Your net worth, your gross salary, and what they mean

Note.  The subject matter of this blog post is not new.  It has been known for years by those who learned about it in their families, or who have discovered it on their own.  It’s simply a discussion from my personal perspective which I think is worth visiting.  The pictures displayed throughout this post are from the eastside of my hometown of Buffalo, NY.  My first money lessons started there – a lot of what not to do, and they capture the essence of some of the money challenges facing my brothers and sisters in my hometown and across the country.

Life is literally a lottery and regardless of your color or nationality, one of its immutable truths is that you can’t control the family you were born into.  You can’t control the parents you are born to, which likewise dictate the privileges and advantages you have access to.  We often think of privilege in terms of black and white (White Privilege), but there are also black families that have privileges over other black families.  The family you are born into in large part guides your start in life, the information, and the values that will dictate your early life choices – good or bad, though they don’t necessarily shape all that comes afterwards – a good thing for some.

Neither of my parents talked about what a Net Worth was when I was growing up.  As described in the Big Words Blog Site Story, my mother and her siblings were first generation college students – descendants of parents who were a part of the Great Migration.  My father’s situation was similar.  They were children of the Civil Rights Era, and thus the big goal for them was earning college degrees and then securing stable jobs on equal footing with their white peers.  That for them was winning and it was also a surpassing of their elders.  For those of us born from their generation (Generation X), going to college was also expected, but what would be the next level for us?  What was winning for our generation?

These days I have a lot of discussions with via text messaging with my brother Amahl, and three close friends from Hutch-Tech High School in Buffalo, NY: the twins Alim and Raheem Gaines and our other buddy, Hestin Brown.  All week long we discuss topics including sports, politics, and some of the silly stuff we see in the media, on Black Twitter and on Facebook.  We discuss social issues as well, particularly as they relate to the black community.  We’re a “Black Male’s Support Group”, or even our own little “Think Tank”.  Recently in a group dialogue that started out with a controversy regarding Tyrese Gibson’s spouse and whether she was actually black, something else much more important came up; the concept of one’s net worth.

Alim cited something he heard about listing what black men in the United States earn in terms of average gross income.  I responded wondering what the breakdown was for black women and Alim on cue cited the 2010 study by Mariko Chang describing Black and Hispanic women having average net worths of only $100 and $120.  I quickly pointed out that there was a difference between one’s gross income and their net worth.  My brother, the eldest in our group, asked what a net worth was.  For perspective, we’re all just above the age of 40.  Alim and I both knew the answer and gave it.  I shared that I was first introduced to the term in my late 20s, but didn’t completely grasp it until my mid-30s – very, very late in the game.  I pondered the fact that my brother still hadn’t grasped it yet – not a knock on him by any means, just our life’s circumstance.  I then wondered how our own life decisions would have been different had we known this important concept in our teens.

Just briefly, your net worth is the numerical difference between what you own and what you owe – your savings and your assets minus your debts and obligations.  Your savings are self-explanatory – the amount of liquid cash you have available and can access quickly.  Assets can be anything from securities such as stocks, gold or silver, real estate investments, equity in your home, or profitable businesses.  If you’re an employee, a major contributor to your net worth is your retirement savings – that’s if you’ve been disciplined enough (and able) to steadily set money aside.  Debts are self-explanatory as well.  Common forms of debt are: credit cards, car notes, mortgages, home equity lines of credit, loans against your retirement savings, etc.

I only started learning about what a net worth was in my late 20s, out of curiosity and chance.  Books like the Rich Dad Poor Dad talked about it, in addition to the Millionaire Next Door.  In Dave Ramsey’s Financial Peace University (FPU), the term is not explicitly addressed, but FPU’s ; ‘Baby Steps’ ultimately lead to a steadily increasing net worth.

Okay, so what’s the big deal about this somewhat abstract and nebulous term that only few understand?  The answer is that your net worth is a metric of your wealth which is very, very different than your gross salary.  This is a critical distinction because a high gross salary doesn’t necessarily translate into a high net worth.  A person or a couple can have high gross salaries and still have a negative net worth(s).

In Black America we’re often enamored and impressed with individuals who make six figures.  Similar to one’s occupation, making six figures by itself can be deceptive.  You would assume that a medical doctor, a lawyer, or a news anchor would be very comfortable, but not necessarily – the same is true for someone who makes six figures.  Imagine if a person has a gross salary of $100,000 and their expenses are $95,000.  They’re still essentially broke right?  Beyond a certain point, your gross income is what Malcolm Gladwell in his book, Outliers, calls an ‘Entrance Criteria’ – an attribute that allows you entry into a club, though it isn’t a predictor of greatness.  ‘Excellence Criteria’ is what separates the great from the average and the underachievers.  These are the things that allow one to become wealthy in this case.

Contrary to the images we’re bombarded with in the media, the excellence criteria for building your net worth don’t necessarily involve a lavish and high consumption lifestyle, but instead being frugal and careful with one’s money.  Dr. Thomas Stanley wrote extensively about this in his Millionaire Next Door series.  This means that many people are chasing after the wrong things in life and not knowing it until it’s too late.

What are some keys to growing your Net Worth?  Some of them include:

  • Budgeting one’s money and controlling costs – learning to run a surplus vs. a deficit;
  • Saving money gradually in an emergency fund, retirement and then potentially for investments and;
  • Carrying the least amount of debt possible.

What are some keys to keeping and maintaining a low/negative net worth?  Some of them include:

  • Spending more than you earn – spending everything you earn;
  • Not saving anything and;
  • Carrying large amounts of debt – particularly on the things that lose value or don’t justify borrowing the money – cars, sneakers, and degrees which don’t lead to well-paying jobs.

In his Rich Dad Poor Dad series, Robert Kiyosaki actually defines wealth as the amount of time one can go without working while still being able to cover expenses.

But what are the greater implications of growing your net worth and wealth?  They can position you to do things like build businesses.  They can be used to donate to charities, and to give other students, for example, the chance to go to school to better themselves – something sorely needed in Black America.  This is the importance of organizations like the United Negro College Fund for example.  They can be used to fund political candidates and campaigns, and have a true seat at the table when national and local policy decisions are made.  At the end of the day, politics is all about money right?

In Black America right now discussions, like the ones my buddies and I have, are actually taking place about the differences between having a high net worth and having a high salary – again two things which don’t necessarily correlate.  One gentleman on Twitter, a Nigerian I think, who regularly beats the net worth drum often rebutting people who think they’ve made it because they’ve attained a high gross salary and have luxury items like Mercedes Benzes and BMWs.  While these are prestigious toys, they gradually lose value and deceptively don’t translate into wealth.

The interesting thing about one’s net worth is that it can’t be negotiated with one’s employer – it’s something that must be decided and acted upon by the individual once they understand it – like choosing to eat healthy or choosing to continue to eat an unhealthy diet.  It can’t be legislated or forced upon groups of people, nor should it be.  It’s a personal choice just like practicing a religion or choosing a spouse.  Speaking of which, I’ve read that judges actually consider a couple’s net worth during divorces and usually just split everything down the middle – a source of tension particularly when one of the spouses hasn’t earned the assets being split.

“Tasha and Ron are living large.  She’s a School Administrator and he’s a Fireman,” my mother said about couple in their 40s who are friends of the family.  She was looking at their professions and what she thought their salaries were and concluded that they were winning financially.

“Actually you don’t know that, Mom,” I said in reply.  “People can look like they’re making it on the outside, but without knowing their savings, their bills and their debts are, you don’t really know how they’re doing.”  My response echoed Robert Kiyosaki’s books where he stated that an individual’s financial success is actually dictated by their income statement and balance sheet – two things you can’t see by looking at someone – but things banks weight highly when qualifying individuals for mortgages or business loans.

What prevents individuals from growing their net worths?  Several things actually.  One is ignorance.  If no one ever tells you about it and you don’t stumble upon the information, you’ll never know.  Secondly, personal choices prevent one from doing it.  It takes discipline and drive, and many individuals lack those.  As a man, if you’ve recklessly had a bunch of kids and are bogged down with child support payments, you’ll probably never get there.  If you’re a single mother also with many kids, you’ll also have a hard time getting there as well.  It’s not impossible, just exponentially more difficult.  In one of his videos, Dr. Boyce Watkins stated that the average cost of a child is $250,000 up until it turns 18 years of age.  The other piece is that in some instances, particularly in Black America, only a handful of people in a given family get educated and earn a decent salary.  Those individuals are often looked upon to take care of everyone else – a potential, “Siphoning off of the wealth,” as Dr. Michael Eric Dyson said, partially joking, at the 2015 Congressional Black Caucus Annual Legislative Conference.  That day he was leading a Wealth-Building panel.

Growing a high net worth doesn’t necessarily involve going to get a Ph.D., an M.D., a Pharm D., or a J.D.  You actually don’t necessarily need a college degree to do it.  It simply requires a steady stream of income, understanding debt, and priorities.  This is what Dave Ramsey meant when he said, “Money is 20% knowledge and 80% behavior.”  This is also one of the key principles in Robert Kiyosaki’s Cashflow game where players must choose their profession before playing.  One would think in the game that it would be easier to get out of the “Rat Race” by being one of the higher income professionals like the doctor, lawyer, or the airline pilot, but it’s actually easier as the web designer or the janitor.  While they generate less gross income, they also carry less debt and have fewer bills.  Their cost per child is also less than the higher income professionals.

Understanding what a net worth is and then making the decisions to grow it is a paradigm shift and a powerful one.  As with most things, we all have lives and everyone’s situations are unique.  We all have relatives and friends who may not necessarily understand the decisions and temporary sacrifices being made, and thus it’s important to know your own motivations – you have to know your ‘why’.

Again, a net worth is not a salary that you make every year.  It’s a result of spending habits and specific money choices.  How often should it be calculated?  One of my mentors told me that it should be calculated quarterly.  If you haven’t been paying attention to it, your initial assessment may not look pretty, but it gives you a place to start from – kind of like a doctor’s checkup.

So what’s your net worth?  Don’t answer that.  From experience, just like your gross income, it’s best if you keep it to yourself and only share it with a trusted few if anyone at all.  Money does different things to different people, and when people think you have it, it can do strange things to your relationships – your relatives and friends.

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