Many tell you that net worth is your ultimate financial goal. But is it really? Is there a better measurement of financial success?
Chris Miles digs into the myth of net worth and which metric will give you both net worth AND financial freedom faster. Here’s how to do it!
Listen to the podcast here
Why Is Net Worth Is WorthLESS
This show is for you. You work so hard for your money and you’re now ready for your money to work harder for you today. You want that freedom cashflow right now, not 30 or 40 years from now if you’re lucky, but you want that life that you can live and love today, especially living that life with those that you love. Most importantly, it’s about living a rich life because as you’re blessed financially, you have a greater capacity to bless the lives of those around you. You know that you can become work optional. This allows you to be able to have the freedom and the time freedom especially to be able to do your passions, live that life, spend more time with your family, teach your children, and have more opportunities to do so.
You can do it when you’re not free, but imagine how much more freedom, greater power, and ability you have and bless the lives of your family to be able to do the things that you love, especially where you work optionally. You work because you want to, not because you have to. That gives you the freedom to be able to truly be a force to be reckoned with in this world. Hopefully, a force for good. Thank you for tuning in today. Thank you for allowing me to create a ripple effect through you.
I’m so excited here today because I want you to do this one thing. If you haven’t done so already and you’re looking for a way to be able to figure out how to create passive income, go to our website, MoneyRipples.com. Try that Passive Income Calculator now to see how much passive income you could create in the next twelve months or so. Go check that out today.
Today, I want to address something that’s a little bit of a myth in the financial world. I’ve heard more people talking about it and I want to clarify it. How many of you have heard that the true measure of wealth is your net worth? I don’t mean happiness, your relationships, or health is wealth. Those are all great things. I would agree with that too, but when it comes to financial health or financial wealth, they say the true measure is your net worth.
You’ve heard that before. Is that true? Is net worth your financial measure of wealth? I’m going to say something that you probably won’t hear too often. I’m going to call it bull. It’s not. Net worth is an effect but it’s not the cause that creates wealth. I’ve seen many people many times and many of you who are starting to have a pretty good net worth, but you don’t feel any more free. Not the freedom I described. Not the freedom where you say, “I wish I could back off my hours to twenty hours a week even.”
I have one client right now. She said, “I’m tired of working 50 or 60 hours. I’m still good at my job. I like it. If I can do twenty hours, have some freedom to be able to do more with my time, and do other things outside of work, that would be awesome.” I know there are many of you like that. Some of you might even have a net worth of not just hundreds of thousands of dollars. You might even have millions of dollars. At least a few million or more of net worth. Yet you don’t feel a whole lot more free. You might have a great income. You know that everybody is looking at your life and they’re jealous of it.
A guy I talked to today was doing a mobile auto repair on my car. He came over and said, “I know this financial advisor. He’s 65 years old. He looks like he’s doing pretty well for himself.” I said, “It means he’s got money under management. He’s making a good income. That doesn’t mean if they took that income away from him, he’ll be able to be free, does it?” He’s like, “I guess not.” There are some of you out there that maybe you could be free, even free this year, if you turn that money from net worth to passive income.
That’s where the real power is. I’m not saying it’s one of the other, but if I were to choose one of the other, I would choose passive income all day long. Why? Because I experienced it firsthand. I remember the first time I was able to retire and this is the second time and it really applies to both. Now I think about it because the first time I was able to retire, my net worth wasn’t huge at all. I’ve been saying my net worth was probably less than $100,000 in total.
When I started having passive income coming in that was paying me, it paid me all. I needed $3,500 a month to be out of the “rat race” back in that time. It was pretty awesome. It was amazing because I never knew that level of freedom was possible without having to save up a lot of money. Understand that the financial advisors and those in the financial world will tell you that you should have a higher net worth and bigger savings and nest eggs. You build up and accumulate this huge nest egg and then you can live on less than the interest. They’ve trained you to do this.
There is an effect of taking net worth to create some dividends or cashflow from it, but in the traditional world, it doesn’t do a whole lot for you. In our world, what I’ve learned is that, truthfully, net worth will help you, especially if you want to create true passive income, net worth will help a lot, but it’s not everything. It’s about how that net worth will pay you. In fact, if I had to use one of the other, I would rather have a low net worth and high passive income than a high net worth and little to no passive income.
Maybe you agree. Maybe you don’t but that’s what I’ve experienced. There’s more freedom when you know the income is always coming in. What’s the whole point of you accumulating money in net worth anyway? You want to hopefully turn it into cashflow income someday, don’t you? Even retirement accounts. Most people, when I ask them, “Do you want a big balance or do you want that big balance to pay you?” A hundred percent of the time, people say, “I want to pay me. I want to somehow turn it into income, if not now, down the road.”
You can have income now and down the road if you play your cards right. When I say play your cards right, I mean don’t listen to financial advisors. Do more of what we talk about here, which is how you can take your money to create passive income. Let me show you something here. I’m going to share something I’ve taught a lot of my clients. I haven’t taught them lately, but I want to show this to you. I took this. It’s like a deviation or a slight alteration from what Robert Kiyosaki talks about a lot, but I changed it into my own formula here.
I always love cause and effect because if you do X, and Y is the result, assuming that you want Y as the result, you want to keep doing X. We know that everything starts with income. In income, you have that money coming in and expenses are going to come out. Income minus expenses equals cashflow. In other words, it’s what’s left over after you’ve paid your bills. That’s what we talked about as cashflow. It’s also the profit when you take a business term with this. Profit is the same thing. Income, take out your expenses, what’s left is cashflow.
You have two choices with your cashflow. One, you can put it into an asset. That asset could even be as simple as a savings account. As a savings account grows, your net worth grows, doesn’t it? It’s the same thing though. Your cashflow could also be used to pay down a liability, like loans. It can be paying down a credit card, car loan, mortgage, or whatever it might be. As you pay those liability or loan balances down, the net worth increases. The real aspect is if you want more net worth, focus on this. How do you have more cashflow?
The greater the cashflow and the wiser you are with that cashflow, the greater the net worth. Notice I have to throw that caveat in there. You have to be a wise steward, of course. Vice versa, what if you have less income than expenses? What if you have more bills to pay than you have money coming in every month? In other words, you’re not even making it every month. You’re in a whole different rat race. You’re in the rat race where you’re losing each month. What happens is you have a negative cashflow.
If you have more expenses than you have income, you have to do 1 of 2 things. One, you dip in your assets, you pull money out of savings and use that. Two, you run up a credit card or something. You start charging that up if you want to keep preserving your savings or whatever savings you might not have. You go to the credit card and run that bill up, so your liabilities go up. What happens? Your net worth goes down.
Notice that the true cause of net worth is your cashflow. The biggest thing you want to do here is how to increase your income. Also, be wise with your expenses so that you have more cashflow or more money left over each and every month. I mentioned the economic winter coming. One of the best things you can do right now is to find ways to increase your income, both actively through your business or your job and/or passively by investing your money. Get it working harder for you so you don’t have to work so hard for it. Those are the easiest things you can do.
Also, be wise with your expenses. Control it. Start tracking your money. If you’re not tracking your money each and every week, start now. I’ve told people, “Even if you do something like a simple spreadsheet, that’s better than nothing.” I like using Mint. It is a nice easy tool to use. It’s free. Even if you’re paycheck to paycheck, you can afford this. Mint has some great tools that allow you to track your money because tracking your money alone will help you recapture more funds. I found this with hundreds of clients that we worked with. Watching your money helps you be a wiser steward of your money.
When you ignore it, you turn a blind eye to it, and you don’t look at what’s going on, that’s when you end up spending the most money. This is also true. Even if you’re a big saver and being wise watching your money, find out what you can do to get rid of expenses that aren’t serving you anymore. If that expense is no longer good in your life, get rid of it. Do that. Focus on getting that cashflow or that money left over every month bigger and bigger. Now you have options. You can invest it, build up your assets and savings, invest, or you can pay off debt. Whichever one, in my opinion, helps give you the best leg up.
By the way, someone will ask me, “Should I pay off the student loan? Should I pay off this debt or that debt?” Let’s take a look. If you invested that money, see you next year. For ease’s sake, let’s say you have an extra $10,000. You go invest it and that makes you $80 a month. Let’s say it’s a good return. You’re making 10% a year. That’s $80 a month. You can take the same $10,000 and pay off a credit card. Maybe that frees up $200 or $300 a month. If you need a cashflow and you need it fast, go there. I would pay off that credit card instead of investing it.
I could do that, but if I know I can make more money by paying off that guaranteed payment loan, that credit card, or whatever it might be, I know exactly how much money I’m going to free up. If I invest it, I might not know exactly what it is, especially if you’re gambling with the stock market or in crypto and things like that, it’s even worse.
If you’re trying to buy up a ton of gold and silver, it’s even worse. By the way, there is a time to buy gold and silver. I believe that. I mean to say there could be a time to buy crypto and even stocks. Now is not that time. Not yet. At least that’s my opinion. You could take it for whatever you want, but I’m not giving investment advice. That’s my disclaimer, but I don’t think that time is quite yet. Otherwise, I’d be jumping all over it. I’d probably tell you about it if I were.
What I’m insisting on is this. Paying off those loans could be awesome. You could be investing it because sometimes, paying off those loans, you might look at it and say, “I have the student loan. I owe $30,000. Do I pay off and free up $300 a month and it’s lower interest?” I’d say, “No, don’t do it.” Even a car loan. I do have a car loan. I got a car loan at 3.7% interest. I’m not going to pay that sucker off extra early. I’m going to take advantage of that. I will invest my money rather than pay cash for that car.
I know there are a lot of people even in my space or people who are investors in real estate who will say, “Pay cash for cars.” You could. They’ll say, “You should do that, Chris, because it’s a depreciating asset.” My response is, “If it’s a depreciating asset, will I pay cash for it or not? If I’m going to pay cash for something, should I buy an appreciating asset or a real asset, and then let the bank take the risk by way of 3.7%?” Let’s be honest. With the true rates of inflation, I’m making money. That’s ridiculous. My point is I’m going to put my money where it serves me best.
I look at cashflow overall. I look at what adjusts and helps influence that net worth too. Remember cause and effect. Cashflow is the cause. Net worth is the effect. When people say net worth is a big thing for you, I say the net worth is worth less than cashflow. It’s not worthless, but it’s worth less than what I can do with cashflow because I can take cashflow and increase my net worth quickly. Net worth turning that into cashflow is great, but that’s the effect. It took cashflow to get there. You don’t just have net worth appear in thin air unless you inherit it. The other 99% of us won’t be inheriting jack squat.Cash flow is the cause. Net worth is the effect. Click To Tweet
This is all required by us increasing our income and being wise with our expenses. I didn’t say reduce expenses. You can reduce it, but I don’t want to live on rice and beans, sacrificing, and making your life suck. You can still enjoy life, but be wise. Prioritize where you’re putting your money and then take that cashflow and buy good assets. Not crazy assets or speculative assets. That’s why I’m not a big fan of the stock market. Buy real assets like real estate and/or pay down loans. That’s what you do with it. That is the secret. That is the key to building your net worth.
Take it from a guy, as you’ve heard my story. If you’ve at least tuned into a minimum of 3, 4, or 5 of these episodes, you know that my story was I went over $1 million in debt. I was negative easily. Even when you factor in any assets and if I could sell off everything, I would still have at least $500,000 in debt. It was negative equity upside down.
It’s $500,000 or maybe it was more. I had to go back and look at my numbers again to see what my actual net worth was at that time. I was over $1 million in debt, but I had some assets like a house to sell off even though I sold it off for a lot less than I bought it for. I had cars and vehicles. There are some real assets there and houses. Even after I sold everything off, which eventually I did, other than one vehicle, I still had over $500,000. I had a negative net worth, but I knew the answer was cashflow.
How do I increase my income? I keep my expenses reduced or at least at a minimum, and I did that. I focus on that completely. Even though I went through a divorce in 2015, at least by that time, I got to the point where I was almost breaking even or just about breaking even on my net worth at that point. Still, the big focus was building up that cashflow. How do I have more than enough cash coming in? When I do have cash, I’m investing it to buy assets that then kick off passive income. The next thing I knew, by 2016, I was out of the rat race again.
I got my expenses down minimally. I only need about $8,000 or $9,000 a month by that point. It wasn’t like I had this grandiose lifestyle but still, that was the key. That was the secret that got me there. It’s funny ways to create passive income that keeps paying you each and every month. That’s what’s important. That’s where true freedom is. I’m here to tell you. Some of our best clients are asset-rich and cash-poor. They have great net worth but it’s not turning into passive income.
If this is you, by the way, you should be talking to us and reaching out to us. You should be trying that Passive Income Calculator to see what your numbers are. If you don’t have a high net worth, you’re probably going to realize that your numbers aren’t going to be as high on the Passive Income Calculator. Don’t fret. There’s still hope in that sense. It’s how do I get my active income up more so I can save more. I’ll tell you, the interview recently came out. I’ve talked about this before. We’ve had clients where they had good cashflow. They didn’t have the biggest net worth because they had so much extra left over every month.
We usually tell people, “If you don’t have at least $150,000 or $200,000 to invest, it’s probably not worthwhile hiring six coaches.” In this case, it didn’t have that much money, but when they could pack away $7,000 a month, that’s $84,000 a year. I made an exception. I said, “This person, if they keep their cashflow going, they’re going to surpass some of these people that have $300,000, $400,000, or $500,000 to invest today because they can turn that cash around faster.”
Some of those people might have $300,000, $400,000, or $500,000 to invest but they’re still living paycheck to paycheck. They’re living a great lifestyle and they’re eating up all their extra expenses. They’re saving a little bit but if someone is saving $7,000 a month will eventually beat someone saving $1,000 or $2,000 a month. That’s the key.
Cashflow is the secret. That’s what creates more net worth, and then from that net worth, you can then turn into other passive income to create more freedom to become work optional. You work because you want to, not because you have to. If you have a great net worth right now, try other calculators and see what they come up with. See what kind of numbers you can create on the passive income side that can then accelerate building your net worth even more. Remember, cashflow is the cause. Net worth is the effect. Go and make it a wonderful and prosperous week. We’ll see you later.