Doctor it hurts when I do this.

 

I am a little late with this weeks post.  I have been enjoying some pleasant weather, bike riding and yard work.  I also took in some local Texas music at the 27th annual Texas Music Revolution.  I quite enjoyed listening to local bands at this multi stage event.  A few rain storms curtailed some of the activities but also provided cooler weather.  In fact it got outright chilly there later in the evening.  All in all an enjoyable couple of days.

I also struggled with what to write about this week.  With many things distracting me (having too much fun) I was not as focused on my search for a topic this week.  I also had a family member dealing with forest fires in their area.  Most of my screen time was checking news reports regarding evacuation in his area.  Here I am now focused and ready to proceed with this weeks post.  It is now time to look at information and how we make decisions.

I have come across articles like this one many times Average net worth.  I have come across this type of information several times.  I have kept my eye on retirement based articles for the last 10 years.  I have this type of information presented several times.  When one looks to see if retirement is in the cards financial considerations are usually front and center.  So I have been watching for any kinds of financial insights.  The concept of net worth is a common one.  Once fully retired this is the nest egg of funds that you plan to live on.  Pensions still exist but are generally few and far between.  The only other source of income would then be Social Security.  However your nest egg would be a very good indicator of how comfortable your retirement will be.  I represents a firm starting point for any of your financial decisions.  that decision could be whether or not to retire or purchase a home.

This post has very little to do with the actual net worth values in the article.  In retirement or there are a number of factors that you need to take into consideration.  An important one is how you plan to send your seemingly unlimited leisure time.  This will have as much impact on your retirement plans as your net worth.  What has shocked me is peoples inability to see what is right in front of their eyes.  In the article the claim is made that "51% of Americans have no clue how to calculate their assets"  This to me is the scariest part of the entire article.  Really how complicated is it to add up your assets?  We are not talking about a precise down to the penny accounting of your assets.  Somewhere in the ballpark would be a good starting point.  For example you are contemplating purchasing a house.  According to Zillow.com the average house price in the Dallas area was just over $300 000.  So when deciding how much to spend on your purchase it does not really matter if your net worth is $250 000 or $275 000.  Both these figures are close.  However if you think it is $350 000 and it is really only $50 000 you could be in for a real shock.

I realize that some people live in such financial straights that concepts of net worth are entirely irrelevant to them.  Still though many high income earners live paycheck to paycheck.   Is it really that hard for someone who is a high earner to contemplate their net worth.  How good are they at their jobs if they cannot calculate something as simple as net worth.  As the article states you add up your bank accounts and investments, add in your house and vehicles and any other property then you subtract your debts (mortgage, car loans, credit cards etc.).  The result is your net worth.  There has been much published about the need in high school for some type of financial education.  To calculate your net worth you need to know how to add and subtract.  I graduated with an MBA 30 years ago but I can confidently state that none of my finance, accounting or economic classes ever covered personal net worth.  As I said it is just adding and subtracting.  You do not need anything other than simple arithmetic to get started.

So once you have calculated your net worth and like most you find yourself lacking the article gives some pointers as to how to "catch up".  Again I look at these in astonishment. Tip # 1; Reduce debt and start living below your means.  I better go back to school and get that PhD to understand that one.  the only way to increase your net worth is to earn more than you spend.  Again I realize that many people consume their entire income for just basic needs (shelter and food).  This does not apply to these people.  A high earner should never be living paycheck to paycheck, if they are they should have some expenses that can be cut out.

Like the Henny Youngman joke "Doctor it hurts when I do this.  Then don't do that".  If you are falling behind don't spend unnecessarily.