A New Way to Figure Your Net Worth

Here’s a statistic that really irked me from a new Merrill Lynch Wealth Management poll released last week: When asked what life lessons are most important to impart to their children, 51 percent of the 1,000 affluent adults surveyed, cited “financial know-how” while only 11 percent said “staying physically fit.”

Despite the fact that 40 percent of the same survey group said “health care costs” are keeping them up at night, they don’t seem to be getting the message that health is wealth and there’s nothing more valuable for kids to inherit than respect for themselves. After all, without a modicum of fitness, how are you ever going to live long enough to enjoy the results of your financial smarts?

Two years ago, the Environmental Protection Agency bummed everyone out by reckoning that an American life wasn’t worth as much as it used to be. The “value of a statistical life,” as it was termed, dropped by nearly $1 million from 2003 to 2008 to its current $6.9 million level. (How the EPA figured that is complicated, but it’s basically a cost-benefit analysis that helps various government agencies determine whether certain life-enhancing restrictions like more pollution controls are justified.) Although $6.9 million is still substantial enough to make me stand taller in front of the mirror and wonder what I can afford using only myself as collateral, it’s still sobering to know that –- like most financial assets these days -– the portfolio of Joe is more volatile than ever.

That’s why the time has come for a broader definition of wealth, one that encompasses more than just money and material assets, and one that will help counter market cycles with other varieties of riches. The next time you’re figuring your net worth, here are a few new things to include:

The state of your health: Whatever your age, if you’re vibrant and disease-free, double your financial net worth. If you’re fat and out-of-shape, take away half.

The love of family and friends: If you have a happy relationship, one or two trustworthy friends, kids who still call you (and ask for nothing), and especially a dog who pees with joy when you come home, double it again.

Having steady, satisfying work: The value of this portion of the portfolio went up dramatically in recent years. If you can honestly nod your head to this, you are indeed blessed, and your net worth has doubled yet again.

Still having your parents: I lost my dad 15 years ago, and I still miss him to this day. No matter how much they hassle us, they provide a reassuring safety net. And when they pass away, you become acutely aware that you’re next. Add 50 percent

These are just a few of the things I value and measure my real wealth by. Add whatever else you’d like; the list should be as individual as you are.

Who knows? When approached this way, you could be a billionaire.

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This is an absolutely beautiful post. Thank you! At EARN, where I work, we're always encouraging our "Savers" -- low-income workers who, through our nonprofit, save toward proven financial assets -- to take care of each aspect of their health (financial, physical, mental, emotional). So glad to hear that echoed from your end.

Thought you might be interested in an upcoming webinar EARN is hosting: Do Financial Assets Matter for Health? (http://bit.ly/9bdReQ) Hope you can join!

 

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Money Lessons: 1,572 Years Worth of Financial Expertise

I recently interviewed nearly two-dozen men who lived through the Great Depression. Given our unpredictable economy, my hope was that these life soldiers, who’ve seen more monetary hardship and challenge than we probably ever will, would be able to offer some advice on negotiating the current morass.

The men ranged in age from 83 to 104. Collectively, they represented 1,572 years of living experience (or slightly less than Joan Rivers). Here’s what I learned from these old-timers:

Work as long as you can. While most of these guys are still financially comfortable, a sad few who retired in their 60s with seemingly adequate nest eggs have outlived their savings. They just never expected to have a life after retirement that was nearly as long as their life before it. Given medicine’s ongoing advances, it’s possible that retiring early and living long and comfortably might now be mutually exclusive ideals. In fact, I’m more dubious that I’ll ever be able to stop working and more mystified by how much money is enough.

Don’t let bankruptcy seduce you. I had one guy tell me it was the worst decision of his life. It’s not just your debts that you forgo, it’s your reputation, he said. “Even to this day – and I’m 89, mind you – if I were to apply for credit, I wouldn’t get it.”

Hustle, hustle, hustle. Although most of them had mainstay careers, they also moonlighted whenever they had to. In other words, they were resourceful. “You got to go to work,” said one 92-year-old. “You can’t let work come to you.”

Frugality pays the highest return. Clipping coupons, researching big purchases, bartering skills, having a garden…saving a little here and there has the highest compounding interest of any investment.

Veto the Visas. The only money the majority of these men ever borrowed was the loan to buy their home. Everything else, even right up to today, is a cash exchange. “Counting out the bills makes you think about whether what you’re buying is a want or a need. Most people no longer know the difference,” one 93-year-old fellow told me.

Remember that all things are cyclical. They’ve seen enough of life’s ebbs and flows not to get overly excited. “Sit back, be patient and put the guns away,” said one 89-year-old. Added another, who’s 104: The way to get rich quick is to not be in a hurry to get rich quick. That’s how most people lose money.”

Broaden your definition of wealth: The wisest advice of all, I thought, came from a gentleman who just turned 96. He told he this: “I’m one of the wealthiest men you’ll ever meet. To find happiness in your work like I did is a great endowment. To find enlightenment through education like I did is another. To have a good home, fine children and a wonderful wife like I had for 57 years are three more. And I could go on. I am a rich man because I have an endowment that money can’t buy. In fact, I think most men are much wealthier than they realize.”

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Posted in: Expertise,Financial,Lessons,Money,Worth,Years