Friday, August 22, 2008

Guest blogger: What's your net worth?

T. Harv Eker, author of "Secrets of the Millionaire Mind," explains that wealthy people understand that net worth is the true measure of wealth, not working income. Four areas determine net worth: income, savings, investments, and simplification.
Income can be classified as working or passive. Working income involves your own time and sweat; passive income is made without you physically working: for example, rental property income. Income enables us to address the other three net worth factors.
Once money is made, we can then save it. Remember, what you keep is more important than what you make.
“Once you’ve begun saving a decent portion of your income, then you can move to the next stage and make your money grow through investing,” says Eker. He explains that wealthy people take the time to educate themselves about investing and investments, while poor-minded people do the opposite.
Simplification is about living below your means. This increases your savings, which then increase the amount for investing.
Think of the four factors of net worth as four tires on a car.
“Poor and most middle-class people play the money game on one wheel only. They believe that the only way to get rich is to earn a lot of money. They don’t understand Parkinson’s Law, which states, ‘Expenses will always rise in direct proportion to income,’” says Eker.
Income alone will never produce wealth. By tracking your net worth, you will increase your wealth.
So how do you calculate your net worth?
“List all your assets, then list all your liabilities—all the money you owe, including credit card debt and mortgages. Your net worth is your total assets minus your total liabilities,” says Barbara O’Neill, PhD, CFP, and author of Saving on a Shoestring: How to Cut Expenses, Reduce Debt, Stash More Cash.
A net worth statement, listing your assets and liabilities, serves as a prepared financial statement. For instance, it is a good estimate of available emergency money when applying for a loan. Check your net worth every quarter.
“Where attention goes, energy flows, and results show,” says Eker.

--Edward Morrow is a senior business major at Fort Valley State University

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