We live in a society where most people are obsessed with their value of Networth.
Look at the people around you. Flip across your favourite magazine or articles. You will see that Networth is the first thing being compared across the same breadth and depth.
As financial bloggers, we are guilty of such obsessions at times, myself included. We track and report our Networth value at the end of every month and whilst I can attest on behalf of other bloggers that the purpose for doing so is not to show off, some of us may be focusing too much on the holy grail figure to see the trend moving up every month. For those who knows what I am talking about, it feels incredibly great to see this figure going into the right direction every month. However, while they are moving in the right direction, we may be putting our cash to work for much lesser value than what they could have been if we had waited for the right moment. In other words, we want to be aggressive and putting cash right into action straight away, when such timing could have provided you with more value if it was delayed. Again, history has shown that timing the market is not feasible in the long run but we also want to have a balance strategy in place on the other hand.
There are too many debates going on regarding the amount of cash allocation that should be the optimal which I wanted to avoid in this post. This post is about mind boggling between our psychological behaviour and action and how we think we can do better.
I used to be pretty obsessed with my Equity Networth value in the past. I went into some aggressive mode for years and has somehow managed to outpace my planned target and reach my first $250k milestone ahead of schedule. I was ecstatic and celebrated the success with a bottle of champaigne. I am over exaggerating a little bit of course. However, as I interacted with other fellow bloggers over time, I began to start focusing on other things in investment that goes beyond just on the Networth value. I can be clueless about investing and just pump my money consistently into dividend paying stocks and still do fine but understanding a whole range of strategies, analysing downside risks and understanding returns will shape me into a better investor over time.
For those who feels like you are sometimes guilty of being in the same position as myself, here are some of the things you can try doing what I did.
1.) Include Cash Equivalent and Other Assets in your Networth value
Many financial bloggers include only their Equity holdings in their Networth updates when they report every month.
This can be misleading as other form of assets such as Cash, Social Security or Property do make up your actual networth value. By tracking and reporting a more transparent value of your networth, you are inclined to think about the overall picture rather than simply your Equity holdings.
2.) Think Cashflow, not Networth
This is something I have been focusing a bit more lately.
Readers would know that I am personally a big fan of cashflow. Having sufficient turnover of cashflow at an appropriate timing would allow me to dictate my own life at the lifestyle I want at my own territory terms. As long as I am able to live off my passive income to pay my daily expenses, I declare myself financially independent. I might give myself a little room for error so realistically there should be a margin of safety between my passive income and expenses estimated. But the focus should still be on cashflow.
3.) Focus on Return on Assets
This may sound a little Accounting-ish to you, but the concept is relatively simple.
By focusing on the Return on Assets, you would step back to think on how much you would get in return for every dollar of assets you owned. This would enable you to try and maximize your returns by thinking strategically rather than simply pumping cash into stock returns to boost your networth figure.
At the end of the day, it is your decision that would impact how things worked out for you. Rather than focusing on the outcome which we can’t generally control, why not focus on improving the process which can be gradually improved over time that might lead to a better outcome. So the next time you see other bloggers posting their networth value, don’t envy. See their process derivative thinking behind the main story.
Are you obsessed with your networth? Are there better suggestions to avoid focusing only on the outcome?
