Here are our basic wealth building strategies.
Time for another snap quiz! Can you answer these questions off the top of your head?
- How much is in your investment and high interest savings accounts?
- What’s your mortgage loan balance?
- Know how much you owe on your credit cards?
- What’s your salary?
- If you own a house, how much home equity have you built? If not, how much have you saved towards a home down payment?
- And lastly, what are you doing to “get rich” (slowly or otherwise)?
Well okay, some of these questions are probably easy to answer, but if you can respond to all of these with relative ease and without having to dig them out from under piles of paper, then you must either be:
(1) a Quicken Head
(2) a bit of a control freak
(3) on top of your personal finance game
(4) a money blogger
(5) most of the above
Most of the figures you come up with are but components of that bigger number also known as Net Worth, which is calculated via the ubiquitous Assets minus Liabilities formula. Net Worth, as a subject, has been all the rage among the financial blogging community, just take a look at all the analysis, debates, challenges and revelations that are done in the name of this all encompassing number.
Even if it’s a simple, basic calculation with some limitations, it has its merits; in particular it does well as a useful starting point for determining overall financial health. And the goal of everyone I know is try to get that Net Worth number to go as high as it possibly can. Now what I find interesting is the question of what comprises net worth — since this reality varies for everyone. Maybe by taking a look at what you attribute to your net worth: your wealth if it’s a positive number, or your debt if it’s a negative number, you may get to see where you can make some tweaks and improvements in order to make that net worth number move higher.
For that big picture, I look at our net worth number in this more general, even simplistic manner to see how we stand today. To what do we owe our net worth? What do I see as responsible for building our assets or adding to our liabilities? Is there any one thing that I can thank…or perhaps even blame for the progress we’ve had so far in our wealth accumulation endeavors? What I like about this picture is that it shows me right away what things we’ve done to build our net worth, and whether we’re addressing all available opportunities to improve our financial state. It makes me appreciate the stuff that’s gotten us to where we are now.
Our Basic Wealth Building Strategies
|Source Of Net Worth||% Of Net Worth Attribution|
|Business or Entrepreneurial Endeavors (Start ups and Home Based)||15%|
|Real Estate (Primary Residence and Investments)||15%|
Please note that there is no scientific basis for this diagram; it’s merely an invention I came up with. As you can see, our wheel looks fairly well represented. This is a quick look at our wealth building strategies and how I would measure the contribution of each to our overall net worth. Our approach is to grow our assets through various means. We’ve been doing “a little bit of this, a little bit of that” to try to keep us on track financially.
But following suit, how would your wheel look like? Note also, that there may not be any correlation between how “wealthy” one is and how “diversified” their wheel happens to be, because it is often the case that many people have become successful based on just one or two financial strategies they’ve implemented. For example, there are those who have made it big due to significant returns from real estate, while others have scored from purely business related ventures. All this does is give you a different look at what’s responsible for your finances, and whether there’s anything additional you can do to grow your assets. So if there’s any other potential wealth building component that I’ve overlooked, let me know. We’d be glad to hear about what’s been responsible for your success.
What I like about this view is that it helps me acknowledge the work we’ve done so far. In a way, it gives us some assurance that we’re doing quite a bit to reach our financial goals.
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