I have a rough idea of our Net Worth, but it could be off by a fair amount, perhaps even as much as $50,000 depending on the day and my memory. It's not that I am crazy rich here, but some days I forget to count in a retirement account or three that I set up some time ago, and the numbers fluctuate due to this.
There is a belief that knowledge is power, but I think otherwise. Some data causes more harm when too readily available. I personally hate the idea of Brokerage accounts having smartphone Apps. I do have a few of these, and remember back to the days where I would trade single stocks that I would constantly hit refresh to get the latest price notification, up a penny and a green ticker made me happy, down a penny made me sad..
Sure I could say that I didn't mind the swings, but I would still catch myself checking this, it was on my brain, and being there stopped my brain doing other things.
Small Circles
I coined the term small circles for events where your brain is tracking on a narrow, endless loop. I first caught myself showing small circle thinking when I have stopped and caught myself procrastinating, in a what if, but what if scenario (that loops back to the same problem). It is a functional breakdown that stems perhaps from an emotional attachment to a certain event. I see tracking of data too closely creating this small loop thinking. Incidentally, I didn't realize how damaging it was to productivity until I saw people with mental health problems aggressively displaying this loop behavior.
If you have too much irrelevant data that you have too much emotional investment in you create and foster a small loop mindset. If you check stock results by hitting F5 and are constantly balancing and rebalancing you have trapped creativity and can't focus on the big picture, earning more cash.
I'm not saying stuff every dime under the mattress
But there is some sense to it. Many of the most successful business people I have met aren't good money managers - they earn a ton, and just earn more and more. When they get wiser (tireder) they start thinking smart about setting up legal structures and tax advantages, but it is quite often the case that their single minded, big loop approach to earning, rather than worrying about efficiency or results got them over the threshold of success.
The Advisor Solution
I know that when I say Net Worth isn't relevant, and admit to not having a proper, to the penny grasp of mine, it could make me look like a bad Advisor. Who would want to work with someone who doesn't even really know their own Net Worth? I think the answer is simple. At some point in time you need that complete financial analysis and explore all your asset allocations in relation to age, income and risk tolerance. I think also, you should keep an eye on your allocations periodically. But if the market isn't really swinging one way or the other, you are probably in good enough shape to not worry about rebalancing more than once every 6-12 months.
When you do rebalance, your Net Worth doesn't really matter, often times people ballpark their property value in this, and it skews things incredibly. You should instead have an investment strategy in place, and focus on that. If it goes out of whack then adjust, but you shouldn't be checking for adjustments every day. In fact, that's something that an Advisor could well do for you (or equally a Robo Advisor).
The real problem with Net Worth is not that knowing a number causes harm, but that you can get trapped in small circles, worrying about a blip up or a blip down, none of which really matters providing you have a strategy in place, and none of which you can control. Once you get trapped into that small circle thinking you stop progressing towards your big circle life goals.
The worst of all though, is to stop producing new income and instead start patting yourself on the back too soon, which is easy to do if you don't have a big circle goal, and you see a small circle peak. When that happens, you stop earning and start gloating over a 'result' that in the big picture is just variance, and once you fall off the earning cycle and start instead watching that result for movement, you just ruined any hopes of achieving real financial success.
So, I don't really worry about Net Worth, and I suggest you don't either, unless you are making that plan for the first time, or monitoring it on an very infrequent basis, free your mind of the emotions and let it create much bigger opportunities for you.
There is a belief that knowledge is power, but I think otherwise. Some data causes more harm when too readily available. I personally hate the idea of Brokerage accounts having smartphone Apps. I do have a few of these, and remember back to the days where I would trade single stocks that I would constantly hit refresh to get the latest price notification, up a penny and a green ticker made me happy, down a penny made me sad..
Sure I could say that I didn't mind the swings, but I would still catch myself checking this, it was on my brain, and being there stopped my brain doing other things.
Small Circles
I coined the term small circles for events where your brain is tracking on a narrow, endless loop. I first caught myself showing small circle thinking when I have stopped and caught myself procrastinating, in a what if, but what if scenario (that loops back to the same problem). It is a functional breakdown that stems perhaps from an emotional attachment to a certain event. I see tracking of data too closely creating this small loop thinking. Incidentally, I didn't realize how damaging it was to productivity until I saw people with mental health problems aggressively displaying this loop behavior.
If you have too much irrelevant data that you have too much emotional investment in you create and foster a small loop mindset. If you check stock results by hitting F5 and are constantly balancing and rebalancing you have trapped creativity and can't focus on the big picture, earning more cash.
I'm not saying stuff every dime under the mattress
But there is some sense to it. Many of the most successful business people I have met aren't good money managers - they earn a ton, and just earn more and more. When they get wiser (tireder) they start thinking smart about setting up legal structures and tax advantages, but it is quite often the case that their single minded, big loop approach to earning, rather than worrying about efficiency or results got them over the threshold of success.
The Advisor Solution
I know that when I say Net Worth isn't relevant, and admit to not having a proper, to the penny grasp of mine, it could make me look like a bad Advisor. Who would want to work with someone who doesn't even really know their own Net Worth? I think the answer is simple. At some point in time you need that complete financial analysis and explore all your asset allocations in relation to age, income and risk tolerance. I think also, you should keep an eye on your allocations periodically. But if the market isn't really swinging one way or the other, you are probably in good enough shape to not worry about rebalancing more than once every 6-12 months.
When you do rebalance, your Net Worth doesn't really matter, often times people ballpark their property value in this, and it skews things incredibly. You should instead have an investment strategy in place, and focus on that. If it goes out of whack then adjust, but you shouldn't be checking for adjustments every day. In fact, that's something that an Advisor could well do for you (or equally a Robo Advisor).
The real problem with Net Worth is not that knowing a number causes harm, but that you can get trapped in small circles, worrying about a blip up or a blip down, none of which really matters providing you have a strategy in place, and none of which you can control. Once you get trapped into that small circle thinking you stop progressing towards your big circle life goals.
The worst of all though, is to stop producing new income and instead start patting yourself on the back too soon, which is easy to do if you don't have a big circle goal, and you see a small circle peak. When that happens, you stop earning and start gloating over a 'result' that in the big picture is just variance, and once you fall off the earning cycle and start instead watching that result for movement, you just ruined any hopes of achieving real financial success.
So, I don't really worry about Net Worth, and I suggest you don't either, unless you are making that plan for the first time, or monitoring it on an very infrequent basis, free your mind of the emotions and let it create much bigger opportunities for you.
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