How do you measure financial success in your life? The metric you use to determine whether you’re winning with money is vital, since it will shape your future decision-making regarding your investments and overall spending habits. If you gauge your success based on a faulty standard, you will end up stunned and disappointed years later when you have little to show for your efforts.
Some people wrongly consider a high income as a sign of financial stability. While earning good money at your job is certainly helpful in building wealth, it is far from a guarantee of economic success. Consider the stories of countless celebrities and athletes who have earned tens of millions of dollars during their careers, only to end up broke and in debt.
Even more egregious of an error, some actually consider a high FICO score as a badge of honor, and proof of their financial genius. However, a higher-than-normal score from the credit bureaus is only proof that you have borrowed and paid back a significant amount of money. It is not a reflection of good investment habits, nor is it a foreshadowing of future financial independence.
If you constantly spend more than your current high income, you’re digging a hole that looks eerily like a financial grave. You can’t out-earn poor spending habits any easier than you can out-train a bad diet. If you lose your job, your high income won’t help you. If the economy crashes, your high credit score won’t help you. However, owning assets that are increasing in value and can be sold in the event of an emergency are a TRUE sign of financial stability and good decision making.
The best measure of an individual’s financial success is their net worth, or what they OWN minus what they OWE. For example, if you sold everything you owner and paid all of your debts off, how much money would remain? Simply put, if you own 1.5 million dollars’ worth of stuff, and owe $500,000 in debt, then you would have a one-million-dollar net worth.
When is the last time you had a financial check-up, and reviewed your net worth statement? At the very least, you should calculate one every year to give you an idea of where you stand and the progress you have made in the prior 12 months. What are your thoughts on this topic? Leave your comments below (even if you disagree), but always be nice! 😊