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Don’t Destroy Your Net Worth – Part 2

Golden key chain with a car, house and piggy bank

In part one we looked at your net worth again and reminded you of exactly what it was and how you came about it. We began to tell you of the dangers lurking in the shadows ready to eat into your net worth. We looked at how important it was to have a retirement plan regardless of how small it was, and how vital it was to save if you possibly could.

Job hopping was brought into the equation. Then bad debt inevitably came into the argument. We also told you how bad debt wasn’t necessarily a good or bad thing and that balance was the key here. So, if you’re sitting comfortably, then let’s take this on!

GOOD DEBT IS THE DEBT WE CAN’T LIVE WITHOUT IN THE MODERN WORLD LIKE A MORTGAGE! AND THERE ARE CLEVER WAYS TO DO IT BUT IN REAL TERMS BUYING A QUICKLY DEPRECIATING ASSET LIKE A CAR CAN BE CLASSED AS BAD DEBT! THIS IS BECAUSE YOU NEED OPERATIONAL SPENDING TO RUN IT – AND A MAINTENANCE BUDGET!

And Yet Most People Need a Car? You See Where the Balance Comes in?

 

As long as you don’t start and add a lot more bad debt to this then things will generally be fine. The car may even be used to make us money, so you have to be sensible here. For those people looking for a career or a good job, then the reality is this will always come at a price in any case!

After all, you can’t become a teacher, doctor or a lawyer without the right education. This also means student debt and extra educational costs. These are all part of life so the truth is we just have to manage them as sensibly as we possibly can, and we can’t do this without borrowing.

At the same time we need a roof over our heads so a mortgage is priceless for many. Yet again balance is the key word here – without this we are lost on the fiscal road for good! But as in life generally there are times when we must make important decisions or take these:

Open Ended Risks

By now it’s quite clear unplanned spending can cause us problems – in the longer term it can also destroy your net worth. What we are doing in the examples of the mortgage, the car and the student loans is clear. Taking open ended risks – hopefully carefully calculated but risks all the same.

You can’t take risks in life as by its very essence this is what life brings with it. What you can do is minimize the number of open ended risks you take – so let’s take a closer view of this!

health insurance

We should remember medical costs are largely responsible for the majority of bankruptcy cases in America. Even youngsters can be afflicted by unseen injury and illness and of course this has to be paid for.

Not having medical insurance then is seem as an open ended risk – you’re just gambling you won’t need anyway fingers crossed, but of course you can’t be certain of this! Likewise if we try and avoid homeowner’s insurance we are taking an open ended risk on our home. If you live in a possible storm endangered area this can be a huge mistake. And of course if these gambles go wrong then our net worth is affected!

So the Upshot?

Well this is quite straightforward – it takes time and huge effort to build up your net worth – but if we aren’t careful then it can be quickly knocked down again. Yes we have to take open ended risks but we must do all we can to ensure our net worth remains in good health. This is all about balance and looking at both the advantages and disadvantages of the choices we make financially. You owe it to yourself to get this right!

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