You Are What Your Record Says You Are

Game Over

The title is a quote from Super Bowl winning coach Bill Parcells. The idea is that a team is as good or as bad as its record indicate.  Fans, commentators, and even players like to interpret – or rationalize – circumstances and game events so as to suggest that a team is better, or sometimes worse, than its record might suggest.  A lucky bounce here or a bad call there and those close losses are wins, see, ‘we’re better than our record suggests’.

Parcells on the other hand will have nothing of it.  His take is that a team’s record is its bottom line.  Explanations and rationalizations will not lead you to a championship season, only your results on the field of play.  So rather than tell me that you’re a good team, show me.

Life often parallels sports, or is it vice versa.

We have a bottom line metric that tells us without question or explanation how we are performing in the arena of our personal finances.  Too many assume this metric is our level of income.  But income alone is like the team who scores points in bunches only to watch their opponent do the same.  It (high income) can contribute to a win, but it is not the only ingredient in the winning process.

Rather, the key metric – the record indicating the relative success for our financial play – is our Net Worth.

For purposes of example, consider the wealthy business man living in the McMansion, funding newly leased German luxury sedans and Caribbean vacations rather than retirement or junior’s college education while sporting an array of $1000 suits.  The dude is loaded!  And doubly so when compared to the unassuming school teacher living in a quiet townhome and driving the 10 year Corolla raking perhaps a third the income.

But a funny thing happened on the way to a cozy retirement.  The schoolmarm contributes to her 401k (or equivalent) has steadily paid down her mortgager, and traded a monthly car payment for a positive monthly cash flow.  Meanwhile, the business man’s killer income has washed through his hands like so much water.  His kids are in private schools and travel soccer teams, his perpetually renewed leases provide a relentless and growing outflow, the leveraged dream home is upside down and retirement planning begins with the next raise or perhaps the one after that.

Hey, it sounds like fiction, but I’ve read enough Money mag “Real Life” segments and observed the bevy of Lexus’ in my office parking garage to know that too many folks are working away for the now rather than the future.  Sure they may be paying attention, but to net income and cash flow rather than to the bottom line – Net Worth.

So what is this Net Worth number?  Trent over at The Simple Dollar offers a great illustration of the mechanics, so I’ll send you here rather than recreate his efforts.  But suffice it to say that Net Worth sums the net value of your assets against the net value of your liabilities.

Simply stated:  Net Assets – Net Liabilities = Net Worth

In the example I provided, the business man with his leveraged home, car debts (a contracted lease obligation is the same as a debt… try breaking a lease if you doubt it), and limited savings may actually have a negative net worth.  For all his outward appearance he has nothing but debt to show for his efforts.  Whereas the teacher has learned the lesson taught by others – she has bulked up savings and equity in her home offset only by her mortgage balance.  According to her financial record, she is putting together a winning performance.

Now fast forward to the very end of our individual games.  Our net worth will represent our final estates.  It is the legacy we will or will not be able to leave behind to the ones about whom we care.  Dave Ramsey uses a line when talking to callers trying to settle an estate.  He is not meaning to be harsh, but reality is sometimes cold.  Depending upon the structure of the dialogue he’ll ask or comment (paraphrasing) “there is nothing left to show for the estate”.

When I hear this comment, I personally rephrase the question in my mind – rather harshly I might add – as motivation for myself:  “financially speaking, there is nothing to show for this person’s life work but debt”.

Now, the key is “financially speaking” because we’re all worth more than the money in our accounts, but this is how I repeat the question to myself and it forces me to consider how I’d want it answered upon my coda.

At a minimum, I don’t want my final possessions liquidated to pay my accrued debt.  Nor do I want creditors hounding my loved ones for payment when I’m gone.  So I find it important to keep score.

And, because one day I want to enjoy more of life’s finer things – including a dignified retirement – I actively keep score.  I monitor my net worth on a monthly basis and track my percentage change month over month.  I’ve written before about my net worth goals, and it is a winning score most anyone would be pleased to accomplish.  However, I’m now tracking my progress in a way that allows me to be intentional in my actions relative to those goals.  While that does not by itself ensure success, it sure crystallizes my game plan and directs the path for my execution.  One day I’ll look at my record and feel a touch of pride, because I’ll know both what it says and represents.


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