Whenever someone asks me for financial advice, I invariably get around to asking them an important question. It’s this…when was the last time you calculated your net worth and how often do you calculate it?
Normally, I get something of a roundabout, politician type of answer back. Something like, “I know how much I’m worth. My house is worth X and I owe Y on my mortgage. We have a few cars and my wife has student loan but I have a good feel for where we are at.”
To which I reply, “That’s great, but that’s not what I asked. ”
“When was the last time you calculated your net worth and how often do you calculate it?”, I ask again.
The second request usually brings the truth to the surface – they’ve never calculated their net worth or haven’t do so in many years.
Friends, let me cut through all the self-improvement books and all the psycho-babble. When all is said and done, about two-thirds of success can be summarized in the following two principles:
- That which gets inspected gets done, and
- That which gets rewarded or affirmed gets repeated.
The first has to do with accountability, and the second has to do with affirmation.
Let’s take accountability first:
Here’s what personal accountability with money is all about.
* You set the standards for how you will live financially.
* You measure your performance using those standards.
* And you make yourself aware of the consequences of not meeting those standards.
In other words, you inspect what you expect. Put another way, you’ve got to make sure you’re communicating what you expect financially with the most important person in the room – you.
Because communication is key to any worthwhile endeavor.
Here’s an analogy…
Bob and Joe were hunting when Joe suddenly keels over. Frantically, Bob called 911 on his cell phone and blurted out, “My friend just dropped dead! What should I do?”
A soothing voice at the other end said, “Don’t worry. I can help. First, let’s make sure he’s really dead.”
After a brief silence, the operator heard a shot. Then Bob came back on the phone. “Okay,” he said nervously to the operator. “What do I do next?”
In all seriousness, poor communication with yourself of what you expect financially can have very serious consequences to your financial health. This is why I recommend that you calculate your net worth every month. When you do, you’re telegraphing (communicating) your financial status back to yourself repeatedly.
If for no other reason, this keeps you honest with the most important person – you. It’s easy to have a “fuzzy math” approach to your finances but that will only lead to fuzzy results. As they say, “good mathematics is not about how many answers you know…It’s about how you behave when you don’t know.” Show me a person struggling with money and I’ll show you someone who’s not calculating their net worth on a regular basis. Their financial situation demonstrates what they don’t know.
So, don’t be guilty of being unaccountable with your finances. Unless you can define success in measurable, accountable ways, you’re not likely to achieve it.
Here’s what I mean…
If you hired a painter to paint your house and the guy shows up to do the job without a ladder, a brush or a drop cloth….and you allow him to do the job anyway….should you really expect to get a quality result?
Of course not!
I know it’s a silly illustration….but believe it or not, I see people do essentially the same thing each and every day….
They leave the vitally important matter of their finances in the domain of the vague. They don’t monitor where they are along the way. The main reason they do this is that they’re afraid they won’t like what they see. Friends, this a recipe for financial mediocrity not one of financial freedom.
Get comfortable calculating your net worth on a regular basis. Inspect what you expect. Don’t get discouraged if it’s not where you want it to be. You can’t fix a problem you don’t allow yourself to understand. Examine your finances regularly and make the necessary modifications to keep yourself on track.
Now to affirmation. Here’s a question…
What do you want to affirm for yourself? Within yourself? How can you make more progress?
OK, I guess that’s three questions.
Look, change is great but what you’re really after is progress. Progress is what you can make of the change.
What is the “after” you want? How can you shift your smallest daily behaviors to bring you closer? These so-called small shifts are going to be a major pain. Most people underestimate how hard the smallest changes to money habits are to make.
The first task in strengthening yourself financially is to stop weakening yourself. Keep in mind, when you make a decisive choice to change behaviors that are detrimental to your financial well-being, you are affirming the power you have in your own life to have control over your future.
When you calculate your net worth, when you inspect your finances, when you have uncomfortable discussions with your spouse about money, make no mistake – you are affirming to yourself that you are in control. And guess what? When you do the opposite, you are also affirming the opposite – that you are not in control.
With a sailboat, for example, the affirming force is the wind. The denying force is the rudder. The reconciling force is the captain. who figures out how to bring the two oppositional forces together.
Take the example of a chronic over spender who tried for years to reduce his spending and live within his means. The problem was his love for “big boy” toys. There wasn’t a boat, ATV, motorcycle, or power tool that didn’t call to him. Predictably, like a sailboat without a captain, his financial ship was blown about aimlessly and in danger of sinking deeper and deeper in debt.
What are his actions affirming? A desire for financial freedom or his penchant for toys? The affirming force in his life was his unrestrained desire for the toys and the resisting force was the nagging reminder of financial insolvency. Guess which one wins here? That’s right, the affirming force.
Think of your money actions like an energetic dog playing fetch. It will literally bring back to you exactly what you throw out. So, if you’re throwing out apathy, poor decisions, and wastefulness with your money, guess what you’re going to get back?
Let your money actions be an affirming force in your life. Affirm to yourself that you are on top of your finances by evaluating, checking and inspecting where your money goes and doesn’t go every month. Affirm to yourself that you’re the captain of your financial ship. Let your actions affirm you’re in control and you know where every penny is. A good captain know his ship, right?
Remember, all financial behavior has meaning. All financial behavior serves a purpose. When you start paying attention to money, you’ll notice things that you haven’t in the past. You’ll make course corrections that will ensure you’re on track. So, pay attention to your finances. Calculate your net worth on regular basis and watch it grow and grow.
Be free. Nothing else is worth it.
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