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Good Financial Habits Are Way More Important Than Net Worth

  November 11

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good financial habitsMy net worth is negative. Very negative. I know because I just calculated it yesterday, after J$ encouraged us all to do so.

It wasn’t as though it was a surprise. I was just curious how negative it would be, and as expected, it’s several six figures in the red.

As many of you know, this is due in large part to my husband’s medical school loans. I know that many people wouldn’t be able to sleep at night if they had my net worth, but I’m not worried at all. The reason is because I don’t think net worth is a good indicator of financial success. Instead, I firmly believe that good financial habits are the best indicator of long term growth and future success.

Good financial habits, like investing wisely, budgeting, saving portions of my income, and tracking my expenses shows me that my husband and I will be just fine in the future.

My Pet Peeve

I have to tell you upfront though that one of my biggest pet peeves on Earth is when people tell me, “Oh you’ll be fine. Your husband will be a doctor. You’ll pay back your loans, and then you’ll have a ton of money to live on.”

It’s hard for me to play nice when I get that comment. Picture daggers coming out of my eyeballs all while I just smile and say, “Yep!”

To me, statements like that completely diminish the emphasis on good habits (and perpetuate the world’s perception of doctors that you know I can’t stand.) Not only that, but it implies that all of our financial dreams will come true just because of his education. It also kind of leaves me out of the equation. After all, if he’s a doctor, why even work? Why have aspirations? I’ve got it made, after all! (That was sarcasm, peeps.)

Good Financial Habits

My husband and I both know that he can become a doctor all he wants, but if he and I didn’t work together to develop good financial habits, we would be in the red for a very long time. Education and by extension high paying jobs will never equal a high net worth without good habits. I’m sure many of you know business executives, physicians, and many other people in high paying jobs who fall prey to lifestyle inflation. They just have the appearance of wealth, but in reality, they will be working for a very long time to keep up their lifestyle.

Our Future

These next few years will be a struggle for us. We will have to rely on our good financial habits to get us out of the red. We will have to avoid every temptation for lifestyle inflation. We will have to raise our two children in way that is modest and simple. And, we really don’t need to calculate our net worth. I’d rather use the time I would spend tracking it to develop more good habits or to clip coupons or to learn how to make another inexpensive meal at home.

My net worth means nothing to me right now. Rather, my good financial habits and the good financial habits of my husband will determine everything.

What do you think is more important: net worth or good habits? To read more about this topic, visit Matt’s post about net worth, and if you missed the announcement about the sex of the twins, check that out here!

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57 responses to “Good Financial Habits Are Way More Important Than Net Worth

  1. My net worth means nothing to me right now too. Perhaps it’s because it’s a number deep in the red but even if it wasn’t, numbers don’t define us. Good financial habits are much more important!

  2. I absolutely agree. There are lots of people out there who have 6-figure incomes and still live paycheck to paycheck. Knowing how to manage your finances is much more important than your total net worth.

    And I get those sorts of “When your husband is working” comments all the time, too, and it drives me nuts! Aside from feeling devalued by them, I always want to point out that he could get sick or injured and not be able to work. He could fail to get a job, or any number of unplanned outcomes. So why would we rely on the money he might be making in the future?

    1. It’s hard not to feel devalued. I’m glad I’m not the only one. It’s something I’ve been working on dealing with for a while now. Esp. with our type of work, it’s hard for people to realize that when you sit down at the computer, you are working and making money.

  3. I think that comment would bug me too. I think it’s a bit of both as they kind of go hand in hand. You may have student loan debt, but there is a plan in place. I’m sure some people just act first and think of the consequences later, which will probably set them up for bad financial habits the rest of their life. I didn’t have good financial habits early on and it affected where my net worth is now.

  4. Thanks for the comment Cat. And of course I think you’re spot on. Net worth matters, but only in the sense that your making choices now that will help you build a better future. Sometimes that means taking on a large amount of debt, as you guys have done. In the end you can’t just blindly ignore it, but as you say the point is to make purposeful decisions that are part of a larger set of good financial habits. You guys will get where you want to go because you have the right set of habits, not because of your current net worth statement.

    1. My pleasure! And thanks for the reassurance. It’s not an easy road, but I have a feeling our light at the end of the tunnel will come in the next few years!

  5. With so many different personal finance vehicles vying for my attention, I have to keep some aspect of combined net worth in the discussion to know I’m on the right track.

    But you’re right, just looking at that big negative number (like I do once a month on my blog) isn’t real helpful. Instead of net worth itself, maybe focus on the *change* in net worth? That’s the number I really care about.

    1. Now that’s a nice way to look at it. If the markets are bad, the negative change could hurt to look at, but long term it might be nice to see how much it has changed over 5/10 years, etc. For us, it’s going to get a little worse before it gets better. He has to borrow about 100k more for the last two years of med school, but we’re getting there.

  6. I agree that action is better but I do believe tracking a net worth is helpful in reconfirming efforts.

    I track my net worth once per month. The main reason is to take a look back and see where we did well, what we could have done better at, and where we should be heading. I don’t focus on tracking my net worth daily or even weekly. It’s more a reassurance of my efforts.

    Complete support the focus on action, but I also don’t think it hurts to track the net worth on a monthly, quarterly or annual basis as well.

    As always, to each their own 😉

    The Warrior

    1. Someone e-mailed me and said the same thing, and I can definitely see the point. Maybe I should track it so we can look back 10 years from now and be humbled at just how bad off we were, haha!

  7. I never really thought about my own net worth until I started reading PF blogs and PF articles in the newspaper. I always thought it was more for celebrities, athletes and other very rich people.

    While I do like seeing my net worth slowly increase (I wish it would increase faster), good financial habits are what get you there. Those habits are pretty much the driving force for increasing net worth.

  8. Not entirely sure I agree, but I understand the point. Often times net worth can be indicators of good financial habits, save for lottery winners and heirs. I agree that good financial habits are incredibly important and will help you dig out of the red and into a solid net worth, but I don’t think it’s more important than net worth. A salary doesn’t = net worth either. It’s easy to spend lavishly if you make a lot of money and subsequently not have a high net worth, but you could also have a small salary and a high net worth because of your ability to save and invest.

  9. I completely agree. My net worth is negative because of my student loans, too, and I don’t really pay any mind to it. As long as I’m focusing on saving and paying my debt down, I am moving in the right direction. From what I’ve witnessed at my job, doctors have some of the worst credit. They often go into debt opening their own practice. I would feel the same if you’re being told doctors are just going to be millionaires once they’re practicing. It’s not that easy!

    1. Yeah it drives me bananas because people can just be so ignorant and even resentful. That’s pretty interesting about your job, but it makes sense. They take out 6 figures to go to school, then they buy 6 figures worth of equipment – crazy. I think the hubs will join a practice that already exists so we can avoid the 6 figure business loan!

  10. I think sometimes people focus too much one one snapshot of net worth rather than focusing on how it’s changing based on life situation. That’s why we like to take a snap shot once a month of net worth. Since our life situation isn’t changing, it gives a good proxy measure of what our habits are accomplishing for us. Throwing a growing pile of necessary student loans or a couple of babies (or both!) and those life events can over power net worth as a measure since it doesn’t take into account those changes.

  11. You could have all the net worth in the world but blow through it due to terrible spending so yes, to me you do need good financial habits. I think both are important but if you should have one or the other, better financial planning is more important.

  12. I agree with you. My net worth isn’t as important to me as our every day financial choices. I like to add it up for fun just to see the numbers, but it doesn’t do me any good short term.

  13. I totally LOVE this point of view! Especially the part about having your education determine whether or not you’ll be successful or have a lot of money. I think this is where a lot of people get it wrong. So glad you shared your opinion and are going against “traditional” financial wisdom!

  14. If I could only BEGIN to tell you how many students I work with every day who are relying on that future magical job to get them out of debt…

    You do you, girl. You obviously know your stuff and have made such a great foundation for post-med school life.

  15. People that give the “Oh, you’ll be fine” line are also assuming life won’t jump up and smack you around a bit. Nobody can predict the future and many things can occur that have a negative impact on our financial well-being. All the more reason to develop good habits like you said.

  16. This post really made me smile. I think net worth *might* have some relevance later in life for retirement planning purposes, mainly to figure out how to leverage what you have to finance the lifestyle you want when you are done working full-time, but overall it’s not a good indicator of where you will be 10, 20, or 30 years down the road. My wife and I have negative net worth but I think both of us have good financial habits and I am hungry to create businesses that can be sold and/or provide semi-passive income, so I think that we are better off than quite a few people who are positive net worth but are lax when it comes to their finances. I should apologize quick if I was one of those people who said you will be fine simply because your husband is a doctor. What I personally mean when I say you will be ‘fine’ or ‘good’ or you shouldn’t be worried about a few hundred k of debt is that it’s an investment in skills that are in-demand and will always be in-demand, and that the income you receive from this investment justifies the sacrifice in terms of taking out loans. You are also unique in the fact that you are more committed to working/hustling than most people I know.

  17. Good habits are what drives net worth growth, so good habits are definitely more important. We’re working to destroy my wife’s originally 80k of student loan debt and it is becoming more fun to watch the balance go down as we get closer to 0. When we started at 80k it was very depressing though.

  18. Totally know where you are coming from–we have 6 degrees between the two of us and the student loans to go with them! We don’t focus on net worth either…it’s not important. What is important is making good financial decisions today for our future.

  19. I don’t really consider the net worth a clear indicator of how big your “value” is, at least not the traditional way of calculating it, where a huge portion of the networth is given by your house. If I own a $300,000 house, that doesn’t mean that my net worth is the same, not even $150,000 (because half of it is my wife’s anyway). I need a house to live in so I couldn’t just sell it to have that money and live off it. And this is just one element of many that I think make the general way of calculating net worth flawed.

    I do consider it some sort of a guideline, though – if it’s going up, it means that I am doing good, but indeed in the long run good financial habits are extremely important because you could make 1 million yearly and still be miserable if you choose to spend 1.5 millions 🙂

  20. I agree with you, a positive net worth isn’t necessarily an indicator of good financial habits, although an improving net worth definitely is. You will probably reach your peak financial responsibility long before you see a positive net worth. Don’t listen to what other people say, in my experience, most of them haven’t a clue.

  21. If you didn’t have good habits, you could easily spend the rest of your life in that much debt, or more. But, since you do have good habits, I know you’ll make better choices. But you’re right; a high income is not the end-all-be-all of net worth. Lots of people earn a lot and waste it all! =)

  22. I have absolutely no idea what my net worth is. Nor does my husband. We don’t care. We both have each an apartment, a car (well, his is almost junk), money and some other stuff. We never bothered making any calculations, what we care about is being responsible with our money, stay off troubles and save for the near and far future. Yes, good financial habits are the most important, you can have a huge networth and mess it up in months if you don’t know what you’re doing.

  23. Excellent point, especially given how you have mapped out that you are several years out from paying it all off and having a nice nest egg! Plus, your ability to do so hinges on decisions over the next few years, as you’ve also covered.
    Habits are really important to establish now, and attempt to maintain when there are more dollars coming in!

  24. Yeah, good point! I think good financial habits are very important and in the long-run, your net worth is a good indicator of those habits. That’s why some lottery winners may have a high net worth for just a short period of time…cause they never learned how to manage their money properly and they end up losing everything.

  25. I would track my net worth even in the red. When you pay off debt, you dig out of the red, which is just as exciting as adding to savings. I like to see the pace of advancement, how many thousand per year are you improving, and if that number improves you are doing it right.

  26. I think good financial habits are definitely more important than net worth. Sure, you can have a net worth that’s outside of the red, and that’s great, but if you don’t have the good financial habits to back it up, it won’t stay that way forever!

  27. Good financial habits are more important than net worth… Yes, I guess net worth is not always correlated with your financial habit.

  28. I don’t know what most of the people here are thinking. Personally, I’d *easily* rather be net worth $10 million and have a little bit of a spendy latte “financial habit” than be three figures in the red. …Sorry. It’s self-delusional to think you’re better off the other way around. I mean, I guess if that’s what someone has to tell themselves to feel better and empowered, the idea holds some abstract value but otherwise it’s praising the emperor’s clothes. It’s sort of like saying you have no food but sure do eat healthy.

    1. Hey Edward! I’d rather have a 10 million net worth with a latte habit too, haha! My point was more about people who live above their means regardless of net worth. Good habits can get us all to the million dollar net worth stage but living above our means can make it gone in a snap. And for the record, I’m definitely not delusional about my debt, haha. I definitely know its there but I also know it’s there from medical school and that the earning power and good habits will hopefully pull us out of the red over the next few years here. 🙂 Thanks for taking the time to read and comment.

  29. There’s a world of difference in negative net worth created by focused student loans and negative net worth created by life style inflation. In the case of student loans, one hopes they are proportional to the earning power acquired through education.

    It’s good financial habits that will retire debt sooner rather than later. And allow you to build net worth.

    But I don’t think you write off the perspective that looking at one’s net worth provides. If your net worth is dragged down by revolving consumer debt, face up to it and fix it.

    1. Thanks for the comment! These student loans are in proportion to earning power since they are medical school loans, and yes, good financial habits are so important!! 🙂

  30. I came across this post just at the right time in my life because it wasn’t until very recently that I finally started to look into and practice better financial habits. On one hand, I was concerned about my net worth, which was what sparked me to begin better habits with my money but now, without even keeping track of net worth, I’ve built up a certain sense of pride in knowing that the way I now use my money to work for me has really been working out. Solid financial habits can prove to be a major attitude booster, so everyone should be sure to take up better practices.

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