Many apps and devices today claim to instantly calculate your net worth by adding up your bank and investment accounts and then deducting anything that you owe. To my mind that number reflects how much money you have, not your net worth.
Money is a means to an end. What we are really after is worth, which is much more complex. There are many people who have a high net worth who don’t have very large figures in their bank account. They have a high net worth because they have most or all of the things they want in terms of their family and lifestyle.
Worth is about having the things that are meaningful and matter to you. It’s about deepening the connection between your life and your money and working towards overlapping them so they are in sync. This is not necessarily easy to do.
Real financial planning is the ongoing process of aligning the use of your capital – money, time, energy and attention – with what’s important to you. The important point is that it is not a plan, but a process around articulating what is important and taking actionable steps towards closing the gap (if there is one) and matching up to what matters.
It is not always easy to articulate the “what’s important” part. I believe this is not a one-time goal clarification event but rather an evolving discovery process over time.
Stephen Covey, the author of the powerful book “Start With Why” quipped that “people may spend their whole lives climbing the ladder of success only to find, once they reach the top, that the ladder is leaning against the wrong wall.”
We perhaps have to be careful about which ladders we are choosing to climb!
We are being influenced all the time by the things we watch, read and listen to, as well as the friends, family, colleagues and advisers we talk to. Most of the time we probably don’t notice how our thoughts and behaviour are being shaped by outside influences and how this in turn influences what we perceive to be important to us.
Rather than influences from other people, I believe it helps to get more intentional to the way we think about what is important. Thinking this through by listing a hierarchy of our values and prioritising them may be a helpful starting point, as well as articulating what is enough. If it’s “things” (objects) that is desired, then it’s probably not important. Putting a value on a thing that is not rooted in a relationship is unlikely to be enough.
So, in summary, it is not easy to articulate what is important and what really matters. It is an ongoing journey of discovery and making course corrections. The initial focus should not be on how much is in your bank account or investment portfolio but on thinking through and over time working towards achieving and maintaining your true net worth. Financial strategies can then be used to help build and support this.