After you have calculated your net worth (see The Starting Block), you're ready for the next step...goal setting. Just like if you were trying to lose weight, you would find out your current weight, and compare it to where you should be by using the Body Mass Index (BMI). Once you find out where you should be, you have a target to shoot for. Financial fitness requires the same process. You're not where you want to be financially, but do you know where you should be? Here's one way to find out... The author of The Millionaire Next Door came up with this formula:
(age X gross annual income)/10 = Net Worth
Multiply your age by your gross annual income. Then divide that number by ten. Voila! This is what your net worth should be.
If you don't know your current net worth (point A), it'll be difficult to come up with a plan to get to where your net worth should be (point B). I can't stress enough that your journey to financial freedom will require continuous action and commitment. You will become more conscious about where you money goes and what it's doing than ever before. And guess what? Rich people dedicate their time towards managing their money! So you're on the right track.
Tomorrow we'll talk about becoming a Money Monitor, and how it will accelerate your progress towards financial freedom. If you haven't done so already, calculate your current net worth, re-read The Starting Block for ideas on how to do that, and then calculate what your net worth should be so we can get going.
Change Requires Action!