Happy Day to you. This is Ken Kaufman CFO and I am thrilled you’re here for episode one. Yeah, that’s right. This is my very first podcast episode ever. I’m starting something new. Pushing outside my comfort zone, I cannot thank you enough for listening, I will do my best to bring meaningful content every episode. Episode One is titled The Net Worth Thesis. So with all the potential things in this world to build a podcast about why in the world that I choose net worth? Here’s why.
I’m going to put this in a story or a parable format to get started.
Imagine that you have found a natural spring of clean healthy water, not too far away is a land that suffering from severe drought or the people in the land just need water desperately.
You decided to to build a pipe, and you invest your time, effort and money to channel this precious resource, this water, to the people who need it most. As you’re about to complete the project, however, you receive several reports that thieves are drilling holes in your pipe and stealing the spring water before it can reach its intended destination.
Now, let’s draw some parallels. First, the spring water is your income. It’s that clean, healthy source that’s going to bring life to this drought area. That drought stricken area is your net worth it’s asking for and it wants that life saving resource to come to it to build it and help it grow.
These holes that are in your pipe now some of them may be thieves didn’t actually drill or create. Some of the holes in your pipe were not drilled by thieves, and they represent your regular bills, the things you have to pay for like housing, food, clothing, and transportation. All of those are natural, normal things. Sure, you could think about maybe spending a little less or a little more in some areas. I will leave that topic for another day. But these thieves come and drill these big holes, and it drains all the water out so that that precious resource so your income cannot get to the end, which is this symbol of your net worth being able to reach that drought land and build it up with that healthy water.
Now, those thieves are actually financial vices. We all have them. So no judgment, shame or guilt ever from this group about any of it.
It might be that you decide you want to go to a bunch of fancy dinners or you want to add to your already to large wardrobe of clothes. Or maybe there’s a brand new car you just could not leave the lot without buying. I could come up with lots have things to add to this list of potential financial vices. You know what yours are, we all know what ours are.
It’s your money. Ultimately, you get to decide where it gets spent and what its priorities are. Net worth hackers, however, they figure out how to spend on their highest priorities and build net worth concurrently, meaning they don’t let the thieves, or their financial vices, drill holes in that pipe to allow their income to slip out to the extent that there’s nothing left by the time it gets to where it was ultimately intended to go.
Now, I have another way maybe to think about this.
We work hard for income. Absolutely. And we want it to make it to the end of that pipe and fill up our net worth. That would be fantastic. Let me just say it this way, failing to build your net worth is like a rocking chair. There’s a whole lot of activity, but no real, measurable progress. Don’t stay on the porch. Net worth is how you get financial traction.
If you want to move toward financial independence, if you want to try to retire early, if you want to take and be in control of your money and your financial life, if you want evidence of financial progress regularly, if you want financial clarity and confidence that comes from that, it all comes down to the simple net worth math formula.
Here’s how it works. You take all of your assets, bank accounts, retirement accounts, other investment accounts, perhaps your home or other real estate, all of your assets, add all of those up into one bucket. Then you take all of your debts, credit cards, student loans, mortgage, any and all of those debts are liabilities and you add all those up and put them into a bucket. Then you then subtract all of that debt from your assets, and you have your net worth.
Now if your assets are greater than your debt, you’ll have a positive number. And that means you have a positive net worth. If your debts, however, are larger than your assets, then that means that you have a negative net worth.
The last part of the formula to understand is if you want your net worth to go up, you can do it one of three ways. First, you can increase your assets. Second, you can reduce your debt. Or third, you can do both concurrently, and some people have found success with that. Now you’re probably thinking to yourself, how do I know if my net worth is good or bad? Well, I have an easy answer.
Think about where your net worth was last year. If it’s higher now than then, that’s good.
that’s really good. If it has stayed flat or gone down, that’s not quite so good. But the point is you don’t compare yourself to anybody except yourself and to whether or not you’re making the progress you want to achieve your financial goals.
Now, there are some people who will argue and say, “Don’t worry about net worth, don’t track it, it doesn’t matter. If you have a high enough income, net worth isn’t worth your time to track. I was recently introduced to a family that locked me in even more firmly that tracking income only is never adequate.
I was introduced to a family that was amazing at generating income and completely neglected paying any attention to net worth. They were so amazing at generating income, they were seeing more than $120,000 a month come into their bank account. Yep, that’s almost $1.5 million a year. But they had so many holes in their pipe none of it was showing up at the end.
Their debt had gotten so out of control that even with that income they could not meet their bills and service their debt. They were headed toward bankruptcy. That sounds crazy, right? And it’s definitely an extreme example, I get that. But I think it makes the point really well. Income is only a part of the overall story that only net worth can effectively reveal. It is the truth teller. Up into the right is the truth we all want.
Did you know that most people do not track net worth at all. I recently did a poll in a Facebook group of people who are conscientious budgeters. They pay attention to their money, so much attention that some of them look at their money every day. They are passionate personal finance enthusiasts. I asked them to indicate how frequently in this poll, how frequently that they are tracking and reviewing their net worth. I gave for simple options: monthly, quarterly, annually and never. Over 200 people responded. I was shocked by the results.
More than a third don’t track net worth. And these are the nerds who pay attention to their money all the time. I can only imagine that if I did a more random sample, including people who don’t look at their money every day and don’t pay as much attention to their personal finances, that poll would show a much higher percentage of the population neglect the powerful tool that we call net worth. The net worth thesis is this: tracking and hacking your net worth will help you achieve your financial goals. Track it monthly, religiously, seriously. Then with that clarity you get, you can become a true net worth hacker, leveraging the tips, tricks, secrets and hacks we share in this community. We need you here.
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Second, will you kindly leave a review to let others know what you think of the content I’m providing. This will help get the message out to everyone who can benefit from it. Many, many thanks to you for joining today. This is a wrap for episode one. Happy Day.