A lot of time is spent talking about income – and rightly so, it is a really important part of daily life. People talk about their income as being the yardstick they use to measure their success.
The one thing I don’t hear people talk that much about is wealth. I want to argue that your net worth or the difference between what you own (that you can quickly convert into cash) and what you owe is a much better yardstick. Assets – Liabilities = Net Worth. Your net worth is a measure of the wealth you have accumulated over time.
While income measures the amount of money that comes in regularly, wealth measures the amount of time you could go without earning an income. For example, a very well paid doctor could make a substantial annual income, but be bogged down with things like student loans, big mortgages and an oversized lifestyle. This person could have a very low or even negative net worth. That means if age, desire, or illness required them to stop working they would not be able to maintain their lifestyle.
On the other hand, someone with a modest income who diligently saves, invests, and lives below their means is building wealth. If something goes wrong this person could comfortably live out the remainder of their days without a change in lifestyle.
If you want to start to build wealth here are some basic steps.
1. Calculate Your Own Net Worth (assets – debts)
2. Set a Goal for Growing Net Worth
3, Create a Budget In-line with Your Goal
4. Allocate the Appropriate Amounts to Debt or Investing
For access to Free Budgeting Tools e-mail nicole@frombroke2baller.com
If you need help understanding your net income or the best way to increase it contact me for help!