Is it true that an office executive can be richer than his CEO?
Well, it is not only true, but is also highly achievable if you understand a thing or two about basic accounting!
Before I scare you off, I just want to assure you that this post is not going to turn into something that vaguely resembles your worst accounting nightmare…
Instead, the only concept you need to discover is the important difference between counting your salary and calculating your net worth.
Salary Counting Mindset
Most people are familiar with the act of salary counting. They are often extremely conscious about their pay day, comparing their salary structure with their peers and actively looking for their next pay raise.
For so long, we have been conditioned to equate our salary with our financial well being.
We automatically view the person with the higher salary as the one who is more successful financially. However, that is exact same belief that is getting so many people into serious financial trouble!
Imagine if you picked two random strangers off the streets and decided to conduct this simple test to find out who is richer:
You ask the two of them to take out their wallets and count the total amount of cash they have inside. And then you go on to conclude that the person with more cash is the richer person.
You don’t need to be Sherlock to point out that this experiment is extremely flawed and the results are inconclusive.
The Problem With Being Overly Obsessed About Your Salary
Just because someone has very little money in his wallet doesn’t automatically proves that he is poor. What if he just spent all the cash buying a Rolex watch? Or perhaps he just happened to carry very little cash on that day?
Similarly, using your monthly salary to gauge your financial well being is like reaching a conclusion by counting the cash in your wallet – It can only tell you so much… or in this case, so little.
The Other Way: Net Worth Mindset
On the other hand, a more financially holistic approach is to take into account all the assets that you own. Just like how you don’t only count the amount of money in your wallet to find out how rich you are, the proper way to calculate your financial well being is to add up the total amount of money you have in all your bank accounts, your investment holdings and all your assets and subtract and debts or loans which you might owe to others.
In the real world, this is called calculating your net worth.
How You Can Be Richer Than Your CEO
You ready for the big secret?
You ought to be channeling the majority of your efforts towards growing your net worth instead of increasing your salary.
Aren’t they the one and same thing? In case you haven’t being paying attention, no… they are not the same thing.
A simple school teacher who earns a humble monthly salary of $3,000 and focuses on growing his net worth might only be spending $1,000 on his personal expenses per month. As such, his net worth is increase constantly by $2,000 every month.
On the other hand, a CEO who earns a $15,000 monthly salary might be spending $14,500 on his expenses to pay off the mortgage on his bungalow, the installment payment on his Ferrari and the cost of renting that harbor where he docks his private yacht. As a result, the CEO is only adding $500 to his net worth every month!
In fact, you might be surprise to learn that many rich people often have more liabilities and debts than the average person on the street.
This is why the CEO’s net worth is actually growing slower than the teacher’s!
It Is Not About The Amount You Earn, It Is All About The Amount You Keep!
In fact, allow me to let you in on a secret… because many of these high earners are usually overly confident with regards to their ability to earn and they seldom keep track of the exact amount they have spent, they typically overspend and find themselves living from paycheck to paycheck!
Outwardly, these CEOs, doctors, lawyers and other similar professions that pays a high salary appears to be doing financially well on the outside. However on the inside, many of their possessions and outwardly appearances are heavily funded by a toxic debt which is constantly growing!
How To Calculate Your Net Worth
The first step to growing your net worth is to know what it is.
Luckily for you, calculating your net worth is a piece of cake. All you need to do is to add up all the money you have across all your different bank accounts as well as the value of your assets such as your car and any houses which you might have, and then subtract your debts and loans.
And that final figure you’re staring at is your net worth!
You might like to use our free Net Worth Calculating Tool to make things slightly easier for you.
Once you made the transit from the salary counting mindset to a net worth mindset, you would immediately start to notice a few changes in your life – your spending habits; your purchasing choices; your investment decisions etc…
Everyone should make it a priority to calculate their net worth; I guarantee you it’s truly a life changing experience!
Featured Image Credits: pixgood.com