Disclosure: this blog post is actually titled “How, what you earn and what you spend, has to do with Net Worth, even if it’s not shown in the math!” I only changed it on the headline because that one got more points… now that that’s settled let’s get into our weekly theme! Net Worth.
Now that we know what Net Worth is and how we can figure out our own Net Worth, let’s talk about our income and our expenses and how that can set us up, or not, to build an incredible net worth.
The formula used to calculate our net worth does not directly mention income or expenses, and yes, it’s true that our money may come from somewhere (or someone) else other than our income but for the sake of this week’s theme, let’s just pretend it does. So if the money we get to buy things with comes from our income and the money we pay our bills with also comes from our income, what is left is the money we have to build wealth, therefore to increase our Net Worth!
However, this does not mean that the more you earn the quicker you can build wealth. What it actually means is that the less you spend the quicker you build your Wealth, therefore, increasing your Net Worth! You may earn a lot of money but if you spend a lot of money chances are you are struggling and building wealth is not even in your radar! You are too busy working to make ends meet! Sorry, that’s just the way it is. I agree, if you have a low income it’s harder to start building your wealth! But, if you spend less than you make and save that money that’s left over, you are more likely to build wealth faster! Remember slow and steady wins the race. Remember the tortoise and the hare? I go back to that book a lot and the turtle always wins the race… just go read it and tell me if from 1915 until today the ending has changed…
So, we can agree that the more you earn and the less you spend is what’s going to determine how fast your Net Worth can increase, right? Remember, Income is not a factor when calculating your Net Worth! But because what you buy and save comes from the fruits of your labour, it is related, don’t think for a minute that you are going to build Wealth without taking your income and your expenses into account! 5hope I didn’t burst your bubble!).
There are other factors that contribute to building wealth and we should take all of them into account. However, it’s not always easy to say, “oh! if I don’t buy this bottle of wine, let’s say sauvignon blanc just for fun!!!, my Net Worth increases by $22! How fun!” That doesn’t happen, like, ever! But if you start seeing your Net Worth as part of your legacy and what it can mean, then that’s a game changer. And that’s a different story all together!
Coming up: Net Worth: the only way is Up?
S – The Sparkling Budgeteer
