Watching the Masters reminds me that when I started my new company, one of the things I wanted to do was track clients’ net worth.
Why track net worth?
There are many reasons, but the most important reason is that what you put your mind on grows. In addition, by tracking net worth we learn that making smart financial decisions can grow our wealth faster than if we follow herd consumerism mentality.
Albert Einstein said that insanity was “doing the same thing over and over again and expecting different results†If our net worth is not growing as we would like, we need to change our financial habits.
Tracking net worth is not new.
Many millionaires already do it without realizing it. T. Harv Ekert, author of Secrets of the Millionaire Mind says you would never hear someone at (the country club like Augusta) say “Did you hear Rory’s making $150,000? He sure is doing well.†More than likely they’ll say something like “Whoa! Did you hear? Rory is worth $8 million nowâ€
Knowingly or not, millionaires benefit from the principle that what you put your mind on grows. They also benefit from having an uncanny ability to take smart calculated risks and avoid unnecessary risks. Some of the millionaire wealth building habits we can learn are:
1.   Live Below Your Means
In other words, if you make $100,000, you should live off $85,000. This includes your expenses AND taxes.
Did you know that according to Thomas J. Stanley, author of The Millionaire Next Door, most millionaires are either meticulous budgeters, or they marry one? In Robert Kiyosaki’s book Rich Kid, Poor Kid, he says that the Rockefeller families made their kids account for every penny of their allowance, hence instilling in them the budgeting habits millionaires are so intimate with.
It may not be in us to follow a budget. If that is the case the next best thing is to make sure that you follow number 2.
2.   Pay Yourself First
Why pay the government before you get paid? The government is smart in that they automatically get their cut before you get you paycheck unless you put money in a retirement plan or IRA. Regardless as to how you do it, you can become a millionaire by paying yourself first every time you receive a paycheck.
Automate it!
The most successful people automate this process and pay themselves monthly. While volunteering for the NAPFA/Kiplinger’s Retirement Hotline I once spoke with a janitor who made less than $40,000 per year for his entire life that had accumulated $2.5 million at age 72 by paying himself first.
3.   Manage Debt
If you really want to get ahead in life, do not become a debtor. Debt can single-handedly keep you in poverty.
Some say that Albert Einstein said the most powerful force in the universe was compound interest. Compound interest is when your money makes money. Think of interest you pay on debt as the opposite of compound interest. You pay interest on interest.
A great example is a car worth $26,500 financed at 4.99% over 60 months actually costs you ($500/mo x 60 months) $30,000. Now $3,500 interest may not seem like much, but if you invest that $500 a month payment before buying the car, and earned 8%, you would have money for the car paid in less than 4 years.* If you saved for 5 years, you would have $36,707 and a better car. This simple choice of saving versus debt would result in a difference in net worth of $10,207 in 5 years. Do that over 50 years and you’re talking real money. In addition, most millionaires drive their cars for 11+ years. This principle works even better when buying a house.
Dave Ramsey, author of The Total Money Makeover suggest financing houses for 15 years or less and paying them off as soon as possible. This allows you to take a negative return (interest) and exchange it for a positive return (investments) sooner. Just ask anyone without a house payment. With no house payment, you can really grow your net worth.
Regardless of how you do it, by thinking in terms of net worth and not following the conventional herd mentality, you can grow your net worth faster.
*There is no guarantee when investing in the stock market.
5 replies to "Developing a Millionaire Mind with Net Worth"
Thank you for this article! My husband and I are a month away from paying off our debt, with the exception of our mortgage.
I used to live above my means, but now have a goal of saving as much as possible, opening up a Roth IRA,etc so that I can enjoy life when I retire. I would love to buy a new car and new home, but I really enjoy not having a car payment, and am grateful that our mortgage is reasonable. And while on occasion, I still want that fancy car and newly built home, your article reminds me of my goal and helps to keep me on track!
Thank you for the comment Stephanie, and enjoy the added cash flow… and net worth! Rich
There are people who will say, “Did you hear Rory’s making $150,000? He sure is doing well.” Those may be the people who live paycheck to paycheck thinking of how they would spend the entire $150K. On the other hand, if Rory is doing so well on $150K that people are commenting like that, he may not have the 8M net worth.
Very good article! I think many times people think they can’t save or they can’t spend less, but it’s all about choices and if you set up goals for what you want, like Stephanie mentiones, then it’s easier to follow your path and not deviate. Also, one thing that I’ve always believed in is that every litte bit counts, which would apply to # 2 and 3 in the article. Save, even if it’s a little bit each month (so many people say they don’t save because they don’t have enough money to save so it’s not worth it….of course it’s worth it!), and same with managing your debt, even if it takes you a while, every little bit will help!
Good points! David Bach in his book The Automatic Millionaire (which is in my Library) talks about his Latte Factor where he points out that something as little as saving $3 a day from your usual coffee can lead to thousands of extra dollars in retirement.