My Net Worth: Who Should I Compare It To?
The fist step in developing a financial plan for someone is to create a Financial Net Worth statement.
Net Worth = Financial Assets — Liabilities
Just about every other client we have always asks this exact question:
“How does my net worth compare to your other clients?”
I just love this question. Unfortunately, to the disappointment for many, my answer is usually:
“Who should you compare it to?”
In the world of financial planning there are plenty of resources we can use to compare how we stand against our own peer group, family members, friends, the market (but which one; stock, bond or real estate!?) and so on.
But what does this comparison give us? In my opinion, Nothing! A lot of the time it just disappoints.
May I make a suggestion?! We should only focus our comparison against our own goals ‚Ä¶ our own ambitions. None of us have the same life circumstances. No one has the same goals, life plans, etc. We are all unique, although we may have similarities. Don’t try to put yourself in this BOX with everyone else!
Next time when you update your financial net worth statement (and we here at MainStreet Financial Planning recommend doing it once per year), take a look, but with an objective mind. Instead, think about where you were last year and how far you’ve come. If you are short of your goal, then revisit your goals and make a mid-course correction.
I bet that once you start noticing your progress, rather than concentrating on you destination, not only will your net worth improve, but so will your self worth. And at the end of the day I would never compare my self worth to anything. Why would you??