In this new age of ever-changing technology, the digital wallet is yet another tool to achieve secure electronic convenience for financial information or other documents. This service can store banking, credit card and other financial details on any smart device for easy access. The user can conveniently schedule payments without use of an actual wallet. You can actually leave your wallet at home knowing you’ll be able to retrieve any of your credit cards or accounts from your phone or smart watch while out.
Digital wallets do not require contact and eliminate the need to enter a credit card number or swipe a card to process a transaction. Using a digital wallet also lessens the time it takes to complete a purchase because you do not need to access the physical card to make the purchase. Added features of some digital wallets include storage of airline boarding passes, movie tickets, reward cards, car keys, coupons, ID cards and much more. It is important to note that account information isn’t stored on the device so businesses cannot access your financial info when purchases are being processed.
Transactions are a very simple process. The user simply needs to hold the smartwatch or phone which has the digital wallet set up near the credit card reader to allow the two devices to send encrypted information to each other through radio frequency. Some examples of digital wallets you may have heard of are Apple Pay, Fitbit Pay, Google Pay, PayPal, Venmo, and Zelle to name a few of the most popular.
While digital wallets are the latest technological advancement in financial day-to-day operations for the consumer, not everyone is comfortable with using them. Some may prefer other options, such as contactless cards. These also offer the contactless technology to complete in-person transactions by simply holding the card near the card reader without swiping the card. Several retailers have begun to offer apps linked to their stores as well as a form of payment of your choice. When a purchase is made, specifically from the retailer, the payment option you selected is automatically charged.
Typically, smart devices have a digital wallet preinstalled that simply needs to be activated. Otherwise, any of the many digital wallets listed prior can be downloaded from your app marketplace. A digital wallet can hold numerous cards and can be set up to prevent use without your permission.
A digital wallet is a very convenient way to store and facilitate daily purchases on smart devices, that have become the norm to have on hand at all times. A digital wallet eliminates the need to bring along cash, credit cards, check books and any other forms of payment. By using electronic software technology, digital wallets link the connected checking account to the vendor to complete the purchase, freeing the user to be carefree. Another beneficial perk of technology in effect.
10/21/2021
The Importance of Understanding Your Net Worth
Usually, when net worth is discussed, it is about a celebrity or famous athlete, and estimates range for large and exciting sums of money. Realistically, everyone should know their net worth, no matter their income level. In an emergency or extreme circumstance, this information will define the amount of funds available to you. Two types of net worth can be calculated. The following formula determines total net worth:
Assets – Liabilities = Net Worth
While this information is valuable, it is not as accurate as knowing the second type: Liquid Net Worth. This calculation is more precise because it also deducts the costs of liquidating the assets in consideration. In the event of an emergency, quickly liquidating your estate would reduce the value of certain items and incur penalties. The actual liquid value of the estate is what matters when funds are needed. The Liquid Net Worth is calculated as follows:
(Assets – Liabilities) – Cost to Liquidate Assets = Net Worth
The liquid value of an asset is factored differently based upon its type. Various considerations come into play to determine an asset’s liquidation. For instance, if you need to sell a home or piece of real estate quickly, the listing price may need to be reduced below market value to ensure a quick sale, and there may be commissions or transaction fees to pay. The sale of stocks or bonds would incur the same expenses. All assets that are not 100% cash will require some type of transaction cost to be liquidated.
For instance, let’s assume a piece of real estate needed to be liquidated and the market value was $400,000. To sell it quickly, most likely, it would be listed under market value of about 10% or $40,000, reducing the listing price to $360,000. In addition, enlisting the services of a real estate agent would ensure the best chances of selling quickly and at the best price, which means an approximate 5% or $18,000 fee will need to be paid. Once sold, there will be closing costs of about 1% to 2% or $3,600 to $7,200. Therefore, if estimating conservatively at 1%, about $21,600 ($18,000 + $3,600) must be deducted from the $360,000 listing price leaving $338,400. Next, one must subtract whatever liabilities (mortgage) are left to be paid on the property, as well as any pre-payment fees that may apply. For the sake of this calculation, let’s assume the liabilities are $200,000. That leaves a final liquid net worth of $138,400.
Aside from cash, assets that retain most of their value when liquidated, with either no or minimal transaction costs are:
- Certificates of Deposit
- Money Market Accounts
- Checking and Savings Accounts
The asset that is typically counted upon for long-term financial security is a retirement account. Unfortunately, many do not consider that if the funds from these types of accounts are accessed when the account holder is younger than 59 and a half, a significant amount of the total may be lost. First, a 10% early withdrawal fee will be deducted, and secondly, income tax will be applied to the amount withdrawn if the funds are in a traditional IRA. The reason for this is because traditional IRA retirement accounts are tax-deferred, not tax-free. The cost of liquidation, between taxes (20%) and penalties (10%), could cost you about 30% of your retirement savings. In addition, additional fees can be incurred depending on the administrator of the account’s terms and the sale of the assets held in the account.
Another type of asset that can be considered is business equity. However, the valuation may be difficult to determine. The accessibility of receiving funds from a business is usually dependent on the sale of the business, which is not usually an easy or fast process. The value of the business is also usually based upon the industry, profit margins and business appraisals by an industry expert. All in all, a business asset is not a reliable value totally in your liquid net worth in an emergency. It can, however, be factored into overall net worth with careful consideration.
Personal items such as jewelry and furnishings can also be quickly sold and accounted for should there be an emergency. However, the amount received is often much less than its value. Items that hold great value to an individual may be difficult to sell or hold little value to others. Experts estimate personal possessions are sold for only 10% to 20% of their value when in liquidation.
Overall, when planning for retirement and budgeting your expenses, one should consider their liquid net worth rather than their total net worth. Knowing the difference may sway how one saves, invests and plans for the future.
Important Note: Nothing in this article constitutes investment, tax, and/or financial advice, and you should seek advice from an independent financial or tax advisor. The mention of products, services and business in this article does not constitute an endorsement or recommendation.
