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Your Wealth Is More Than Just Your Net Worth

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Do you ever find yourself comparing financial status to that of your friends? I think we all do it from time to time. We might not ask them details, but based on their job and their lifestyle, we can get a pretty good idea of where we rank in relation to them. The only question is, what are you using as a comparison tool? Are you comparing you salaries? If this is the only means of your comparison, then you are absolutely a broke thinker.

Of course, you’ll never really know all the details about your friends’ earnings or their total savings, but you really don’t need to worry about them. The only info that should really matter to you is your own.

There are two major factors that determine your current and future wealth. If you score well in both of these categories, then you are well on your way to achieving great wealth in the future.

Your Net Worth

To find your net worth, it’s a pretty basic calculation really. All you have to do is take your total assets (your house, cars, savings, retirement fund, etc.) and then you subtract all of your debts (home loan, car loans, credit card debt, student loans, etc.). The number that’s left is your net worth. If you’re a fresh graduate from college, the chances are pretty good that your net worth is negative (those student loans will kill ya in this calculation)! If you’re in this category, then you’d better get yourself to score well in the next factor: excess cash flow.

Excess Cash Flow

The amount of money that you have left at the end of each month is known as your excess cash flow. If, in the above calculation, you discovered that your net worth is negative, I sure hope that this number is positive for you. Otherwise it’s 100% certain that you’re heading toward bankruptcy. You owe everyone money and you’re earning less than you’re spending each month. This is never a good thing.

Hopefully, your story is a little more positive than the above example. I would say that if you’ve been reading this blog for a few months, you’re most likely trying to pay down your debts, which means that you’re increasing your net worth (great job!). And, once your debts are gone, think of all the excess cash you’ll have each month. If used properly, this will lead you toward an even greater net worth, which brings us to our final point.

Invest Your Excess Cash

It’s one thing to have excess cash, but the real question is what you intend to do with it. If you save it up and buy a speed boat in a couple years, then your net worth will soon suffer (as the boat depreciates in value). If, however, you decide to invest that excess money into your retirement fund or use it to start your own business, then your net worth will most likely see a spike in its number! If you make the proper choices here, then your future will just become easier and easier as your net worth grows to an out of control value. 🙂

Are you watching your net worth and your excess cash?

Money

AUTHOR Derek

My name is Derek, and I have my Bachelors Degree in Finance from Grand Valley State University. After graduation, I was not able to find a job that fully utilized my degree, but I still had a passion for Finance! So, I decided to focus my passion in the stock market. I studied Cash Flows, Balance Sheets, and Income Statements, put some money into the market and saw a good return on my investment. As satisfying as this was, I still felt that something was missing. I have a passion for Finance, but I also have a passion for people. If you have a willingness to learn, I will continue to teach.

15 Comments

  1. Investing or saving the excess cash is huge if you want to be financially stable. Too many people buy a new car and when the payments stop and they have any “extra” $400 lying around, they go buy another new car. For some reason we think if we have money, we need to spend it.

    • I can’t stand it when people talk about their car payments. They act like everyone must have one. Little do they know that they sound completely foolish around me.

  2. I love making money. It’s actually an art form. It’s fun and I love learning more and more about it. However, my wealth is much much more than my financial number. I have been wealthy my whole life and I have never been rich.

    • If you want to get technical about it, wealth to me is actually the combination of money and time. If you’re talking about family, then I would consider that good fortune or a blessing, but not necessarily wealthy.

  3. Education seems to be a very interesting factor these days, with student debt balanced with increased employability.

  4. I try to keep all my money working for me! I save and invest roughly 35% of my income. It helps that I keep a low profile lifestyle and have excess cash.

    • And it’s way more relaxing that way too! I’d rather have a bunch of money to spare at the end of the month than a fancy car. Thanks for the comment krantcents!

  5. I make sure to save and invest. More investing now as the emergency fund is set. I need to get into more side hustles and real estate. Having more income and cash flow is great but making your money work for you is where its at.

    • It might take a while, but once you can finally get your money working for you, wealth begins to develop rather quickly (and exponentially).

    • I am as well. Since I’m recently out of debt, my net income should soon get a good pulse upward from the additional income. 🙂

  6. Good point about factoring in your excess cash flow when taking a look at your entire financial situation. Your net worth may not be where it’s at right now, but if you manipulate your cash flow and use it to grow your wealth, you will eventually reach financial independence.

    • You’ve got it Anton. And the opposite is true too. You might be boasting because you have a high net worth, but if you’re spending more than you earn, that chunk of change will soon dwindle down to nothing.


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