Can you tell me the last time someone asked you what your net worth is? The answer is probably never. It might surprise you to know that wealthy people discuss their net worth quite often. How do I know? I worked on a trading desk for years and the partners would openly discuss each other’s net worth regularly. If the market was down big they’d make comments like “I just lost 10% of my net worth this week.” The Average Joe rarely if ever thinks in terms of net worth. They think in terms of salary. I’m sure you’ve heard people say things like “did you hear how much so and so makes?” Or maybe someone was bold enough to ask you what YOUR income is.
So what is your net worth? It is the total number of your assets, less your liabilities. The true barometer of your financial status. It’s not where you live, what you drive, what you wear and even how much you make. It’s life’s scorecard that measures how intelligent you are at managing your income. Most people are not aware of this but studies show that only 30% of your income determines your net worth. That’s why 60% of professional athletes are broke five years after they retire. They have very high incomes but they suck at managing their money.
The biggest factor that determines your net worth is how well you manage and invest your money. In the world of personal finance, your net worth is right up there with your credit score. However, most Americans rarely think of it this way because the media never ever promotes net worth. All they want to do is shove debt down our throats.
From this day forth, I want you to keep track of your net worth. At the end of every quarter you should evaluate your net worth. Add up all your assets (equity in home, 401k, IRA, surrender value of whole life policy, cash, stocks, bonds, jewelry, metals) subtract your liabilities (mortgage, car note, credit card debt, student loan). Focusing on net worth will change the way you look at your finances. At least it did for me.
Get started on the road to increasing your net worth through investing! Check out my short guide on investing basics, The Stock Market is for Everyone, available for $3.99 on Amazon.
Until next time!