How to Determine Financial Success

Personal Finance is such a big fuss in our blogosphere, there are so many articles on how we can save more for our retirement, how to reduce debt, how we can live more frugally, how to not spend your money, and the list goes on and on. I love to read about all the different aspects of finance, because the truth is the more you think about finance the better you’re gonna do financially.

But after applying all the neat hacks and tricks on how to be more financially independent, what’s next? How do you determine financial success? How do you gauge your performance? It’s simple. It’s not how much credit card debt you were able to pay off this month, its not how much you were able to save up, it’s not how much you were able to put away for retirement.

What it comes down to is, your net worth.

You can put away $500.00 for retirement one month but in that same month treat yourself to a nice Iphone (which is somewhere around that price range) and not improve your overall net worth. You can pay off $200.00 off your credit card this month but you keep using the same credit card for all your purchases, again, you’re not improving your situation.

The way you can gauge your financial performance and know that you’re doing good is this, ask yourself, “Did my net worth improve from last month”? If you can say yes, then you’re doing wonderful, if not you might want to rethink your strategy.

What you don’t want is for you to have the same net worth month after month. As long as you can say that your net worth has increased by ‘x’ then you’re in good standings because you know that your making progress. As opposed to someone whose net worth is the same each month and not making any improvements, which is the most case. If you spend just as much as you save, then you’re really not making anything. Wouldn’t it be great if you can see that your net worth is getting better and better each month, each year? Instead of being in the same financial scenario for 5 years? This is why keeping track of your net worth is very important because it also allows you to keep track of your financial progress.

The big picture is aside from all the frugal living, putting away for retirement, investments, and all the financial goals one might have, what it comes down to is are you improving your net worth.

The key points is, you should concentrate on improving your net worth month after month. This is the only way to rate your performance. If your net worth is improving, then you know your financial situation is improving. :)

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12 Comments.

  1. You are absolutely right. I need to do a better job tracking my net worth.

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  4. This is really good advice. It’s vital to keep an eye on the bigger picture – if nothing else to keep yourself motivated when you’re working on reducing debt – otherwise it’s too easy to get dispirited and fall into the trap of trying to encourage yourself with treats such as fancy gadgets that just put you deeper in the red. I’m going to be encouraging my readers to take the ‘net worth view’ from now on.

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  6. Top advice. Just about anyone and everyone could and should learn from it. Improvement of net worth is doing just as a business would – working on the bottom line.
    Great stuff!

  7. This is great advice. With software like Quicken and Money, the process can be done with a click of a button but the work that must precede the final step is overwhelming for many. I suggest you just make a list of your assets on a sheet of paper with 12 columns and update the numbers every month. You’d be amazed at how simple and how effective that can be.

  8. Personal Development Blog - Dominate Your Life With John Crenshaw - trackback on September 30, 2007 at 8:58 pm
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