You can't reach your full potential if you are not financially free. If you don't agree, I am happy to discuss.
For those who do agree or would like to become financially free anyway, read on.
Most people are not financially free for one simple reason:
They don't know how to keep score.
People tend to equate financial success with big homes, fast cars and luxurious lifestyles. It is this "consumption thinking" that holds people back from attaining their financial freedom. In Thomas Stanley's two books, The Millionaire Next Door and The Millionaire Mind, most of the millionaires profiled don't drive expensive cars nor lead extravagant lifestyles. They tend to value frugality.
There is only one way to keep score and it is ... (drum roll please)
...keeping track of your net worth.
Net Worth = Total Assets - Total Liabilities
Assets are things of value such as cash, investments (e.g. stocks and bonds) and the value of your home. Liabilities are the obligations that you owe such as credit card debt, student and bank loans and mortgage.
If you already know what your net worth, then all you need to do is make sure it stays positive and keeps going up. The faster it goes up, the better you're doing. In a future post, I will talk about how to decide what your target net worth is.
For those of you who don't know your net worth, get your financial information ready because you should calculate it right now. Stop whatever else you're doing because this is the most important number you'll need to know if you want to be financially free. It won't take too long and all you need to do is plug your numbers into the calculator below:
[…] In the months where expenses exceed income (vacation or unforeseen expenses), there is no profit distribution. If you haven’t start doing so already, I highly recommend keeping track of your net worth. […]
[…] You’ve learned the starting point for your journey is your current net worth and that measuring your net worth is the only way to track your progress. […]