Worldwide Success

This question may seem a bit strange as our worth may mean different things to different people.   We are strictly talking about your financial worth here.   How can we measure how much we are worth?   And why is this question, which may seem a bit uncomfortable to some people, so important? One of the key characteristics of successful people is the tendency to make measurements and compare them to others in their field.   For instance, a successful athlete measures his or her performance against that of other athletes.   A successful real estate agent knows how many houses he sells compared to his competitors.

In terms of financial success, the most important measurement is your net worth, which measures how much you are worth financially.  If you don’t know what your net worth is you don’t know if you are successful financially or not.  “But wait a second”, you complain.  “If the guy lives in a big house, drives a fancy new car, and always vacations overseas, he is successful financially, isn’t he?  Why does he need to know his net worth?”  These looks of wealth may make you think that the person is financially successful, but in reality many times these are just looks.  The big house could have been financed with an adjustable rate mortgage requiring monthly payments that can easily reach unsustainable levels as interest rates increase.  The big fancy car could have been bought with a very high interest loan.  And the vacations overseas could have been paid with credit cards that only get minimum payments.  Despite of the looks of wealth, anyone in this situation will probably have a disastrous financial future and will not be able to keep the looks for too long.

Let’s get back to the net worth discussion.  What does it mean and why is it so important?   Your net worth is simply the sum of all your assets minus all your liabilities.  In order to calculate your net worth, start by adding up all your assets.  Your assets include your checking account and savings; investments in stocks and mutual funds; life insurance surrender cash value; and other properties such as your home, other real estate investments, cars, jewelry, furniture, etc.  Your liabilities include your mortgage, car loans, home equity loans, college loans, credit card debt, etc.  Your net worth can be calculated on a piece of paper.  If you have never made this calculation, do it now.  If you use financial software such as Quicken, this value is calculated for you accurately and automatically, as long as you use the software appropriately (see the article “Using Personal Finance Software for your Success").

Now that you know your net worth, congratulations!  You now have a solid measurement of your current financial situation, and can compare it to the financial situation of the general population. (see the article “How Many Millionaires are there in the World”)  More importantly, you can now establish goals that will lead you to financial success.  The net worth is important because it measures your true financial situation, taking into consideration not only your assets, but also your liabilities.  Acquiring assets is relatively easy.  What is difficult and critical to your financial success is the acquisition of productive assets, while keeping the level of debt to a minimum, and only using debt when it makes economic sense.

If the net worth is the most important measurement in financial success then the next logical question is: how do you increase its value?   This is the essence of the wealth accumulation strategy which is based on two foundations:  The first is personal savings  (see the article “How Much Should you Save?”).  The other is investments.  We will deal with this second area in many articles about investments.

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