What You Focus On Expands, So Focus On Building Wealth
Society tells us to focus on the physical possessions we have that can be touched and used and felt and observed by others. What car do we want? What house should we buy? What new clothes do we need? But all of that is focusing on the wrong thing if we want to build wealth.
What we focus on expands, so if you want to become wealthy, you should focus on your net worth. I recommend clients make a net worth statement and update it periodically so they can chart their progress.
Your net worth statement is easy to produce. Using a piece of paper, Excel, or a similiar application, list out everything you own. Your house, your car, your personal property (that's banker talk for the current value of your stuff), your checking and savings accounts, and any investments you may have, such as a work retirement plan. Subtotal all those numbers to give you the total of what you OWN.
Next, write out everything you owe. Your mortgage and home equity line, your car note, any personal loans you have, your student loans, and your credit cards. Subtotal these numbers to give the total of what you OWE.
Take the total of what you own and subtract the total of what you owe. That's your net worth. That represents the sum total of what you've managed to keep out of what you've earned to date.
Depending upon how big that number is and how long you've been working, this may be quite a depressing exercise. Some of you will owe more than you own, giving you a negative net worth. This means you've spent more money than you've earned in your life to date. Some of you may find your net worth is zero, even though you feel successful. If all that stuff belongs to the bank, you really don't own anything. Sorry to be the one to tell you.
But cheer up! Your net worth is just the result of the consequences of the choices you made in the past. You were doing the best you could given your level of financial education and what you were focused on. If you change your thoughts, you will change your actions, which will give you different results in the future.
I suggest all my clients set a goal to become a millionaire. While it may sound ridiculously big to you now, you can absolutely get there in your lifetime. In fact, you kind of have to if you don't have a pension through your work. You'll need that big pile of cash producing passive income to replace the income you now earn from working if you ever want to be one of those attractive old people frolicking on the beach that you see in ads for investment companies.
You don't have to save a million dollars – the market and compound interest will do the heaving lifting for you once you start investing. If you are just getting started, your main focus should be on paying down debt and building an emergency fund. But keep that goal in the back of your mind, stay focused on what you can do to build your net worth, and before you know it, you'll be a member of the millionaires club.
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