Category Archives: Money

Why You Should Start Paying Attention to Your Net Worth NOW

Even if you make $200k a year, you can’t consider yourself “wealthy” if you don’t know your true net worth. A high salary doesn’t always correspond to financial well-being, especially if you’re not tracking your spending and paying attention to your debt.

Not sure what net worth is? It’s nothing complicated. Simply put, it’s the sum of everything that makes you worth something (financially speaking). Add up everything of value you own and the funds you have in cash and investments, then subtract any debt you have to calculate a comprehensive view of your money.

Now that you understand the concept of net worth, let’s talk about why paying attention to yours is vital if you want to stay on top of your finances.

It Helps You to Look at the Big Picture

Knowing that you have $7,000 in the bank isn’t helpful if you don’t know how much money you have in debt. On the other hand, some people have less cash in the bank but own several valuable investments or pieces of real estate. Therefore, you really can’t understand how financially successful you are until you see your net worth, not just a number in your bank account.

Additionally, net worth allows you to think long-term. It’s something you measure on more of a year-to-year basis rather than month to month.

Net Worth Allows You to Track Your Progress Over Years

Even if you track your spending weekly, you should take time every year to evaluate how your overall worth has changed and why. This will help you build a more complete understanding of your finances and what affects them, especially debt and investments.

According to The Balance, there are certain net worth goals we should all have at different points in our lives. For instance, by the age of 30, the site’s experts recommend that your net worth at least equivalent to half of your annual salary. I am more more aggressive. In a perfect world, you’ll have $250,000 saved by age 30. By age 40, it should be worth two times your annual salary.

Obviously, this is somewhat subjective, but the point is that everyone should set long-term money goals for themselves, and net worth can help with that.

You’ll See How Much Debt Weighs You Down

As I said before, a high salary and loads of money in the bank won’t make you a wealthy person if you’re weighed down by monumental debt. Sometimes, the only way to see the true impact of your credit card debt, car payment, and house mortgage is to add everything up. For example, you could have half a million in the bank but only be worth $100,000 if your debt is dragging you down.

Add up all of your investments and cash, then subtract all of your debt, including good debt (mortgages, student loans, etc.) and bad debt (credit card payments, car loans, etc.). Then you’ll get an accurate picture of your real financial worth.

The Bottom Line

When it comes to personal finance, your bank account is only a tiny portion of your monetary wealth. There are a million other things to consider, and a comprehensive breakdown of your net worth will help you evaluate everything.

If you’re not great a math, you can easily have the website Mint calculate your total net worth for you. Just add all of your accounts, from investments to credit cards, and then watch as the site begins tracking everything. Even if you don’t use it for daily transaction monitoring, it’s great for watching your net worth’s changes over time.

How to Stop Comparing Your Finances to Everyone Else’s

I recently read The Millionaire Next Door by Thomas J. Stanley and William D. Danko (which I highly recommend), and one of the biggest themes I walked away remembering was the concept of ignoring others. That’s not to say that being wealthy requires you to treat others unkindly. Rather, the process of true wealth requires you to quit comparing your finances, purchases, and achievements to those around you.

If you consistently find yourself jealously eyeing your neighbor’s new car or wishing you could make as much money as your older sibling, most financial gurus would agree that you’re holding yourself back. Not only is envy an ugly color for everyone, but it’s also a distraction that prevents you from making achievements of your own.

It’s impossible to totally ignore the success of others, but everyone should try to steer clear of coveting what others have. Not sure how you can possibly do that with others flaunting their good fortune in your face? Here a few tips.

1. Spend Less Time on Social Media

Although you might not think that Instagram, Twitter, Facebook, and other social media platforms have any bearing on your financial habits, they actually do. Every time you see a picture of some celebrity driving their brand-new car or a friend going on an expensive vacation, you’re asked to compare your finances to theirs.

Furthermore, social media actively encourages us to spend money and engage in compulsive buying. Your apps are constantly influencing your buying decisions, even if you don’t realize it.

According to The Next Millionaire Next Door , most millionaires spend 2.5 hours or so each week on their social media accounts. That seems drastically low when compared to the whopping 2.5 hours per day that most average users engage in. Perhaps their dedication to accumulating wealth discourages them from wasting time, or perhaps their ability to disengage from social media plays a role in their financial success.

2. If You Need to Compare, Look at Your Past Versus Your Present

Sometimes, comparison is necessary and healthy. For instance, it’s extremely smart to keep track of your finances so that you can see how far you’ve come in 10 or even 20 years. From now on, when you feel tempted to compare your success to that of others, consider comparing your current financial situation to your previous ones. Have you made progress? Where have you grown? Where can you continue to improve?

You’ll find that self-evaluation is much healthier and productive than envying those around you. Not only will it force you to better your finances, but it will also give you an appreciation for how far you’ve come over the past years.

3. Realize That Shiny Toys and Grand Lifestyles Don’t Equate to True Wealth

The average American household is at least $5,700 in debt. Together, all of the consumers in the country carry a staggering $1.003 trillion in credit card debt. Chances are, when you look at that friend who just bought a glittering new Mercedes, he didn’t pay for it in cash. Don’t assume that having the latest gadgets or the biggest house equates to a high net worth. For all you know, those people you envy are knee-deep in loans they’ll struggle to pay off for years.

What It All Boils Down To

Building wealth has nothing to do with the success of your neighbor or the failure of your coworkers. True wealth comes from dedication and self-control. Remind yourself of that when you start to covet the belongings and lifestyles of those around you. Reign yourself in and focus on your big goals, not what others have.

5 Shopping Rules We Should All Live By

In America, shopping isn’t just a hobby; it’s a way of life. Many people maneuver their schedules around attending sales, organizing their many purchases, and browsing for their next must-have item.

This mentality around shopping is partially what led The United States to be the number one largest consumer market in the world. Although that’s not entirely a bad thing, it has contributed to the mounting credit card debt held by many families and individuals.

If you’re hoping to get your shopping under control so that you can become more financially responsible, here are five shopping rules you should always abide by.

1. Buy What You Actually Need

People who love shopping are excellent at convincing themselves that they need that new purchase they’re eyeing. However, more often than not, we don’t really need that new pair of black boots or an updated version of our favorite device. What we mean by “need” is that we really want the item.

The sooner you learn to differentiate between need and want, the better off your bank account will be. Plus, you’ll fill your house with fewer impulse purchases and more important items.

2. Learn to Tell When Something Is Truly a Good Price

Just because a product is discounted doesn’t mean it’s actually a great price. Sometimes, stores will even markup their prices significantly so that their sales seem more impressive than they really are Before you label any purchase as a great deal, pull out your cell phone and see if the prices online reflect that belief. In today’s day and age, you can often find a better price on Amazon or even eBay.

Additionally, don’t assume that buying something just because it’s discounted is smart. If you don’t really need or love the item, then it doesn’t matter how steep the discount is; it probably isn’t worth it.

3. Consider How Often You’ll Use the Purchase

You know you love that designer shirt on the hanger, but how often will you really wear something that fancy? Learning to recognize items that won’t be worth their price is a huge part of becoming a smart shopper. Personally, I like to equate prices with the potential number of uses to determine worth, especially when it comes to clothing. For instance, if I won’t wear a $30 shirt at least 30 times, then I put it back on the rack.

4. Distinguish Between Purposeful and Impulsive Shopping

Because so many of us view shopping as a hobby, the line between shopping for fun and for a reason often becomes blurred. You need to learn to recognize the signs of impulsive shopping in yourself. The more you spend without purpose, the more you’ll want to spend tomorrow and the day after. Think about your purchases carefully and avoid indulging just because you can.

5. Splurge on Things You Love, But Only Rarely

One thing people might be surprised to hear me say is that splurging is a good thing, but only on rare occasions. For example: I think that purchasing a $150 pair of sunglasses that will protect your eyes for many years is a better choice than spending $10 on three different pairs of cheap sunglasses. You might not agree, but the important thing is to recognize when you think splurging is worthwhile and when it isn’t. You can only splurge every few months or so, so make those expensive purchases count.

In today’s world of high-spending and countless shopping options, it’s easy to get swept up in a consumer-driven world. By following these five simple (but effective) shopping rules, you’ll shop more purposefully and prevent yourself from needlessly spending money. I’ve been following them for years, and they’ve made a world of difference in my financial and mental health.