A Note From the Founder: I’m so excited. This little passion project is taking perhaps its greatest leap forward today. This is huge. We’re adding yet another world-renowned byline to our lineup. Mark Ford is an icon in the realm of wealth and business. He’s written countless essays… and some of my favorite books. His common-sense advice has the power to change the lives of everyone who takes it. Without a shadow of a doubt, I would not have all that I have without Mark’s ideas and input. And now… I’m so proud to bring them to you through Manward Press. This is going to be great.
They are going to be married – my haircutter and her boyfriend. She asked me for financial advice.
I asked her what she knew about money. She likes money, she told me, and found the subject “interesting,” but she didn’t know a lot about “stocks and investing and stuff like that.”
“Do you know the difference between profit and loss?” I asked her.
“When a business makes or loses money?” she replied.
“How about the difference between an asset and a liability?”
“How about net worth? Do you know what that means?”
She had no idea.
[Net worth is a measure of a person’s total wealth. It’s the value of all of their assets minus all of their expenses and debts.]
A colleague of mine once said that the biggest problem America faces is not political corruption or corporate greed, but ignorance about money.
He may be right.
According to a survey by KeyBank, three out of four Americans consider themselves to be financially savvy. Yet more than half of those people admit to having a financial misstep within the last year.
According to a ValuePenguin study, 63% of 2,000 Americans surveyed don’t understand how a 401(k) retirement plan works.
Forbes reported that 38% of U.S. households have credit card debt, and 33% of Americans have $0 saved for retirement.
Further, Forbes reported that more than 56% of adults in America have less than $10,000 saved for retirement.
Financial ignorance in America is widespread, and it is costly. If you could add up the lost value of all the bad wealth-related decisions made on a daily basis by Americans, the number would be astronomical.
We do know that American consumers owe close to $14 trillion to lenders and creditors, according to debt.org. And we know that this debt burden increases every year. We know that last year alone student loan debt reached $1.4 trillion.
There is a reason we are financially illiterate. Less than 5% of us get any sort of financial education by the time we graduate high school. College isn’t much better. You can take plenty of courses in economics or accounting, but the fundamentals of personal wealth building?
It’s simply not taught.
I suppose it’s not taught because most teachers – even those who have degrees in accounting, economics, and finance – don’t know the first thing about it.
That’s certainly true of most of the accountants, economists, and financial experts I know.
I was thinking about this as Kristin was cutting my hair.
There are really two problems operating simultaneously: financial illiteracy (which means you don’t know the difference between an asset and a liability) and ignorance of the fundamentals of wealth building (which means you can talk a good financial game but you are secretly broke).
What could I say to Kristin? What could I teach her right then that would be useful to her and her husband for the rest of their lives?
I could have explained terms to her, but she would soon forget them. I’d rather talk about principles and then, if necessary, explain terms.
- I could have explained the difference between saving and investing…
- Or showed her my “golden wells and buckets” illustration and explained how that worked…
- I could have warned her how, with most young couples, their spending tends to rise in lock step with their income…
- I could have told her why she and her husband should avoid buying a nicer house every time they could…
- I might have explained why renting is often smarter than buying…
- Or given her the one stock portfolio I’d recommend to anyone starting out…
- Or explained the enormous advantage of time when you are banking on compound interest…
I could have done all that… if I’d had about 10 hours with her.
But I didn’t. And so I wanted to tell her something that was simpler and more fundamental than all those things. I wanted to tell her the one thing that could make the biggest difference in her and her husband’s future financial life.
I thought about it as she was trimming my sideburns, and then I had it. I told her that the most important thing she should know about money is the concept of net worth, and the first and most important rule she and her husband should follow is:
Make sure that your net worth increases – if not every day, then at least modestly every month and significantly every year.
This was a slightly refined version of a thought that hit me many years ago, one I’ve written about before. That thought was that I should “get richer every day.” It was simple and obvious, but it hit me like a bolt of intellectual lightning.
But by making that resolution – that I would do whatever it took to get a bit richer every day – my entire view of investing changed overnight.
Instead of doing what everyone else was doing, I took a different path, where the preservation of my existing net worth was the most important thing, and where to boost that net worth I’d sometimes have to create more income.
Even if your money is conservatively diversified into great stocks and safe bonds, you can still experience a drop in net worth when – as has happened several times in my wealth-building career – stocks and bond returns go down simultaneously.
I realized I needed more diversity. But not in assets that just sit there. I needed assets that would create more income. So I got into rental real estate and direct lending and direct investments in small businesses and tax liens and all these other “off-Wall Street” ways of generating extra income.
And that worked. Since I made that change, my net worth has increased – if not every day, definitely every year. I made that decision about 20 years ago. My net worth has increased almost six-fold from there. And it has never, ever gone down.
So that’s what I said to Kristin. I didn’t brag about my net worth as I just did to you. I didn’t think she needed to hear that. She might have started charging me more. (Which I would have admired.)
But she got the idea and liked it because, I think, it was so simple. Simple and obvious. It’s something everyone can do.
Editor’s Note: As a new member of the Manward family, Mark would love to get to know our readers. So let us know your thoughts and what questions you have for him by sending an email to email@example.com.