What is Your Net Worth?

Why is your Net Worth important? Because once you have a Net Worth (instead of net liability!), you will be able to proceed to more wealth! "The journey of one million dollars starts with one single dollar", said the famous philosopher MyFinancial$Sense.

Common folks talk in terms of having a salary increase of 30% (a promotion) or 5% (annual increase to keep up with inflation, but not with personal expenses!). Rich people talk in terms of increasing Net Worth. Common folks talk of increasing Working Income.

Six years ago, a friend of mine, a millionaire (must be, because he lived in a million-dollar bungalow, and also had just been given a million-dollar golden handshake, with more than a million dollars in his retirement fund, plus a few road/racing bicycles worth what 3 administrative assistants would earn in a year!) said of another friend, "Dick will be worth a couple of (more like 50) million dollars when his company is listed on the stock market." It's only now that I understand that rich people never talk of 5% or 30% increase in your working income.

How do you calculate your Net Worth? Simple: add (expressed in '$ & c') everything that you own, and then minus everything that you owe.

If you own: a house which you bought for $300,000 (market value $180,000 because of the U.S.A.'s sub-prime crisis), an apartment which you bought for $ 125,000 (market value $ 160,000 because it is situated in the Central Business District), savings bonds of $10,000 (fixed value), 60,000 units of mutual funds which you bought @ $1.30/unit but whose price today is $0.50 (because of the world's worst financial market in two decades), an 8-year old car bought for $50,000 but now worth $10,000 on the market, a 2-year old car which you bought for $ 37,000 (market value $ 9,000 because it's a lemon), and you owe: the bank $25,000 (loan for 2-year old car), what is your Net Worth? (A special prize awaits you if you get the right answer!).

T Harv Eker states that four (4) factors determine your Net Worth:
(1) Income, (2) Savings, (3) Investments, and (4) Simplification.

Income can be from Active Income, or Passive Income.

Active Income is when you trade your 'time' for 'money'. Your time is worth less (perhaps $4/hour) when there is a lot of supply (e.g. you work as a manual worker, perhaps packing items into a cardboard box). If you have specialised skills (like a neuro-surgeon, divorce lawyer for the rich and famous, or creative marketing consultant), your rate could be $10,000 per hour.

Passive Income is when you have an income stream whether you are awake or asleep (or gone to heaven!?! ... Elvis Presley - o.k., ok., his estate - still earns lotsa $$$$ from his songs' royalties). Or you write a best-selling book (not a best-written book, for heaven's sake!), and collect your royalties as you go on a tropical cruise.

Savings is critical because because they will become the seeds of your investment, once it reaches a minimum level. Savings indicates that you have the discipline not to let money get completely out of your hands. If you can't keep it, others will! Get the message?

From your savings (if you keep it in the bank, some banks offer 4% per annum, a few may offer 12% when they are really short of funds), you will accumulate over a period of time to use for Investments.

Investments in gold, property, stocks or business? For a Mc Donald's or Kentucky Fried Chicken franchise, you may need a $1,000,000 investment. For a network marketing company's rights to market their products, the 'franchise fee' could be less than a $100. Without an investment fund, you may miss golden business opportunities which require investments of between $10,000 to $100,000.

Simplification requires you to reduce your cost of living, so that you can increase your savings and investments faster. A property millionaire started his road to riches by simplification, when he realised that almost 100% of his income was on expenses, with little room left for savings and investments. How?

He got rid of his big car (he was a lawyer with his own firm) and changed to a compact car. He unloaded the driver (of his big car). His friends gingerly avoided him at the club (because they thought he was in dire financial straits). He's laughing his way to the bank now (and riding, with the breeze caressing his moustache, on his Harley Davidson around the country). FINANCIAL FREEDOM!

The moral of the story? Once you realise that your Net Worth is more important than your Net Income, you will be on your way to financial freedom. Focus on your Net Worth everyday (o.k., every month for starters), and you will see it grow.

I wish you Success in your undertakings, and Good Health and Wealth to you and your family. Take care!

P.S. Sshhh ... what about his big wife? No, no! The guy didn't get rid of his big wife (see story on Simplification above), in case you were wondering. Just joking (about his wife being big), for heaven's sake!