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July 15, 2010

Net Worth

I'm sticking this in Finance.  There is a whole lot else to the world than money, and there are many other ways in which one can be rich.  I'm well aware of that, but I intend this as a financial lesson and will be approaching "net worth" from that perspective.

There are three ways to increase your net worth:

  1. Increased assets.
  2. Decreased debts.
  3. Investment returns.

It's as simple as that.  Don't owe anybody anything and everything you have is your net worth.  Owe someone something and that detracts.

Assets are tricky.  They're also, for the purposes of my discussion, tangible.  My house is an asset.  My car is an asset.  My art if I had any or my precious metals if I had any are assets.

I say they're tricky because "increasing" them runs one of two ways, either getting more of them, or having the ones you own become more valuable.  The latter way is awfully suspiciously close to the return on an investment, but that's where I draw the imaginary line.

You don't get a house because it's "an investment", you get it because it's a place to live without paying someone else to live there.  You don't get a work of art because it's an investment, you get it because you love it so much you need to be able to see it whenever you please.  If your house is worth more ten or twenty years down the road, that's a bonus and an increase in net worth, but even if it's worth less than you "paid" for it, it's an asset and a place to live.

There we are, I've said all I intend to about those two.

That leaves return on investment as the way to increase your net worth that I will be talking about.  I'll take a break and come back to the topic in further posts, because despite my "more than money" intro and my intent to discuss things financially, I am keenly aware that there is a lot of room for allegory in most of what I have to say.

For the audience that isn't me two decades past, while you're waiting you can go pay some bills.

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Oh, Look, an Audience!

"Write what you know," they say.  "Know your audience," they say.  I guess they mean you should write about what you know for people you know, instead of writing about what you don't know for people you don't know.  Hey, we can't all be 21st-Century journalists, I guess.

In this financial series, I'll be writing what I know, because writing what I don't know would be stupid.  Sure, that applies to writing anything else, but I wanted to put out the assurance for the audience I don't know that at least the writing would be sound.

Since I don't know my audience, I'll write for one that's well defined:  Me, 20 years ago.  I'm no good at taking my own advice now, I don't see why I should take my advice from now 20 years ago, and I'm not even that good at taking my advice from 20 years ago (some of it was good advice!).  That won't stop me from trying to lay things out as simply and clearly as I can, for a target of someone just entering the, er, adult world.  I wasn't sure where to put the air quotes on that one.

So, me, I am writing to you as if you should have done this a long time ago.  If you had maybe you'd already be a millionaire and then you'd need a new goal, like "stay a millionaire" or "go for multi-millions".

You're still reading this?  You must be one of those in the audience I don't know.  Feel free not to introduce yourself, hopefully you'll understand me at least as well as my past self and can then remain safely quiet and just as educated.  Otherwise I might have to change what I write and how I write it.  That might not be a bad thing, but I would have to put out something worth reading before I changed how it was written.  Exposition complete.
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I have never been fond of goals.  I don't know if it's a cause or an effect that I don't really have any goals.  I've got some nebulous aspirations that might be considered goals, but as far as concrete goals with measurable success ... nothing.

"Where do you see yourself in five years?"  I hate that question, because I haven't planned five years out.  What's the point?  Had you told me five years ago that I'd be sitting here blogging about any of this stuff I'd have laughed my ass off at you and asked if you'd considered working with the drugs.  Summer of 2005 my dad was still alive and my youngest was still in diapers, I had the job I've got now but my boss was a co-worker who'd just started the job a few months prior and we were working in Pasadena instead of Burbank.

Now, my dad's been dead for three years and my youngest just graduated from kindergarten.  I've been at this job for eight years and I'm still driving the car I had then, but it's paid for now.  Five years ago I didn't know what my father had just inherited, it wasn't my business and I didn't even care.  Now that I've inherited it and somehow not blown it all in the past three years, maybe it's time to set some goals.

They're like milestones.  That's about the only good thing I have to say for goals.  Either you haven't made it yet, haven't gotten it done, and it's sitting there taunting you while it's just out of reach, or it's something you've done.  Once you've reached your goal, you've reached the state of "Now what?"

I don't have career ambitions.  I don't want to manage anything.  I don't want to be ... anything other than happy and well-paid.  For doing what, I couldn't say.

A sort-of goal of mine is to be a good father.  My wife assures me that I am, and I'm fine with that, but it's not something I want to stop being.  If I hold it up for myself as a goal, then I can keep reaching for it, but it's not a proper goal for two reasons: One, I'll never get there, I'll never be done being a father; two, it's not even defined.  It's all subjective.

At some point this month I decided it was a goal of mine to be a millionaire.  No specific timeframe, really, just "before I retire" and given the state of the world that could be anywhere from say 60 to 70, or in other words at least 20 years from now.  Then I tried to figure out what sub-goals would be reasonable, but ... if I don't have half a million "in the bank" by 50, does that make me a failure?  How much of this is ultimately luck, or at least "good fortune" (as in "He had the good fortune not to have to spend $70,000 on medical bills")?

One sub-goal in this is sharing the journey.  Hence the first step, this blog, and the announced intention of others.  How many others?  Not so sure, at least two but who knows how long I'll stick with it or how much I can condense into one sitting.
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