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Introduction
My wife and I recently celebrated a major financial milestone. For the first time in our adult lives, we became balance-sheet millionaires. Now, does this mean that we are sitting in our house acting like Scrooge McDuck, diving into a pile of cash? Haha, I wish!
Yes, we are blessed beyond measure and thankful for all that we have. But, being a balance sheet millionaire doesn't necessarily mean you have money coming at you from all directions! It is a little more nuanced than that. It's a concept that requires a bit more explanation and understanding.
What is a Balance Sheet Millionaire?
So, what exactly is a balance sheet millionaire then, anyway? A balance sheet millionaire refers to an individual whose net worth, or the total value of their assets minus liabilities, is at least one million dollars. This net worth calculation encompasses everything of value that an individual owns, including but not limited to real estate, investments, cash savings, and personal property, after subtracting all debts and obligations like loans, mortgages, and other liabilities. The term emphasizes the distinction between possessing wealth in the form of tangible and financial assets, as opposed to simply having a high income or lavish lifestyle.
The financial wisdom I'm about to share in this post stems directly from the journey my family and I undertook to reach this significant financial milestone.
Tip #1: Have a Plan for Your Money
Dave Ramsey once said, "You can wander into debt, but you cannot wander out of it." This holds equally true for wealth building. Achieving wealth typically isn't a matter of chance (unless you hit the lottery or have an incredibly generous rich uncle). Rather, it's the result of diligently following a well-thought-out plan. Most wealthy individuals have dedicated years to meticulously planning and executing their wealth-building strategies without deviation.
A plan must start with a destination in mind. First, you must have financial goals. You will most likely begin with some simple goals at first, such as having a small emergency savings fund, getting out of consumer debt, and so on.
I believe, though, that the starting point of your plan should include some type of monthly budget or cash flow planning. This is where you will manage every dollar coming into your household and give every dollar a job to do, whether it's paying the rent or mortgage, giving to charity, buying groceries and clothing, paying off debt, placing it into savings, investing into assets, and so on. If you can start your money plan with this and be consistent with it each and every month, I can pretty much guarantee that you will be successful over time. This is what we have done in our family with success.
A great tool for budgeting we have used over the last several years is the free version of the EveryDollar Budgeting App from Ramsey Solutions. There is also a paid Premium version to EveryDollar that you can link all of your accounts to, but I find the Premium version completely unnecessary with a free version of another app that I mention below in Tip #3.
Tip #2: Focus on Assets, Cash Flow, and Tax Strategies.
Okay, so now you have a financial plan. You have some money goals and you're working on a consistent cash flow budget plan so that you can give every dollar of income a job to perform in order to grow your net worth over time. Once you have a handle on consistent cash flow planning, you have a solid emergency fund and consumer debt paid off, your next area of focus needs to be on freeing up lots of extra dollars in your cash flow plan to start focusing those extra dollars into creating and buying up as many cash flowing assets as possible. These cash flowing assets could include things such as interest earnings, dividend stocks, product royalties, REITs, physical real estate, debt instruments, businesses, and so on.
Being a balance sheet millionaire highlights the importance of accumulating assets that contribute positively to one's net worth over time, rather than focusing solely on earnings. It underscores the significance of financial health and stability achieved through wise investments, savings, and debt management. This status is often seen as a measure of financial success and security, indicating not just the capacity to earn but also to sustain and grow wealth effectively through prudent financial planning and asset management.
Tip #3: Track Your Net Worth Regularly
Peter Drucker, one of the world's most famous management gurus, said "What gets measured, gets managed." If you are attempting to reach any kind of goal, you must track your progress on your journey to complete the goal. This is true of sales for your company, weight loss calorie counting, an exercise plan, and net worth growth.
When tracking net worth, you want to track both assets and liabilities. In the asset column, you want to track three areas: cash, investments, and property. In the liabilities column, you want to track two areas: credit cards and loans.
As you track your assets and liabilities, with a focus on buying assets and paying down debt over time, your wealth will grow. The growth will be slow and steady at first, but what's really cool is when the growth takes off exponentially due to time and compounding.
I regularly use two tools to track my family's net worth. The first one I use for daily net worth tracking, Empower.com. This website is an incredible financial tool that I highly recommend! You plug in all the various financial website accounts that you have (savings and checking accounts, investments, credit cards, loans, mortgages, physical assets, etc.), and Empower will track this information for you, daily. Click on this referral link to get your own account today.
From Empower.com, I track the main numbers (cash, investment, credit, loan, and other assets) daily and log them into a simple Google sheet. It's really interesting to watch the daily ups and downs of the numbers, but most importantly, to see the general trend upward on your assets and general trend downward on liabilities. This is the ultimate path to becoming a balance-sheet millionaire and beyond!
A second, simple tool I use monthly is a very basic, boring Google sheet where I update all my accounts and confirm that my monthly net worth number is close to the number that I'm seeing in my Empower.com account. The good news is that these numbers are usually pretty close to each other.
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Conclusion
Becoming a balance sheet millionaire isn't about flashy cars or luxurious lifestyles; it's about strategic financial planning, disciplined savings, and smart investing. My family's journey to achieving this milestone was built on three pivotal tips that can guide anyone with similar aspirations.
Firstly, crafting a solid plan for your money is crucial. This plan begins with setting clear financial goals and managing every dollar through a consistent cash flow plan. Tools like the EveryDollar Budgeting App have been invaluable in our journey, allowing us to allocate funds effectively and stay on track.
Secondly, focusing on acquiring assets, optimizing cash flow, and leveraging tax strategies is essential. Accumulating cash-flowing assets is a game-changer, shifting focus from mere income earning to building a robust net worth over time. This approach has not only enhanced our financial stability but also positioned us to grow our wealth exponentially.
Lastly, the regular tracking of your net worth cannot be overstated. Utilizing tools like Empower.com for daily monitoring and maintaining a simple Google sheet for monthly check-ins has provided us with the clarity and motivation needed to continue our wealth-building journey.
Reaching the status of a balance sheet millionaire is a testament to the power of financial discipline, smart planning, and consistent tracking. It's a journey that requires patience, perseverance, and strategic action. For those aspiring to achieve financial freedom and security, these tips offer a proven roadmap. Embrace the journey, stay committed to your plan, and watch as you too can build a legacy of wealth and stability for you and your family. Let's redefine wealth, not as a measure of luxury but as a testament to strategic financial health and stability.
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