How much you earn depends on how much you work.
How much you spend depends on how much you want, how much you need and how much self-control you are willing exert.
How much you save depends on how much you earn and how much you spend.
How much wood a wood chuck can chuck depends on the availability of wood.
How much you work chopping wood depends on the how much wood those wood chucks demand.
It’s the circle of financial life and it’s always in balance.
The balance isn’t always a balance of good things, if you put good in you get good out, but baloney weighs the same as baloney.
On the one side of your financial scales is what you have, what you earn and what you owe. On the other side is your net worth.
Assets + Income – Liabilities = Net Worth
If something happens on the one side of the scale, the other side adjusts.
Your net worth will go up if:
- You accumulate more valuable assets by saving and investing. Valuable assets and expensive things are not the same thing.
- You increase your income and you keep more of it.
- You pay off debt that you owe.
Your net worth will go down if:
- You sell your assets for less than they’re worth.
- Your income goes down (but only if it causes you to save less).
- You take on more debt.