In today’s newsletter you will learn about the four factors that influence your net worth.
1) Your income
2) Your lifestyle expenses
3) How much you save
4) How much you invest
Here’s the problem.
Most people focus on their income instead of their NET WORTH.
They look for the highest paying jobs, but don’t understand it’s not about how much you earn. It’s about how much you save and more importantly how much you invest into assets.
You can earn a high income and still be broke.
However, you can earn a low income and have a net worth in the millions of dollars!
If you haven’t heard of ‘net worth’ before, it’s simply your total assets (things you own) minus your total liabilities (things you owe).
It’s a number I track every month.
It gives you a snapshot of where you are financially.
It’s a measurement of your financial wealth.
Let’s dive into the four factors that will help you grow your net worth and build your wealth.
1) Your Income
How much you earn plays a big role in your ability to grow your net worth.
Because the more money you earn, the more money you can save and invest.
The problem is most people waste their extra income by upgrading their lifestyle…
It’s Parkinson’s Law playing out.
The more money you have, the more you will spend.
This is why it’s important to have a plan for how you will manage and multiply your money.
2) Your Lifestyle Expenses
It’s hard to grow your net worth if your lifestyle expenses are too high.
Many people fall into this trap early in their adult life and never dig themselves out.
New cars with big loans, expensive houses that are way out of their price range, the latest gadgets and clothes to keep up appearances.
The availability of Buy Now Pay Later (BNPL), credit cards and personal loans make it ridiculously easy to fall into this trap.
Someone may ‘look’ like they are doing well financially. But if you ask them what their net worth is, you will see the real picture.
The numbers don’t lie.
If you can learn to live modestly and enjoy the simple things in life, then you will be able to set yourself up for long-term financial success.
And this will allow you to enjoy the finer things in life later on, whilst everyone else is caught in the rat-race trying to keep up appearances.
3) How much you Save
How much you save from your income is vital in the early days of growing your net worth.
This is because the power of compound interest is not yet on your side.
You must squirrel away as many dollars as you can early on and put them to work for you in assets.
As Charlie Munger says, “The first $100,000 is a bitch, but you gotta do it. I don’t care what you have to do – if it means walking everywhere and not eating anything that wasn’t purchased with a coupon, find a way to get your hands on $100,000. After that, you can ease off the gas a little bit.”
4) How much you Invest
Saving your money IS NOT enough if you are serious about growing your net worth.
Your net worth will grow as slow as a sloth if you’re relying on savings alone to build wealth.
That’s because the returns you receive in a savings account are low, and with the invisible tax called ‘inflation’ – your savings are slowly getting eaten away over time.
You must invest a portion of your money into assets that grow in value over time and produce cash flow.
This is when the power of compound interest kicks in and your net worth grows exponentially!
You can’t control the returns of your investments, but you can choose where to invest your money and how much you invest.
Once your assets are working hard for you, you don’t need to contribute as much of your ‘earned income’ to grow your net worth.
Your assets will always be able to work harder than you!
Action Steps:
Now you have learned about the four factors that influence your net worth, it’s time to take some action steps to help you gain awareness of your net worth and the factors that influence it.
1) Calculate your net worth (total assets – total liabilities)
2) Look back over the past month and work out:
a) How much you earned
b) How much you spent
c) How much you saved
d) How much you invested
3) Start tracking your net worth each month – because what you focus on
grows!
If you want help to track your numbers and grow your net worth, then my self-paced course
‘MONEY MASTERY WITH MARSHY’ has all the tools and videos required to help you on your journey.
