746 – James Schramko on Net Worth

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James Schramko

Episode highlights:

00:53 – What is net worth, really?
03:59 – About wealth building
05:40 – Which connections make you wealthier
06:30 – Beyond money
06:54 – Wealth in terms of experience
07:27 – Get to give
08:43 – Health wealth
09:34 – Continuous improvement
10:28 – Time wealth
11:00 – Proof you are good enough
11:56 – Invest, shine, plan
12:49 – Debt elimination
13:56 – The tax deduction trap

James will help you build a business and life you’ll love

Transcription:

James Schramko here. Welcome back to SuperFastBusiness.com. This is Episode 746. Today I’m going to be talking about net worth. This is a solo podcast episode; I want to put more of these into the podcast. I have had comments from listeners saying this is great. If you like them, please let me know, it really helps guide what’s coming down the track, and I’m sure we have a few episodes up our sleeve.

What is net worth, really?

So one measurement of wealth to keep track of as you go through life is net worth, which is essentially everything you own less what you owe. And you can apply this personally but also to your company, and even to countries. If you are a high net worth individual, that would mean that excluding your primary residence, you have at least a million dollars’ worth of assets, and then you would be what’s called an accredited investor. So that’s one benchmark.

If you want to know how rich some people get, currently the richest person in the world is Jeff Bezos, the guy from Amazon. And he’s reported to be worth over $100 billion. So that’s a pretty considerable amount.

Now, often these rich people, Jeff Bezos, Bill Gates, Warren Buffett, they get mentioned in a lot of books, a lot of podcasts, a lot of courses. But you really have to think, these are such extreme outliers. It can almost be dangerous trying to compare against people like that, because to get that extreme wealth, there’s so many other aspects of their life that will be different as well. So really, the purpose for this episode is just to have a conversation around wealth.

And net worth is one thing that people are constantly obsessed with. They’re always searching for net worth of an individual. They watch someone on TV, they go and look up their net worth, they see someone posting a little bit of a braggadocious claim on social media, they go and search for net worth.

So what are the obvious ways to measure your own net worth? Firstly, you can have a look at your cash bank accounts. There should be some money sitting around there, hopefully. And make sure you pick up all the different currencies, if you happen to operate in different countries. There’s the value of your home. There’s other real estate or property that you might have in your portfolio. There are shares or stocks.

There’s your business, of course, if you are an entrepreneur. The business is quite often one of the most valuable assets. There’s a couple of ways to look at this. There’s the balance sheet, which is the amount of cash you actually have around, and then there’s the market value. So the balance sheet will show you the book value, but the market value might be different. That might be what it’s worth to someone if they were to buy your business.

And then there’s other things like cars and retirement funds.

Now you have to take out any costs, any business loans, any mortgage, any credit card, etc. And you end up with your net worth.

Now most of us start from zero. And look, you might be lucky and get an inheritance. But even if you did, I would try and put that to the side and measure yourself on your own terms. It’s probably almost impossible to do. And I bet if you had a large inheritance, you probably have some advantages and some disadvantages that come with that. Often there’s things like nepotism, or family favors required, or just a blindness to the harsh realities of life that other people have.

We all have difficulties in some areas. Some people have obstacles in life, that are either placed there mentally by the generation before, or you have physical handicaps. There are issues around racism. There are so many different obstacles we could have. But I’d say one of the most important things that we can control and change is our own personal attitude, our mindset around it.

About wealth building

So I want to talk about some ways to build wealth. And one of them is to spend less than you earn. It just seems so obvious. What I have seen happen as people level up with their income is they start leveling up their expenses to match the income. So if they get a pay rise, then they get a better car. Or they get a new job, they celebrate and buy something. So often the money comes in and then goes out. And most people who are employees live like this. That can really come and get you.

So ideally, you put some of the money that you’re making aside for yourself. It’s like my grandfather used to teach me, and my mother, too – pay yourself first. Put some aside, save up some acorns for winter perhaps. So if you could live below your means, kind of like a stoic way of living, you can accumulate great wealth. Marcus Aurelius was a guy who lived a stoic life, and he sold all his palace furniture, to pay for debts, to reduce down the debts.

Extract some money from your business and put it elsewhere. I know a lot of people in our community talk about, reinvest, reinvest, and they build up and build up their business. But sometimes that can be a house of cards and they lose everything. And I prefer to pull some money away from my business, even if I pay the tax on it, and put it into a different asset class that’s protected.

There are other related matters too, like using the correct entities and structures to make sure that you have some protection. Because capital preservation is probably more important than trying to grow your income.

Now, there are other things when it comes to wealth that you might want to consider. One of my mentors used to say, you know, are you wealthy? And he wasn’t really talking about money. There are other things to value. Let’s talk about a couple of those.

Which connections make you wealthier

One in particular is relationships. That could be family, it could be friends, it could be your team. It could be clients, it could be your network. That’s an area of wealth which I frequently am grateful for. When I talk about things on my podcast, people come out from the community, they share things. I’ve had numerous people help me with all sorts of things from my network.

I have amazing family and friends and team members and clients and network, and I’m constantly developing and working with that rich tapestry of relationship, to have a good life. I mean, it’s more important to me than money. I would rather keep a friendship and lose the money than to keep money and lose a friendship. So it’s very important to think of relationships as something that could make you truly wealthy in life.

Beyond money

Also, there’s spirituality. A lot of people are highly spiritual or religious or even if that’s the relationship you have with yourself, but this becomes more important as you actually sort out the money side of things. Things like relationships and spirituality start to become more of a focal point, because you’ve now got the time to spend on these, and I’ll talk about time in just a moment.

Wealth in terms of experience

The other thing is to have a look at experiences. What sort of experiences are you having in life? Having fun? Is there joy? Is there happiness? You know, I like to surf every day. That is an experience I’m truly joyful about. I love that experience. It nourishes my mind and my body, my soul. I’m able to do it because I’ve built a business that facilitates the lifestyle I want to live. So I actually would consider myself truly wealthy. Not just in money terms, but I’m wealthy in time, I’m wealthy in relationships, I’m wealthy in experiences.

Get to give

Other things that come into play are things like contribution. You’ll see a lot of the really wealthy people are also upping their game in contribution. They want to do things to improve the world. They create funds, they help people get running water. A lot of my friends build schools in countries that can’t afford it.

There are lots of things you can do to contribute, even if it’s being a good person, to be empathetic, to have love. Gosh, I sound a bit like Gary Vee, but it is true – a lot of the influencers and the people who are out there and have achieved financial wealth are also now upping their contribution game.

I know when I started off I just needed to contribute to myself. I know that seems selfish, but I needed to pay for myself. Then I needed to pay for my family, then I needed to have some protection so that that lasts a long time, even during difficult situations. Then you can expand beyond that and say, Who else can I help? That’s the way I went.

I know a lot of people in the poverty line are very busy supporting others as well. But I think there is some extent where it should be the priority to save yourself, kind of like in the airplane, when the oxygen mask drops, they suggest you put yours on first and then attend to others. So there’s different philosophies on that.

Health wealth

Health. I mean, this is a huge one. I’m coming up to the middle part of my age, and health is such an extreme focus for me compared to when I was in my 20s or 30s. It, you know, now becomes really important. I’ve got young children, I want to make sure I live a long time. I want to stay away from hospitals, I don’t want pain. I want to have my mental acuity on, physically do the things I want to do.

So I put a huge emphasis on health, especially food and movement. And I’ve got amazing people in my network who help me with these things. And if you are healthy, then I think that is a true form of wealth. I know plenty of really rich people who are just severely overweight or depressed, or very unhappy. So I’m often talking about, Hey, don’t leave life on the table while you’re grabbing all that money. I think there has to be a balance.

Continuous improvement

Then there’s capabilities. Always upping your capabilities. What are you learning? What are you mastering? I’m trying to get barrels in the surf. That is a very difficult capability for me. And it’s a challenge worth pursuing. I enjoy it.

But also other capabilities, you know? Podcasting. I’m up to 700-and-something episodes now, and one day, I hope to get good at this thing. I am constantly reading, learning, just like a lot of the wealthiest people. If you stand still, you’ll get left behind. It’s important to continue to develop your capabilities, lean into your strengths.

And another factor of wealth is reputation. Reputation can bring you time, it can bring you money, it can bring you health, it can bring you relationships. So, it is important to preserve. A good way to have good reputation is just do good work. Be a good person, create great products, care about people. This will improve your reputation.

Time wealth

So a couple of tips to improve your net income, your net worth, your wealth. Block time. I think controlling time is one of the most impactful things I’ve explored and experimented with over the years. I’ve written a book called Work Less, Make More. I talk about effective hourly rate. That measurement alone is a great starting point. Start preserving and blocking your time, protecting your inbox, making sure you get the things you need done. And then the other things fit around that. It’s very important.

Proof you are good enough

Also build your confidence bank. One thing that stifles people’s ability to earn income is imposter syndrome. You might feel you’re not worth it, you might feel you’re not good enough, you might feel you can’t do this. Well, think about all the things you have been able to achieve. Firstly, you were that sperm that made it through from the millions of others to be born. So you’ve already had some achievement. You have got to this point where you’re listening to business podcasts. That’s a rare feat in itself. So you’ve got something going for you.

What have you built? What have you done? What have you created? What did someone thank you for or pay you for? Or did you get a star, a gold star or a smiley stamp for? Like, start small and build up. And then as you get better achievements, bank it. When I became the top selling salesperson twice in a row, I then started to believe, you know what, I might be good at this. And I built my confidence bank and then I was in a position to help other people who wanted to be able to do that too.

Invest, shine, plan

Work on your investments. Invest well. Anything that sounds too good to be true, or that’s super risky or flighty, is generally something to steer clear of. Think long term. I see some people during this crisis are dipping into their retirement savings, but that has a very detrimental long-term impact. You know, if you can preserve wealth, you get the magic of compound interest.

Seek out and identify places where you can shine with your abilities and skills, where you’ll be recognized as a natural, someone with talent. Focus on those areas of excellence.

And do some planning. Sit down every now and then with a pen and a pad or a whiteboard, and just think. Have some quiet time and think, what are the best moves for me to do now? What’s my best move with my finances? What is the best move for how I want to block my time? Who are the best relationships to build in my business right now?

Debt elimination

Which debts can I eliminate? What’s the highest interest rate that’s going to be an anchor around my neck? What could I sell on the classifieds today and get some cash to pay off bad debt? What don’t I need right now that I could buy again later when I can afford it?

And I had a family member go through this recently. I encouraged them to sell their car, because this car was an anchor around the neck. It needed fuel, it needed registration, it needed maintenance. Once it was sold, it was able to be paid off a credit card debt. And then bus tickets are very cheap. It’s easy to catch a bus. If you don’t have a family, if you don’t need to be anywhere, you don’t need a car.

And when I was a debt collector, way back in the early 90s, I used to call up people who owed big money on their cars, everyone financed cars, they took it on very small payment terms, which meant they had a big balloon payment owing often more than what the car was worth. And at that time, I was driving a car worth $700, which I paid cash for. Since then, I only pay cash for cars. That’s just an example of a simple rule I have: if you can’t pay cash for it, you can’t afford it. And I don’t ever do anything because of a tax deduction. That’s a secondary consideration.

A few more action items

Other things. Read Work Less Make More. Go through the downloadable workbook. Heck, you don’t even need to buy the book if you don’t want, but the worksheet is available at jamesschramko.com. And it lists all the action steps at the end of each chapter. If you just go through that free document, with no opt-in, you will get more days off, you’ll have more productive time.

From a mindset perspective, I would recommend you read Psycho-Cybernetics by Maxwell Maltz. It is a classic. It will teach you some of the exercises that I’ve used every day for decades. Visioning. Playing through a mental movie of what can happen, thinking about what a wealthy life looks like, and immersing yourself in that concept and drawing towards it.

So that’s all I want to leave you with today from this short, single solo episode, is, what are you doing today to help your future self? I’d love it if you take some action.

Also, if you would like to comment, where you see this episode, Episode 746, it’s called Net Worth. I’m James Schramko. Thank you for lending me your ears today. Look forward to catching up on a future episode.

And if you have a recommendation, if you’ve got a request for an episode, please let me know. I answer my emails too. I know that’s rare. Just send me an email and let me know what you’d like to hear. And I’ll see if I can schedule that for you.

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