Net worth isn’t important

net worth

This post really hit home for me. I’ve always put my net worth is the key finance metric I track and maybe it doesn’t even matter. I’ve realized that net worth isn’t important. Here are my thoughts on what you should actually be tracking and why it matters so much more.

A rising tide lifts all boats

Are you familiar with the idea of “a rising tide lifts all boats”? Very simply its the idea that when the economy seems to be improving year after year everyone’s retirement, house values, etc, etc go up and up and up.

Everyone thinks they are wealthy.

net worth isn't important

And then the market drops.

All these seemingly wise people with all this money become exposed. They didn’t know what they were talking about. They didn’t have a plan. While the wealth was there, it wasn’t liquid and it wasn’t based on a well researched plan.

We are in that stage right now. The market is going up and up and up and eventually its going to go down. Thats part of life.

Personal finance gurus love net worth

Everyone and their brother is putting out net worth posts (ahem, I’m as guilty as the next blogger) saying

look at me and my net worth, I know what I’m talking about!

I’m sure thats true for most, if not the majority. I like to think its true for me. However, we won’t really know until this rising tide goes back out to sea. Your net worth isn’t important!

Will you be exposed?

In my latest net worth post I touched on how much of my net worth was tied up in the stock market or assets correlated to the stock market. Given I’m relatively young it was about 2/3s of my net worth. I would hope in 10, or even 5, years that number looks a lot different.

Doesn’t your net worth seem like an inflated number? While its actual wealth it may not be a good indicator of someone’s future wealth.

A quick example

What would you think of my net worth (currently at about 220k) if I told you the following:

  • Screw emergency funds!
  • I took out a HELOC on my home
  • Everthing I own is invested in a single stock
  • Did I mention it was in netflix?

That 220k doesn’t look so pretty does it? It looks like a small, helpless little tug boat sitting at the top of a huge tidal wave.

When the wave crashes, what happens to my net worth?

net worth isn't important

It may go to zero.

Fortunately for me this isn’t the case and I’m not saying this is the case for you. All I’m saying is right now is the time to ask these questions and

looking at your net worth isn’t the place to find the answers

Focus on the process

I just got done listening to the audio book Chop Wood Carry Water. Earlier this year I read it. Its a great book. Its a short read and I’d recommend anyone to pick up a copy. No that isn’t an affiliate link. I make zilch.

The premise of the book is pretty simple.

Submit the outcome of whatever you are trying to accomplish and focus entirely on the process.

Essentially, if you keep picking up your head to look at the big goals you’ll lose focus on the day to day work that needs to get done. I love it. Nick Saban does the same thing with his Crimson Tide. He is insanely focused on not looking at the scoreboard, the rankings, the record books. He wants you to look in the mirror and make sure that person got better today.

I’d say its worked out ok for him.

How do we “focus on the process” in personal finance?

Well for one we don’t focus on net worth because net worth isn’t important. We don’t have 100% control over it. Shoot we have virtually zero control over a good chunk of it.

I believe the best way to do this is not to look at saving rates, ratios, charts, blah blah blah. Its one number.

The cold, hard (probably electronic) dollars that went into each of your accounts. AKA

How many dollars did you put away last month?

Not how much did the market return. Not how much of anything else. Keep it simple and focus on the process of becoming wealthy.

Fast forward to the future

Lets play this out and fast forward.

You are thirty years into the future and all you’ve done for that time period is the following:

  • Invested 12k each year into your retirement
  • Put 6k into your HSA
  • Put 6k into taxable savings

Where would you end up? I’m not going to turn this into one of those “and wallah its magic” you are worth a bajillion dollars thru compounding article. However, you get the point.

You’d be pretty well off.

No you wouldn’t be able to go and buy a yacht and sail around the world. However, you could probably live a pretty nice lifestyle and most importantly,

not worry about money.

Where you end up after 30 years

Ok I lied. Flat out lied. The engineer in me couldn’t leave answers unkown!

Lets keep this super simple. Given the investments up above if you do it for 30 years and assume 5% return (take inflation out and keep it in today’s dollars) you’d have:

  • about 800k in retirement
  • about 400k in your HSA
  • aout 400k in taxable savings.

If you are a personal finance blogger you are freaking out right now.

Thats not optimized! That isn’t right!

The point is we put our head down, focused on the process, and the result was 1.6 bajillion (ok million) dollars.

How do I apply this to my life?

I know what you’re thinking. What are the numbers that I need to invest in retirement, HSA, taxable, etc, etc, etc?

Thats so personal I could never answer that. However, here is a framework to give you something to think about. Its two questions:

  1. What is the right amount to hit my goals?
  2. What is the right amount to live the life now and in the future that I want to live?

For example, you could use the 4% rule for retirement. For taxable savings you could see what your cash needs for the next 5-10 years are going to be for vacations, house upgrades, weddings, who knows what and plan accordingly.

Personal finance is simple

I’ve said it before and I’ll keep saying it because its just too important: personal finance is so simple. Its just not easy.

To succeed in your personal finances, and in any walk of life for that matter, all you need to do is put in the work to research and formulate a plan. In order to focus on the process you need to  put the discipline and systems in place to allow you to execute that plan.



  1. Mark November 19, 2018
    • Robbie November 20, 2018
  2. Freedom November 30, 2018

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