That’s right, I said it. Schmurf. But seriously folks, why does your net worth matter if you’re not aiming for the Forbes list? Well, think of it this way (you may want a shot of whisky before you read this next part), your net worth is the result of every financial decision you have ever made and at some unknown point in the future it will be responsible for financing the rest of your life.
Yeah, shit just got real.
Your net worth can be calculated by taking the sum of all of your assets (everything you own) and subtracting your liabilities (everything you owe). The most traditional way of looking at this is on a t-chart or balance sheet.
A common trap people fall into is thinking that assets are good and liabilities are bad and this is not the case. Do some liabilities wreak havoc on your life? Absolutely. Are some assets the best thing you could have? Totally. But that does not mean that every assets is good for every person at every point in their life. Let’s be honest, if there was one perfect asset we would all line up like tweens waiting to get back stage at a One Direction concert to get it. And as far as the liabilities, student loans suck but the college degree may be worth it. And mortgage payments are never the most fun autodraft from your checking account but it’s lovely to be able to put up a backsplash without asking a landlord. I guess where I am going with this is the waters get muddied and there is no one right way for a balance sheet to look. But there are some guidelines.
Balance Sheet Guidelines
#1 Net worth should be positive
Hmm… that’s actually the only one I have that applies to everyone. And is self explanatory.
#2 Mo’ Income Mo’ Problems
Most people think that all problems are solved when your income goes up. NOT TRUE! More income tends to mean more taxes, more expenses, more stuff, more property, so more protection (I hope!) and then you get used to it. Here’s the truth, the entire reason I am work in finance is so I have the power to make sure no one ever falls into the first Broadway contract trap ever again. Here’s how it gets you:
You audition for years. You start getting more call backs but never get the contract. Until that one magical day you get the offer for your first Broadway contract as a principal in “Hands on a Hardbody.” You see your guaranteed rehearsal, tech and run salary. You know extras are coming with the press events, Tony’s, recording the sound track and so on. So you move out of your spacious $1200 a month Astoria one bedroom to a $2500 a month studio in Hells Kitchen (so you can be walking distance to the theatre). You get a new couch, new mattress, flat screen, 3-d, high def, projection tv and all the premium channels. You spend a lot of money on your opening night outfit and you’re picking up rounds at the bar for everyone and their mother (literally because it’s other peoples first Broadway contract too). And then Ben Brantley (that douche) pans you in the Times because you don’t have a star. And then the notice goes up. And all of sudden, you are out of work in a month. You have credit card debt, a rent you can’t afford and probably gave all your “extra money” to the teat of the student loan. To put a fine point on it, you’re fucked.
And that is the curse of the first Broadway show contract. And what I have seen over and over again and have now sworn that never again will it happen. Not on my watch.
#3 Balance Bitches
Yeah, it’s a balance sheet. That means there should be balance in every way. Domain to domain. Within the domains. Think of it as a house. Cash flow is your foundations – because nothing exists without it. But that alone does not a house make. You need to leverage walls and floors that the Assets and Liabilities, they work together to expand the structure in a responsible and sturdy way. And Protection is the roof, protecting you from the elements. Without these all working in concert your house will fall down. And my suggestion is that you not only aim for balance but for guarantees on that balance maintaining as long as you can. How? You ask. Keep reading. (Boom. Drops mic, stops typing.)