Disclosure: This post may contain affiliate links wherein I get a commission if you decide to make a purchase through these links, at no additional cost to you.
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Pretty straight forward stuff here, right? 

Perhaps we should take a deeper look, just to make sure we are all on the same page.

The first step I recommend taking is to tabulate what you possess that holds financial value. These are your assets. Calculate your assets by adding up the present value of the following categories to find the present value of your assets.

• Cash Accounts
• Checking
• Savings
• CD's
• Bonds
• Securities
• IRA and Employer retirement accounts (401(k), 403(b), etc.)
• Annuities 
• Equity in Your Home and Other Residences
• Value of Land or Land Equity

Next, we need to figure out what you owe. This is also known as your liabilities. Add up the following categories to find your liabilities.

• Student Loans
• Car Loans
• Mortgage(s)
• Taxes Owed
• Money Owed to Suppliers
• Court Fees outstanding
• Other Fees outstanding

Subtract the total number found for your liabilities from your assets, to get your net worth. In other words... Net Worth = Assets (present value) - Outstanding Liabilities

In other words, it is snapshot unique to the day and time that you calculated it. It will go up and down with fluctuations in the market and differing seasons of saving and spending throughout the year. This also means that just because you got to a point where your net worth crosses a certain threshold, it may not stay there forever. The present value of your net worth is very transient. It is based on both individual behavior and market behavior. 

A word of caution: purchasing a depreciating asset (like a boat) is nearly as bad as any other liabilities.

• Say you purchase a speed boat for $100k and sell it down the road for $40k (if you're lucky), you have lost $60k of net worth in the process of owning that boat. What's worse, if you would have instead invested that $100k in a low cost index fund for the 10 years, instead of owning the boat, you could have $215,892 in 10 years assuming an 8% annual return (take a little more off for taxes on long-term gains of course). In reality, that makes the purchase of a boat, otherwise held for 10 years, a total cost of $175,892 - the loss of $60k in value of the boat over 10 years plus the loss of investment income of $100k invested over 10 years assuming 8% return.

My favorite simple equation for determining how much you "should" be worth is based on annual income and your age. It comes directly from the book The Millionaire Next Door by Thomas Stanley.

I really like how this equation actually provides an excellent reflection of your spending vs. accumulating behavior to date.

Essentially, if you make $600,000 a year and you are 50 years old, with a present net worth of $450,000, you are actually a fairly poor accumulator of wealth. Per Stanley's equation, you should be worth $3 million!

Tell us what you think in the comments below. Are you worth what you should be? Are you now motivated to save and invest even more than you already have?!

• Is Your Net Worth As High As It Should Be?
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Earning more money can either turn your life around or turn it inside out. There is a difference between earning to spend and earning to save. The mindset is completely different between the two.

Poor accumulators of wealth spend more as their income increases. Good accumulators of wealth learn to save some, or all, of their increased earnings. This is the difference between displaying and accumulating wealth. Those who "display" wealth, are interested in spending on things that show to others some resemblance of wealth. Savers are frugal with their habits and are more interested in their net worth increasing over what friends think of what they have. 

Increasing your net worth is simple and it necessitates that you become a good wealth accumulator. It does not mean that you earn a high income and spend everything you make because despite your façade of high social status, you are essentially poor from a net worth perspective.

A word of caution: more income is not always better. You can actually be a good wealth accumulator if you practice mindfulness and frugality with your money.

Here are some questions to ask yourself before chasing a higher salary at all costs:

• Will a higher salary bring me higher amounts of stress?
• Will I get to spend as much time with my family if I chase a higher salary? What about friends?
• What am I giving up now by trying to earn more for the future?
• Do I actually need more money (surprisingly many people answer "no")?
• In trying to be more productive and resourceful, am I missing out on some things that actually  contribute to improving my mind and body? (Exercising, sleeping, proper nutrition, meditation, reading, etc.)

If we are always focused on productivity and output, we may miss the very things that are right in front of us. Further, many activities listed above (exercise, sleep, nutrition, meditation, cognitive challenges) are actually scientifically proven to improve BDNF and neuroplasticity thus making our brains even more productive. 

Not always. We highlighted above that earning more money can potentially lead to increased psychological, and occasionally physical, stress.

Another axiom worth mentioning is about "working smarter, not harder". At baseline, most people work relatively "hard", they just tend to be inefficient. Efficiency would be working aggressively for a short period of time and then taking a break. For example, the Pomodoro technique is surrounded around taking 25 minutes for a task and then given yourself a break at the end of 25 minutes. This technique is centered around the concept that we have very limited attention spans. Instead of trying to work for 8 hours straight, try instead to break your work down to short intervals interspersed with stretching, standing, or walking breaks. Doing this throughout the day will likely increase your productivity quite a bit.

Our work inefficiency and arbitrary 40-hour work weeks actually reduce our freedom greatly. If you work remote, this might be easier to pull off. If you work at the office, you will look like anybody else who is frequently taking breaks throughout the day, they are just doing it at random. You are going to pre-define your time periods and rest intervals. Set the clock for 25 minutes and do not stop and take a stretch break until you get their. Once you reach the 25 minute mark, try taking a true 5 minute rest by breathing, stretching, walking around, or anything else that can allow you to practice mindfulness.

The typical belief is that we need to have "nice things" and buy more stuff to display a high social status to prove to others how wealthy we are. In spending more, you fail to realize that you are inherently saving less and therein drastically slowing down the accumulation of your net worth. In the long term, spending more will effectively create more financial strain and stress, not less. This is not likely to result in long-term happiness.
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If your six-figure job requires ruthless hours then you are not in control of your own freedom. There are certainly ways to make more money with less stress, but those opportunities are few and far between. More stress traded for more money is almost always the deal.

Think of the promotion to management. Now you have more employees to manage, scheduling to do, deals to close, handling poor performance and lack of motivation. Management is somewhat akin to "adult babysitting". Consider if this is truly something that you want and go into a promotion like that fully aware of how increasing your earnings might impact your job satisfaction. 

What about the successful business owner who sits in his backyard while earning $10k a month from his business? Where were you the first 35 years he was rolling around on the floor like one of the employees? All you see now is the snapshot of what he has become due to all his time spent, holidays missed, birthdays not attended. All so that he can enjoy the "twilight years" of his life just to have you assume he always did it that way.

My ultimate proposal is that we improve and optimize our efficiency. Researchers indicates that happiness plateaus at an annual income around $70k per year. After that, the return is insignificant. This might mean that if you are already above this income level, earning less by taking a role more aligned with your values is more valuable than the increased earnings. 

I am not averse to hard work and discipline, far from it. However, you need to enjoy life and enjoy what you do. Be careful about becoming beholden to your job. Buying more than you can afford is the number one way to feel stuck in a job you hate. If you are going to participate in periods of life with higher income and higher stress, please do so wisely by accumulating, saving, and investing your increased earnings, not spending it all away!

 If you are frugal, disciplined, and value-oriented, focus on the following:

•  Attaining a household income of at least $50k-$75k per year. This will allow the typical debt-free individual to all expenses (expected and unexpected) and still save at least 10% of their income. You can certainly earn more if you love your job but be careful about chasing a higher salary if you hate the job you are presently in. 
• When receiving a raise or promotion, only realize a maximum of 50% of that actual raise meaning: only spend up to half of the difference and save/invest the other half. 
• Attain a position with an ideal schedule. Imagine what your dream schedule would look like. Weekends off? Summers Off? No nights? Short commute? Want more than just 1 week per year of vacation? Map out your ideal schedule. Now, what positions are you able to attain that would get you close? Start there. This is essentially reverse engineering yourself a successful job search.
• Saving and investing as early in life as possible. The reason for this is that you won't need to earn more money later in life which means increased options when choosing the source of income you generate. Think of it this way: a 30 year old who has accumulated $100,000 in a 401(k) or other retirement account, could stop investing altogether at age 30 and still wind up with $1 million by the time they reach 60 (assuming 8% return per year for 30 years on the initial amount of $100,000. A 40 year old would need to have accumulated a total of $220,000 by this age in order to reach $ 1 million by the age of 60. Only 10 years difference in age but a difference of $120,000 in starting balance to attain the same goal by the age of 60, $1 million dollars.

I encourage you to see if there is more to life than determining success based on earnings. Money can only buy certain things, most of which derive very little happiness.

There are plenty of things that move the needle on happiness that are free:

• Socializing - spending time with family and friends
• Going for a walk
• Forest bathing
• Meditation
• Yoga at home - or even light stretching
• Visiting the library - taking out books/videos as well
• Going to a park

Perhaps your best life is about separating "what you do" from "who you are". Do not think about work after hours or on days off. Be mindful and figure out "who you are" when you are away from work. Spending too much of your precious time at work and thinking about work will make your job define you. From my experience, MOST people do not want to be defined by their jobs.

Let us know your thoughts below in the comments section. Are there any other free activities that you really enjoy to share with the frugal community?

• ​How to Increase Your Net Worth: 3 Simple Steps
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Disclosure: This post may contain affiliate links wherein I get a commission if you decide to make a purchase through these links, at no additional cost to you.

If you want to a crack at the big bucks but aren't 7 feet tall with a smooth jump-shot or a square-jawed Hollywood big shot, you need to invest.

There are many different methods of investing from baseball cards to stocks, comic books to silver. Truth be told, you can invest in anything you anticipate will increase in value over time. I would estimate, however, that a great majority of investors build their life and wealth around the stock market or real estate. Entrepreneurship or small business ownership is a close third option.  

Technically, you can invest in nearly anything understanding that not all investments are not created equal. All you really need is just one person willing and able to purchase something at a higher price than you originally paid to have a positive investment. 

If you purchase something that is not reasonably expected to increase in monetary value over time, then you are probably making a poor (or negative) investment.

So where do you start? What are the very first steps of investing if you are a beginner? 
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If you are just starting out, I suggest you begin doing some light reading in the areas of personal finance and investing. Reading this blog is a great start and take a look at some of my all-time favorites on personal money management. ducate yourself. Read, study, and immerse yourself in money management, investing, and personal finance. It is imperative to understand money

I am not saying be the next Warren Buffet and read financial statements all day for the next 80 years, but educating yourself would be a good place to start. 

The two most common investment options, both with fairly small barriers to entry, are investing in the stock market or real estate.

You actually have many options. Wall Street and the stock exchange began in 1792 under a buttonwood tree and involved actual in-person trading of securities.

Nowadays, nearly everything is done online. To open any individual retirement accounts or brokerage accounts, I like to use Fidelity or Vanguard for my account. For workplace plans, you may not have the option of either of the aforementioned so work with your HR department and a financial advisor in discovering what approved vendors you have for your 401(k)'s, 403(b)'s, and other deferred compensation or pension plans. 

The primary types of accounts to invest in stocks are:

• Retirement Plans through your employer
  • 401(k), 403(b), 457 plan, 457(b), Deferred Comp., Pension Plan, etc.
• Individual Retirement Accounts (IRA)
  • Typically a Roth or a Traditional IRA
• Brokerage Accounts
  • I like either Fidelity or Vanguard. No they are not paying me to say that....yet.

Again, for IRA's and brokerage accounts I always have used either Fidelity or Vanguard, but the choice is entirely yours to make. These two vendors give you access to some of the lowest fees and expenses available in the industry. 

My favorite funds to own for each company are listed below. Disclaimer: This is not investment advice.

• Vanguard - VTSAX (stocks), VTSMX (stocks), VBFMX (bonds)
• Fidelity - FXAIX (stocks), FSKAX (stocks), FXNAX (U.S. bonds), FUAMX (intermediate-term treasury bonds), FTBFX (total bond fund)

If you have any trouble figuring out how to purchase stocks and index funds, or how to transfer money into these accounts, call your investment company or financial advisor and ask how to get started purchasing these securities. Vanguard and Fidelity have some of the best customer service departments I have experienced yet. 

My personal preference is to "set it and forget it". I add money to my account incrementally over time and continue to purchase my favorite stocks and index funds in expectation that they will dramatically increase over time. I typically set my investment horizon for at least 20 years, especially my index funds, where I do not expect to sell or withdrawal any of these securities for 20 years or more.

A common long-term for the financial independence community is to continue the aforementioned, year after year, until you have enough money to cover your expenses My plan is to do this year after year until I am ready to start withdrawing this money which will be when I no longer need to work for money and can live off investment income.

Please, do not worry about timing the market. Do not worry about crashes. Do not worry about corrections. Just invest in low cost index funds for life and allow your money to compound over time.

Use caution when you have anybody telling you they have access to unique metrics and can protect you from market crashes. Unfortunately, actively managed portfolios rarely ever beat passively managed ones. Guess what, they don't. Their "pick of the week" and "insider information" has never historically proven to be accurate. Consider that almost every single long term investment advisor has failed to even match the returns of the S&P 500. That's why I choose to invest in index funds to allow me to match the S&P 500 thereby beating 95% of all professional investment advisors.

I have not personally began investing in real estate as of 2020, but I expect that to change over time.

One of the best real estate investment books I have read is How to Buy and Sell Real Estate for Financial Freedom by James and JW Hicks. 

The two most common real estate investment strategies are:

1. Investing in Long-Term Rentals
2. "Fix and Flip"

These two strategies oppose one another greatly. Long-term rental strategies are geared for those looking for many years of residual rental income and who do not mind either managing the properties themselves or paying somebody else to do it.

"Fix and Flip" is exactly what it sounds like. Buy a crappy place for cheap, fix it up either yourself or with low cost contractors, and sell it for a profit after factoring in expenses to fix it up.

Regardless of how you start investing, whether it be real estate, stocks, or otherwise, you need to get your money working for you as early in life as possible.

The most assured way to generate significant long-term wealth is saving and investing. Boring? Maybe. But you can laugh your way to the bank someday when you are counting all the zeros behind a big number in your investment accounts.

• How to Save and Invest in Low Cost Index Funds
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