Importance of Net Worth – Part 2

The Primary Enemies of Healthy Net Worth


It is important to recognize the threats to a healthy net worth and avoid them. The most common enemies of your net worth include:


1.    Not having a sufficient emergency reserve to cover unexpected expenses requiring debt, usually credit card debt, to get you by.
2.    Buying not what you want but what you cannot afford.

3.    Keeping up with the Jones’s: buying what you do not need to keep up appearances.

4.    Spending more than you earn.
5.    Making bad investments: high risk, speculative and reckless investments.
6.    Bailing out family members or friends who are financially irresponsible.

A note here about #3, Keeping up with the Jones’s. Your friends and neighbors may have more disposable income than you do which allows them to afford nicer houses, nicer cars, and all the toys you think you need to keep up. More than likely though the Jones’s are willing to incur substantial debt to look like they are doing well.


If you try to keep up with people who have more wealth to begin with or who are deeply in debt you are going down the wrong road, the road to deep debt and ruin.


Frugality and Wisdom with Money


In their book, The Millionaire Next Door, William Danko and Thomas Stanley studied the lifestyles of most common millionaires – these are the people who may well live in your neighborhood and have a net worth exceeding a million dollars. What they learned is that these people make no effort to keep up with others. They have no interest in status symbols. They buy used cars, modest homes, and affordable goods. They furnish their homes modestly. They look for good values and shop sales. They wear Timex watches and shop for clothes at JC Penney or even at Good Will.


As they build their net worth they can afford to take nicer vacations and perhaps help children with college expense. But they never spend down all their wealth and they keep their focus on a very modest lifestyle and on growing their net worth.


This may not be exciting and it may not impress others. However if others knew how financially secure these folks were they would be envious.


It is not how big your home is, how flashy your car and clothes are or how fancy your vacations are that indicate your true wealth – it is your net worth that tells that story completely.


The Bonuses of a Positive Net Worth


People with a positive and growing net worth feel more financially secure. They do not lie awake at night worrying about debt and financial disaster. If they do need to borrow money their credit rating is high and their interest rates are lower. By setting a good example their children are more likely to be financially responsible and more likely to pay their own way as young adults.


Money may not buy happiness, but adequate net worth helps reduce stress. Financial stress is a leading factor in divorce. It takes a toll on your health. It reduces your financial options and traps you in a spiral of debt and reduced living standards. 


Follow the four rules above, monitor your net worth and build a positive and growing nest egg. Nothing provides more peace of mind.

Wishing you success and prosperity,

Daniel R. Murphy
Helping People Learn to Build Wealth

Wishing you Success and Prosperity,

Daniel R. Murphy

Wishing you well,

Daniel R. Murphy
Educating people for building wealth, adapting to a changing future and personal development.