exactly $100,000. Your Net Worth, on the other hand, is an even $1 Million. When you divide those numbers, you will then arrive at a score of 10. That is a great score. In fact, it is twice the average score! The higher the number the Horizontal Income Score totals up to, the better. Remember this: if you do your homework and you exercise your advantages, then you will reach your ultimate retirement scenario, which is Passive Residual Income.

What Is The Nest Egg Theory? Financial Terms Part 1 Concluded

Rob talks about the Nest Egg Theory a lot in his videos. This financial approach powers the most common retirement plan that people subscribe to. This defines freedom as a number, specifically a big bag of money that we are filling up via our 401k’s and other conventional retirement plans. Rob reminds us that there is a very real fear hiding behind this theory. What if we live long enough that the money will run out, and then we will have to return to the work force and earn w2 Active Income in our old age. This is why we should work over time in order to invest our Active Income gains into sources that will generate passive mailbox money in our twilight years.

Join Our Financial Discussion Community

Do you own multi-family rental properties? If not, do you aspire to do so one day? Then you should definitely consider joining our online discussion group, the ATL Inner Circle Community! Each month, Rob Rowsell will teach you what you must do in order to build wealth in the real estate business. It is not as easy as it looks! Property taxes, liens, and legal fees can all be hard to navigate. A successful guide in your corner like Rob is a must have! Sign up today!

video
play-sharp-fill
Compounding Wealth with Your Personal Advantages, Part 1 of 2

Financial Formulas & Terms

  • Net Worth: (Assets – Liabilities = Net Worth)
  • Income: (Active, Passive, Passive Residual Income)
  • Vitality Factor
  • Horizontal Income Score
  • Nest Egg Theory
  • Financial Freedom Score 1.3
  • Tax Drag deep dive
  • Bucket Theory

video
play-sharp-fill

KEY Topics Discussed:

  • Rob’s History Walk Through
  • Return on Equity Review
  • Prepare now for what’s to come 7 Steps
  • Step 1 Growing Your Business
  • Step 2 Intelligently Invest my Profits
  • Step 3 Control Your Personal Spending & Leakage
  • Step 4. Actively Reduce Your Tax Drag
  • Step 5 Avoid Stupid Capital Losses
  • Step 6 Let Time Compound Your Net Worth
  • Step 7 Build Your Estate Plan
  • Time – Talent – Treasure – Testimony
  • House Building in Mexico