Food For Thought

Why your net worth is more important than your income

I am going to try my hand on something totallllly different than my usual posts.  Let’s talk about some finance shall we?  Now, there will be no number crunching in this post because I absolutely suck at it.  Rather, I’d like to raise my opinion about the importance of net worth, rather then your net income.
No worries.  Let me define Net Worth and Income first.  Net worth is your total assets (investments, marketable security, cash) less your total liabilities (mortgage, money owed on your credit card), the difference being your net worth.  Yes, you can have negative net worth.  It should also be noted your assets (i.e. real estate) should be valued at the current market value, and not cost.  Basically, I am saying just cause it’s worth 2 dollars yesterday doesn’t mean it’s worth the same today.

You gotta be current.

Your net income? Easy.  What you make from your jog.

Now, before I continue I will say that in order to have good net worth, you gotta have income.  How else are you going to invest? Well, you could borrow from the bank but if your income was nil the likelihood of them lending you probably nil.

That being said, your income is very important.  However, your main goal is not to have the highest possible net income (i.e.6,7,8 figures), although that would be a nice accomplishment.

Rather, you should go for the goal of having a High Net Worth. Which means, don’t sit on your money.  Invest!! Real Estate, Stocks, Mutual Funds, whatever you like.  If you don’t know how (like me), then get a book, talk to friends, read the news.   Investing is really just thinking about what the current world affairs are, what the trends are, and then making an insightful decision on what you think has good long term potential and returns.

I don’t believe in short term gains, because there is too much volatility involved.   Coincidentally, a guy named Warren Buffet also adopts the long term hold strategy, investing in companies that have a strong balance sheet, and have products he can identify with.  You don’t have to listen to me, but you definitely should listen to a guy that is considered the greatest investor of our time.

Another positive about building net worth, is that you don’t get taxed on net worth, i.e. things you already own.  You do however, get taxed on income.  So there you go, another bonus.

I am not saying you should invest 100% of your income.  No, you should do what works for you.  Draw out what your portoflio will look like, for example 50% of your income could go to savings, 20% could go to entertainment and food, the rest can go to investing (stocks, real estate).  It’s possible, as long as you are disciplined in life.

The moral of this post?  Don’t just chase a higher income by working harder, chase a better lifestyle by investing smarter.


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