financial reflections

A while back I posted My First Rule of Money, a slightly tounge-in-cheek look at how people always seem to get in the middle whenever money changes hands - just look at your paycheck for an example. Now I think I’ve learned a second rule that will help my net worth.

It’s really a very simple observation, but was a powerful epiphany to me.  The idea is simple:

Net worth increases with the proper utilization of income.

I think to most of us (Americans) income is the same as “blow money”.  We make as much (or more) per capita than any nation in the world, yet we are saving at a negative rate.

The whole idea that how I use my income translates into my net worth, goes back to a post where I indicated that every dollar I pay off on my credit cards would increase my net worth that much.  A smart poster indicated that using cash to pay off cards didn’t change my net worth.

It took a bit of gear grinding on my end, but I think I got his point (I hope).  In a static situation, I could use saved money (assuming I had some) to pay off debt.  My net worth wouldn’t change.

If that was true, then how would my net income change?  The answer was simple - income.  But I’d had plenty of income in my life and was getting nowhere.  The trick was how I used that income.

Free Money Finance has a good article on this.  It goes back to the same principles every author I’ve read harps on.  They all have their twists, but the power of properly applied  income is hard to miss.  I’ve been down this road for only a few months now, and my life has changed for the better already.