Friday, March 8, 2013

Net Worth Realization

I was recently reading this Forbes article on how the combined wealth of 6 of the Walton family (famous for Walmart) have more income than the bottom 30% of Americans, and it started to get me thinking about wealth distribution in the United States.  In its essence, the wealth alignment is a shame with the top 1% having more wealth than the bottom 60% of the nation, but let’s take a closer look into what’s going on here.
It’s important to understand the meaning of wealth in these circumstances.  Just like you would value a company, your own personal net worth is the summation of all your assets minus the summation of all your liabilities.  So, if you, like many Americans, have no credit card debt or any other types of debt except for an underwater mortgage, you could have a negative net worth.  In the corporate world, you would be considered bankrupt and have some more serious issues to deal with.  In the personal finance world, as long as you can keep making your monthly bill payments, you’re fine.  From a retirement perspective, you could have some serious issues in the long term, but the important point is that you recognize these issues and are making steps to rectify them. 
The quote that struck me the hardest was this little excerpt; “If you’ve no debts and have $10 in your pocket you have more wealth than 25% of Americans.”  Another way of looking at this is to think that if 25% of Americans have a negative net worth, then you have more wealth then the 25% combined!  Suddenly, I’m starting to feel a little wealthier.  Don’t weep too hard for some of these people as there is an important difference between wealth and income.  You could have a lawyer making a 6 figure salary, but do to some spending habits, student loans, and an underwater mortgage, could have a negative net worth. 
There’s an important lesson in all this talk, and that’s to think of your own personal finances from a net worth perspective.  Just because you have a salary of $30,000/year doesn’t mean you can’t be wealthier than some hot shot doctor.  Likewise, just because you have a 6 figure salary, doesn’t mean you can’t spend yourself into bankruptcy.  If you start thinking from a net worth perspective, you’ll be better prepared for retirement and have a much healthier financial situation.
Wonderful Moment of the Day: This wasn’t exactly wonderful, but it’s nice to work for an institution that allows you to have a sick day.  Not every place looks kindly on these things.

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