Figuring Out Money and Understanding What Makes You Rich
Your salary does not make you rich. People often confuse the money they make for measuring wealth, but that is not how wealth is measured. Wealth means how rich you are and figuring out money can be confusing to many.
But here’s the secret: it’s not how much money you make that makes you rich, it’s in how you manage your money. You can make a million dollars in a year, but if you haven’t managed those million dollars well throughout the year, you could be broke without a nickel to your name.
Rich people know that the secret to making money is in how you get your money working for you. I will explain what that means.
You want to invest your money and get your money working for you. When you spend your money on vacations, luxury cars and depreciable assets, you are wasting your money. The best way to preserve your money is to track your net worth.
What is net worth?
Net worth is adding up all your assets and subtracting all the money that you owe and what is left over is your net worth. Net worth means that if you were to sell everything you own and pay back all your debts that’s how much cash you would have leftover. Net worth is how rich you are.
Why net worth matters
Your net worth determines your financial health. To have a negative net worth is unhealthy as it means that you owe more money than you have. As you progress in life, theoretically the value of your net worth should increase as you accumulate financial assets. Net worth matters a lot when it’s time to retire as chances are you will be depending on that money to get you through your retirement comfortably.
If you are interested in passing down your wealth to future generations, having a high net worth is mandatory to ensure you are preserving generational wealth.
How to build your net worth
Rich people know that the best way to build your net worth is to get your money working for you. This means that when you invest in appreciable assets such as rental properties or stocks and bonds, you will have that investment make money for you through rental income or dividend and interest income as the value of that asset grows as well.
Conversely, if you were to spend that same amount of money on a car, the car just loses value over time and offers no income as the value depreciates.
Knowing how to figure out money and invest wisely is critical.
Examples of appreciable assets include real estate, stocks and bonds, and starting a business.
Net worth tracker
When you use a net worth tracker, it helps you calculate your net worth and keep a record of it. You can compare your net worth month over month and year over year to see how you are increasing your net worth over time.
The bottom line is net worth is important for your financial health. Figuring out money doesn’t need to be hard. When you have negative net worth it means that you owe more money than you have, so by maintaining a positive net worth you are increasing the value of your portfolio. Using a net worth tracker will help you understand your financial net worth.
Being wealthy is a good thing, and building your wealth creates financial freedom. Financial freedom allows you to do things that you want to do, instead of spending all your time working to create money.
Rich people understand the value of net worth, and you should too.
Check out our Cash Catalyst course to help you understand your personal finances today!
