There are 4 easy ways to measure your personal wealth. Your value in wealth is measured in assets and expenses which you have to know in order to understand how much you are worth. You measure your wealth in order to understand how much your life objectives are working for you to achieve the things that needs to. You also measure your life to be able to understand how much your assets will cover you in your life.
What is your value in cover
In order to calculate your value in cover you need to compare your assets vs your expenses. This will tell you your net worth and therefore what you real life cover is.
Pen and Paper in hand: Life Objective Interrogation
1. What is your biggest reoccurring expense? e.g. $550 for rent
2. How much repetitive time do you need to pay for your biggest expense? e.g. one month
3. What is the value of your biggest asset? e.g. $10 000 for an investment
4. Divide your biggest asset value with your biggest expense value e.g. 10 000/550=18.18.
Your best asset can cover your biggest expense for 18 months.
This is a very simple calculation for your cover. How much can your biggest asset cover your biggest expense? When you have your cover number you now need to answer the following questions on your life goal objectives.
a) Are your life objectives really covering you?
b) Are you sure you are investing in the right place?
c) Are you working on the right income project?
d) Do you know the true meaning of your asset?
Sometimes you might think your asset is a car, what if you need to sell it today for an emergency how would that help you as well. These are questions you need to ask yourself. Are you going to rent all your life or do you think owning a house is a better alternative. When creating life goals think of assets and expenses.
What your Life cover means
What the calculation shown in the 4 steps above is asking you is, “What is it that you own such that if things were to go wrong you could sell it and you would still be covered?” Your biggest asset could be investments somewhere; or it could be a car. The point in this is that in life you must be able to get cover in case things go wrong so that whilst you have cover against your biggest expenses you have a more stress free life to get things in order. So in the example above you could have 18 months in which you may be getting things in order without having to worry about your rentals? Would that not be great? The trouble is that most of us have no cover and we spend most of our time worrying about expenses instead of getting ahead in life. The truly rich know that basics are houses, cars, and investments that cover them for a while whether it rains or does not. The rest of the population believes that the basics in life are; food on the table and being able to afford going to a restaurant for coffee or a meal. So as long as we are covered in that regard we tell ourselves that we are happy yet we know we are missing important things in life.
Taken from the book “The Five Principles of Programmed Success”