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I have posted a Monthly Net Worth Tracker spreadsheet that I created on my website:

The Importance of Net Worth
I think net worth is the key metric to focus on in the quest to achieve financial freedom and to maintain it once you have achieved it. Net worth is simply assets minus liabilities – what you own minus what you owe. It is the bottom line of your personal balance sheet. Your current net worth reflects the results of all the decisions you have made over the years that affect you financially, and your future net worth will also reflect the decisions you make now and in the future. Your net worth reflects many other financial metrics all in one place. It reflects the results of your savings rate as well as your investment rates of return. Your change in net worth is your net income. By focusing on your net worth, you can determine how all your decisions fit together to determine your overall financial performance and overall financial condition.

Net worth management is really about life management, because not only does your net worth reflect the quality of your financial decisions such as investment and financing decisions, your lifestyle decisions are also ultimately reflected in your net worth. Your lifestyle decisions determine how much you spend and how much you will work and earn. Your decisions about the type of career you wish to pursue will also obviously be reflected in your net worth.

My Story – How My Life Has Changed Dramatically
I have really been focusing on my net worth since December 2004. Actually, I have been tracking my finances using Quicken since 1995, but it wasn't until December 2004 that I began to really get focused on my net worth. I had made many attempts to create budgets for myself, but I never stuck with it. It is easy to track your spending and income in Quicken, so I have continued to do this since 1995, but I found that I really wasn't using the information. I still wasn't really paying attention to the information that Quicken so neatly summarized.

Then something happened in December 2004 that changed me forever. I hit financial rock bottom. This is something that I have never admitted publicly before. I was loaded down with credit card debt, and for the first time in my life, there was no way that I was going to be able to pay all my bills. This sorry state of affairs was all my fault, and I blame no one but myself. It should come as no surprise to many of you that I feel that we are personally responsible for our lives. Except for very rare exceptions, we aren't helpless victims. I have believed this as far back as I can remember, but in December 2004, the stark reality of years of stupid decisions slapped me in the face.

I have never been extravagant. I have never bought an expensive car. I don't have expensive clothes. I still have the same TV that I bought for $400 in 1996. I still have the same computer that I bought in 1999. I don't live an austere life, but it clearly hasn't been unreasonable in a material sense. So what had brought me to such a low point in my life? For me, the problem was that my income was far too inconsistent. Leaving accounting jobs after working for only a short time without having another job lined up became my modus operandi. I would get all worked up because I didn't like the way things were done. I always knew a better way of doing things, but supervisors and managers often wouldn't allow changes to the processes, even when the desirability of change seemed obvious to me. I would allow it to frustrate me until I couldn't take it anymore, and then I would put in my two weeks' notice.

After a while, few people were interested in hiring me because they didn't want to take the risk that I would quickly leave. I couldn't blame them because I would feel the same way about someone else. It was especially frustrating because my former employers invariably felt that I had done a great job (although my attitude was overly aggressive at times), and I had enjoyed some significant successes, including getting a job as a controller at the age of 30, which is a rare achievement. It got to the point that I couldn't get jobs at my experience level because people thought that I would leave, and I couldn't get jobs below my experience level because they thought that I was overqualified and just wouldn't be happy at the lower level.

In 2002, I finally decided to start my own business as an investment advisor. I didn't have any money and I already had some debt, but I figured that I could survive by working temp jobs and building the business at the same time. Unfortunately, finding temp jobs became increasingly difficult, and building the business was proving to be much more difficult than I anticipated. My credit card debt grew, and I borrowed some money from my parents to keep me going, rationalizing that I would soon be successful. After all, I had enjoyed success at my previous jobs – before I quit, that is. It slowly started to become clear that starting a business despite my severe lack of capital and my lack of a good business plan (along with my poor sales and business development ability) was a huge mistake.

My high self-confidence that developed from significant success academically, in games, in sports, and at work over the course of my life was causing me to make foolish decisions such as leaving jobs early, starting a business that was poorly planned, and accumulating debt rapidly, by rationalizing that I was destined to soon be successful as I had been at other things.

In December 2004, I had come to the stunning conclusion that I had failed dramatically! I didn't think it was possible. I'm too smart to fail, I thought. But here I was in a situation where paying all my bills was going to be impossible for the first time in my life. I finally decided to suck it up and ask my parents for a small loan and admit to them that I had failed. It was one of the hardest things that I have had to do in my life. First of all, I had already borrowed money from them to keep my business going, so you can imagine how difficult it was to ask them for more money after I had failed, especially at the ripe old age of 35. Luckily for me, they were willing to help me out, even though I told them that I would understand completely if their answer was no.

When you hit rock bottom and you know that it is your fault, it is not uncommon to reflect on what brought you there. I knew that I was intelligent, and throughout my life I worked harder than most people around me. After some deep introspection, it became clear that my failure resulted from my attitude and from rationalizing poor decisions on a continuing basis. I was in need of a radical attitude adjustment. The painful shock to my ego that I could fail so badly and the severe pain of admitting to my parents that I failed brought me to the point that I committed to never making a decision that would put me in that position again. I committed to doing whatever it takes to increase my net worth on a consistent basis so that not only would I never have to worry about not being able to pay my bills again, I would move consistently closer to the day when I would achieve total financial freedom, a day when I won't have to worry about working for someone else any longer.

Not long after my Great Awakening, I ended up moving from North Carolina to New Jersey in early March 2005 to work for my best friend, who out of the blue called me up and offered me a job as the Managing Operations Director of his small financial services firm. I thought this was both a great opportunity financially and career-wise, but also a great opportunity to work with my best friend. I eventually decided to tell my few clients that I was going out of business, a decision that was made a little easier after my biggest client withdrew his assets. However, I soon found out that my best friend, who I had been friends with for about 29 years, was a Dr. Jekyll and Mr. Hyde. He was the nicest guy you could meet outside of work, but at work he would scream and yell at the top of his lungs. I am now certain that he associates losing his temper with his success (although it is clear to me that he is successful *despite* his temper).

Turnover had been extremely high, and all the employees were incredibly stressed out, including me. It was the most stressful job of my life, but I was determined to stick it out because I was still determined to move forward on the path to financial freedom, and to be honest, I was being generously compensated. At one point, while my friend and I were hanging out at a bar, I had a heart-to-heart talk with him about his temper and how it was affecting everyone. He was sincerely surprised and thanked me for being so honest with him. I was the only person to ever confront him in the 14 years that he had been in the business. After that conversation, his temper was much better controlled for a while, with only very occasional outbursts. Then, his temper became worse than ever. My theory is that the company's financial results were falling short of his expectations, and he still had it in the back of his mind that his temper is an important factor in his success. Whatever the reason, I couldn't take it any longer. I was still committed to making this a success, so I decided to write him a letter. I figured that this would allow me to calmly collect my thoughts and point out how much his temper is costing him.

I wrote a detailed letter, trying to be careful not to be insulting. In retrospect, writing a letter may have been a mistake, although I am trying not to worry about that now. I mailed the letter to his house. He received it on a Saturday morning when we were supposed to play golf together. He gave me a call and said, “I received your letter. I'm very disappointed. We will talk about it on Monday. Needless to say, golf is cancelled.”

I was very surprised and didn't know what to think. I went into work on Monday, and he called me into his office. He said, “I'm sorry, but this isn't working out.”

That was that. I was fired for the first time in my life. I was stunned. He didn't say a word about the letter, and I didn't ask him why I was being fired. I knew why. Our business philosophies were diametrically opposed. He was right. It wasn't working out. And it wouldn't work out as long as he thinks it's okay to scream at employees and treat them like dirt. We are still friends, although we haven't been hanging out together nearly as much. I still like the guy that I know outside of work (Dr. Jekyll). It's the guy at work that I don't like (Mr. Hyde). I think we will slowly get back to normal.

I am now working as an accountant for a small software company. My compensation is a lot less, but I'm still saving a lot. I like the job and I like the people, but there are a lot of things that I would do differently if I were in charge. Whereas years ago I would get stressed out about it, my attitude has changed. Now I just remember that I am getting paid to do things the way my boss wants it done. It doesn't matter if I could do it a better way if the boss doesn't want it done that way. Charles Givens called this the “ballpark principle.” If you want to win in someone else's ballpark, you have to play by their rules. If you don't want to play by their rules, go to another ballpark.

I eventually want to get my own ballpark. It might take some time, but my goal is to accumulate enough capital to own my own business once again. This time it will be well capitalized and well planned. I will have enough cash to survive a considerable period of time without income.

My net worth bottomed out in January 2005, the month following my Great Awakening. Since the end of January 2005, my net worth has increased $42,241.24 (through Jan. 2007). I have completely paid off my massive credit card debt, and after I save a few more months, I will begin paying back my parents (who refused to cash the check that I sent them in 2005 because they wouldn't accept money from me until my credit card debt was paid off. They are the best!).

I began preparing monthly financial statements for myself in February 2005, and it's hard to describe the feeling of watching my net worth increase. I increased my net worth 19 out of the last 24 months, and 3 out of the 5 months that it went down was because I was unemployed after getting fired.

I am certain that focusing on my monthly net worth has changed my behavior. Without it, I probably would have gotten a new car, but I have stuck with my 1989 Jeep because I want to see my net worth increase.

Being the accounting nerd that I am, I have created monthly financial statements that integrate income statements, balance sheets (net worth), statements of cash flows, debt schedules, and schedules of savings and investments (I just added this). It allows me to make projections far into the future so I can see what impact my decisions will have on my net worth before I make them. I still don't make a budget, per se, but I definitely look at my actual spending more closely now to see how it is affecting my net worth. I still don't live an austere life, but now I weigh the value of what I'm buying more carefully against the value of increasing my net worth.

I will post this spreadsheet in the not too distant future, but I still need to make some changes before it's ready for public consumption.

Stay tuned.
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When Life Gives You Lemons
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