Comments on: Does Net Worth Matter?

By: How to Become Wealthy

How to Become Wealthy — Wed, 07 Sep 2011 13:57:03 +0000

[...] set aside that is very liquid.As I’ve stated from one of my first posts, what’s more important is cash flow, than net worth. In the race between the tortoise and hare, the tortoise won because of [...]

By: Derrik Hubbard, CFP

Derrik Hubbard, CFP — Mon, 11 Apr 2011 17:08:58 +0000

I believe that both cash flow and net worth are important, but they have different functions.

Net worth is the result of every financial decision that you’ve ever made in your lifetime. It is the report card. An increasing net worth simply shows you that you are making progress toward your accumulation goals. When you accomplish certain goals, your net worth actually goes down (college education funding for example) so monitoring net worth as an accounting exercise is not the point. Net worth simply shows you the end result of your actions.

What gets REFLECTED each year in your net worth is how you HANDLE your annual cash flow. A negative cash flow decreases net worth. A positive cash flow increases net worth. Accomplishing certain goals also can decrease your financial net worth.

Ultimately, if you have not set financial goals, quantified how much is “enough” to save for them each year, and have an effective money management system to get from where you are to where you want to be, the whole discussion is just entertainment.

By: Ken Faulkenberry

Ken Faulkenberry — Mon, 11 Apr 2011 14:50:59 +0000

Good Point! What I think you are pointing out is staying focused on your long term net worth. What you have today is important because what you do with your wealth will determine your future net worth. Your future net worth will be detemined by your cash flow from your current net worth and how much of it you consume. Your cash flow will be determined by your ASSET ALLOCATION; the most important decision you can make with your net worth!
Thank you.

By: A new year round up - Sort of Ultra High Net Worth » Ultra High Net Worth

A new year round up - Sort of Ultra High Net Worth » Ultra High Net Worth — Thu, 06 Jan 2011 09:45:55 +0000

[...] Junkie – Does networth matter? - No, but its a simple measure and a nice way to compare yourself to [...]

By: Jim Smith

Jim Smith — Mon, 03 Jan 2011 21:21:49 +0000

Great post. I couldn’t agree with you more; at the end of the day cashflow is king. But having said that, net worth is easy to track, simple to understand and should in theory be a proxy for your investment income. I monitor my networth (and enjoy looking at others), but more of a measure of how much I have. I can’t retire on it, because most of it is tied up in non-cash producing assets that can’t easily be sold over the next couple of years.

@LG – not necessarily. You can have an asset that increases in capital value (eg your home) that produces on cashflow. Investments like gold are another example. You could have millions of $$ invested and it produce no cashflow (in fact gold has negative cashflow) unless you sell some.

By: Don

Don — Sun, 02 Jan 2011 13:22:01 +0000

“Happiness is Positive Cash Flow”
Make no mistake. Positive cashflow:
1. allows for better, healthier sleep;
2. lowers your blood pressure;
3. improves all relationships, including intimate;
4. gives you personal freedom and an irreplaceable commodity: time.
cheers, Happy New Year!

By: Investor Junkie

Investor Junkie — Tue, 19 Jan 2010 14:21:25 +0000

@Ryan @ Planting Dollars: Thanks for visiting. Yes it’s true cash flow does dictate the value of a business. Usually it’s some multiple. I know of some businesses the multiple value is awful (only one or less times yearly earnings). In many cases you are better keeping the business for cash flow than selling it outright and getting the cash up front. I have considered selling my primary business and found this was true.

By: Ryan @ Planting Dollars

Ryan @ Planting Dollars — Tue, 19 Jan 2010 05:54:06 +0000

I’ll agree with you here. I’d much rather have a higher positive cash flow than a high net worth base that isn’t producing as much cash flow. However the cash flow steams of a business dictate it’s value (in large part) so it seems that net worth and cash flow tend to go hand in hand.

By: Investor Junkie

Investor Junkie — Sun, 17 Jan 2010 13:55:57 +0000

Hi LG, Thanks for visiting. Can’t they be mutually exclusive?

By: LG

LG — Sun, 17 Jan 2010 13:39:43 +0000

I wonder whether the trend in cash flow and/or net worth is more important than either metric?

Quote: “If you focus on consistent positive cash flow, and ways to increase your cash flow, you most certainly will acquire a high net worth.”

Turn it around: If you focus on consistent increasing net worth and ways to increase your net worth, you most certainly will acquire a high cash flow.

By: Valentina

Valentina — Fri, 11 Dec 2009 21:34:14 +0000

I think that it is important that both your cashflow and asset base continue to grow with a view to an increasing networth as well. Ultimately it is about how well you manage the cashflow. Net worth gives you leverage that cashflow alone may not.

best………….valentina

By: Investor Junkie

Investor Junkie — Fri, 11 Dec 2009 15:04:23 +0000

@Financial Samurai: Yea I already crossposted my link

I agree with 4%+ return and I have a blog post I want to discuss about that. It’s was more a way to make my point obvious. You can have a smaller return and still be in the boat of no money left. As your net worth increases there comes a point where even return does not matter. That’s more in the 8 figure range.

By: Financial Samurai

Financial Samurai — Fri, 11 Dec 2009 15:02:52 +0000

Good topic of discussion. Cash flow it is, however, the first example of a no-interest returning 1 mil nut is unrealistic don’t you think? I expect a 4% return, nothing more, nothing less.

I wrote a series of “net worth” posts under my net worth tab. The main one is “Your net worth is an illusion, sorry to spoil your delusion”. check it out.