This is a wonderful newsletter sent to me by a great Financial Planner, whom I highly recommend to everyone trying to find a way to apportion income and savings more efficiently over the long term and keep more than we spend these days.

Income or Net Worth
By Colin S. Mackenzie, CFP ®
One of the truly interesting aspects of being a financial planner is watching people develop in their understanding of and sometimes their maturity around money. Each of us grew up watching our parents and other adults dealing with money issues in different ways. We also grew up hearing that dreaded word from time to time…...NO! It usually came up when we asked for something our parents felt we did not need or the family could not afford. It was our first encounter with a life long balance between our wants and the money available to satisfy these wishes.

So, we went to school, pursued our talents and interests and set off into the work force to begin to earn a living. It is a time in people’s lives when they have the fewest possessions and the most needs. To make matters worse for many people, it is when they also take on the burden of starting a family. So what are young people to do to make ends meet and prepare for the future?Is More Income The Answer?The first answer to this is income, to earn as large a paycheck as possible. The challenge is that most entry positions pay accordingly and starting a business with no bank roll is perilous at best. Somehow though we manage to get our feet under us and begin a life long journey of balancing what we would really like to spend money on, what we should spend money on and saving.

Face it, Friday night out is a lot more fun than saving for a 1st home purchase. So where does the answer lie? Our first thought is, if I could earn more money then there would be enough to support my lifestyle and save too. A funny thing happens though, we figure out how to earn more money and still it doesn’t quite seem to be enough.
Several very smart and successful couples have come to me in the past year with combined incomes over $200,000, which still wasn’t enough to permit them to get ahead. Why? Well the reasons are many, however their situations provide many insights that are worth consideration.A Different Yard StickThese couples were all normal parents, who all by the way were under the financial burden of providing for a private education for their children….and on the verge of years of college costs. All had settled into their careers and so the raises they were likely to see in their incomes were very modest. So how could we make this work? After all, isn’t that the job of the financial planner, to help people make their finances work?

Besides carefully helping each couple consider budget options, we spent a good deal of time discussing the idea of “Net Worth”. We begin our adult life in pursuit of bigger incomes not always realizing that the more important measure leading up to financial independence, retirement if you will, is actually net worth. However when you ask people to give you an idea of their net worth, most people are at a loss to provide even an estimate of that net worth.Different Horses In the RaceWhile everyone seems to know what their paycheck sends to their checking account twice a month, they are not sure where they stand when it comes to their assets minus their liabilities. Though you can’t spend net worth, there are many ways for net worth to generate income and reduce certain costs. In my opinion, the more profound measure of someone’s financial health can be found in their net worth, much more so than in their income.Finish Line Recently ING, the company that owns Financial Network Investment Corporation, has had an advertising campaign that you may have seen. In it they ask: “What’s your number?!” The concept is, what number you will need to be financially independent…..when earning a paycheck becomes an optional activity. As you probably already know, that number is the amount of net worth someone would need to be able to retire.Often there are different “finish lines” along the way in life. Having enough to:

buy the first car
buy the first home
pay for college for the children
take the well earned 25th anniversary second honeymoon
buy the retirement home or dream remodel
pay off the mortgage, if that is a goal
retire with a feeling of security

Each of these finish lines is reached with a careful eye towards building your assets and reducing your liabilities and debts. So this being said dear reader, What is your number? And how are you doing this quarter in tracking towards that number?? Bottom Line Simple things are often very hard or they are hard to find time to do. The bottom line here is to measure your net worth at the end of each quarter to see how you are doing. It is your best measure of financial health. If you would like to get some help in getting started on this exercise, let me know. I would enjoy helping you understand the value of this exercise and would enjoy helping you establish this quarterly habit.Of the two measures, income and net worth, net worth and the direction of your net worth is the more important measure. For excellent insights on this principal, pick up a copy of Dr. Thomas Stanley’s book, The Millionaire Next Door. It offers some great perspectives on this idea.

I would love feedback on this newsletter. Future issues may include a host of good ideas, insights, specific steps to take financially, life insights and of course “Wit and Wisdom”. Most importantly, I’d like it to be of value to you and to encourage an exchange of great ideas and insights. Please send your feedback to:
Colin S. Mackenzie, CFP ®Financial Network301 E. Colorado Blvd, #400Pasadena, CA 91101mackenziec@financialnetwork.com(626) 795-8896