Networth Does Not Measure Wealth

Ever since I started working in the finance industry I’ve heard experts drive home the importance of our net worth. I’ve seen clients tout their net worth and focus their efforts on increasing their net worth. So, what exactly IS net worth? Well simply put, it is assets minus liabilities. Assets are things that are of value and will continue to produce for us and liabilities are the debt balances we have incurred. Is net worth important? Yes, and it is not to the degree that we’ve been taught.

Here is the biggest problem: the net worth of most people includes their primary residence which is simply not an asset (Click Here to read my recent article on why home ownership does not create financial freedom). This chart breaks down where the wealthy REALLY hold their assets and you can see it is not in a primary residence. The top 1% of wealth in our society primarily hold equity in their businesses and allocate the remainder to other investments. What do we see in common with their most heavily held assets? These assets are things that have the potential to produce an income! So, real net worth is assets (not including the “value” of a primary residence) minus liabilities (including the debt of the primary residence). As I always say, stats can’t lie and people can. The data is pretty cut and dry. To be fair, I’m not only picking on primary residences. I also believe that cash cannot be included as an asset. It is a liability because it goes down in value every year.

You see, our wealth should be measured by two things. The first is actual net worth. This is calculated by real assets (things that can pay us an income) minus liabilities. This is how net worth should be calculated.

Second is income. How much income is being produced and what is the total yield if we divide our income by our actual net worth? This is considered our personal rate of return.

If I have a gigantic net worth, it does me no good unless I decide to sell it or leverage against it. Either way, it is not easily accessed and can be depleted. Now if my net worth produces a high personal rate of return, I can increase that income stream and continue to build wealth with my personal rate of return. Without a flow of income, my net worth is just a pile of stuff. Like any pile of stuff, it will become old and stale if it is not used for expansion.

In summary, build a REAL net worth. Do not include things in your net worth that aren’t actual assets. And make sure your net worth pays you a monthly income that can be continually increased.

This is what my team of Wealth Coaches specialize in. Yesterday we helped a client free up over $300,000 of his home equity (which would lose 0.10% per year after inflation) to invest in real estate where he will earn more than a 9% yield per year. We are impeded from making life changing decisions like this not because we are lazy or unintelligent but because we’ve been given false data for decades about money. For our client, this decision has increased his true net worth as well as the passive income produced from it. If you’d like to work on a strategy like this to break free from the Middle Class click here and speak with an expert!

Jerry Fetta

Jerry Fetta is a husband, son of Yahweh, Entrepreneur and owner of 5 privately held businesses. Jerry lives in Alaska with his wife and 2 dogs. His no-nonsense approach to business, finances, and life speaks truth and provides clarity to his clients and followers. His personal mission in life is to empower millions of leaders to own their God-given, ultimate potential