The National Health and Nutrition Examination Survey conducted between 1999 and 2002 indicated that nearly two-thirds of US citizens are overweight.
Did you know that our financial health is just as poor? According to a survey done by researchers at the University of Michigan, roughly two-thirds of
Americans are on shaky financial ground. The average US citizen works for 44 years, then retires with about $46,000 in net worth (the value of your
assets such as your 401K, savings, and investments minus your liabilities, credit cards, car loans, etc.) excluding home equity. That $46,000 represents
just over $1,000 for every year worked. This tells me that we're financially unfit, by a lot! If you invested $1,000 a year in the S&P 500 for 44 years,
your investment should be worth over $650,000. So why aren't more of us arriving at retirement with $650,000? Ask yourself, what is my "missing" net worth?
The reason individuals fail to achieve financial health is related to the reason they fail to maintain good physical health. In both cases, misplaced
priorities and lack of planning sabotage our well-being. Being unfit can shorten the life or quality of life for someone, and so too can poor financial
health decrease the quality of life. The good news is that there's a lot you can do to prevent this!
We will begin by learning to monitor systematically four key areas of your financial health: your earnings, spending, saving, and investing. Pages 3-4 in
The Net Worth Workout offer a diagram and chart of the four areas of financial health. As models, we'll use the four areas of physical health -- metabolism,
caloric intake, muscle strength, and cardiovascular fitness.
Like the body's major systems, each quadrant has its own unique function. But also like the body's systems, the quadrants benefit from cross-training;
that is, they work in synergy, each reinforcing the others. Any improvement in one will boost power among the others.
Earning = Metabolism
We all know that higher metabolism will burn calories more efficiently. Working out regularly increases your metabolism. Your ability to earn
an income also has a metabolism to it and you can choose to "power it up," or let it languish and become lethargic. Just as you can have two people
with similar body types and physiques, one can be much stronger and fitter than the other because of the way they take care of themselves. The same
is true with income: you can also have two similar incomes and one person will get a lot more mileage than the other!
Spending = Calorie Intake
Spending is like your caloric intake, with the emphasis on the nutritional value. The right diet can enhance your health and performance, and
the right type of spending can do the same for your money. I want you to start to think of some of your spending as "good" -- which could be a
mortgage or 401(k) contributions. Your "junk" spending can be a pricey leased car or ATM fees. These are fine in moderation, you just don't
want it to be 24/7 habit. It's a tremendous quality-of-life issue and what's right for one person may not fit for someone else. Don't worry,
as your coach I'll help you quantify the differences and I know you'll be amazed by what you learn about yourself!
Saving = Strength Training
Saving is like building muscle to strengthen and fortify your body. Increasing your financial strength by saving is no different. Saving isn't about
what interest rate your bank is paying; it's about a range of behaviors. It's about what you contribute to your retirement plan, and what's matched
by your employer if you're fortunate enough to have that benefit. It's if you set money aside for large ticket items like vacations and cars. If you
want to get your arms stronger you would use a different set of weights than you would for your hamstrings. The same is true of your savings:
college plans serve different purposes than down payments for homes.
Investing = Cardiovascular Workout
The fourth and final quadrant, investing, is comparable to cardiovascular fitness. A great visual is to think of the heart -- it powers every
other part of the body. Most importantly, as it gets stronger, it can do more with less effort -- and this is the secret of successful investing.
If you diversify properly and manage it well over time, this income can exceed your paycheck! In fact, here's a critical piece of information I want
you to take to heart: Creating an additional 1% of return every year can produce 10 additional years of income!
If there's one thing I can emphasize, it's how important it is for you to make this financial workout your own. Remember: we are all living longer
and longer, and most of us can expect to live well into our 80's. So don't get sidetracked by what the stock market did yesterday or how you blew
$100 on a dress you never wear. You have time to start getting these better habits in place today! Don't worry about the past; concentrate on the future!
Everyone has their own set of financial challenges. Whatever the case, spend some time reflecting on what concerns you most about your finances.
The Net Worth Workout provides a healthy amount of structure and guidance that suit your level of fitness.
Finally, we'll examine some very interesting findings from economists who study the behavior of thousands and thousands of people like you. What's great
for you is we can take their findings and learn about how others unconsciously falter, why they do it, and how you can avoid it. So pat yourself on your
back for taking the initiative to get smarter about your money and let's get started making more for you!
Discussion
- Why do you feel like managing your money has held you back in the past?
- What is your greatest challenge with managing your money today, and why is it such a challenge?
- Have you ever calculated your net worth? Have you ever created a financial plan? If you did, why did you decide to do one? If not, why haven't you ever done one?
- What do you want to get out of The Net Worth Workout? Why is this important to you?
- Most people have strengths and weaknesses within the four quadrants of financial health. For example, someone may be terrific when it comes to saving.
She has a super strong "defense." On the other hand, her ability to manage her investments could be weak. It's important for you to understand your
strengths and weaknesses so you can figure out what to focus on! What are your strengths and weaknesses?
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