Go to any financial website out there, and more often than not, you’ll find articles advising you to focus on your net worth, not your income.
This expert advice stems from the reality that income doesn’t mean wealth. Someone making $500,000 can make the same poor financial choices as someone making $50,000 a year and end up filing for bankruptcy. Because income is no guarantee of wealth, the experts guide you to focus on your net worth instead.
I’d like to argue that the advice to “focus on your net worth” is a blanket statement that may not apply to everyone.
For millennials especially, who are struggling to repay student loans, get their first well-paying job, or even just get their foot in the door of the career of their choice, net worth is the farthest thing from their mind.
Here are just a few reasons why focusing on net worth may not be your best course of action for now.
Are you just starting out?
Focusing on net worth is a sound principle for people who have a steady income that they are able to invest, but if you’re just starting out or still building your career, focusing on income should be your number one priority.
You’ll never be able to increase your net worth if you’re working a low-paying job and you’re living paycheck to paycheck with nothing to spare.
You can’t see returns on your investments if you don’t have the cash to invest in the first place. You can’t buy real estate that will generate passive income unless you have the money for a down payment on the property. You can’t save for retirement if you’re struggling to pay your monthly bills.
Focus on income first
As they say, “What you focus on grows.” Before you make your net worth your number one priority, you need to establish a firm foundation for your finances with a steady and reliable stream of income.
If you’re working a low-paying job, it’s time to ask for a raise or look for a higher-paying job.
If you’re happy with your job, but still need more money, it’s time to look into some side hustles. Start a blog, become a freelance writer, or buy, sell, and flip things on craigslist.
Find a way to monetize the things you’re both good at and enjoy doing. There are some amazing and creative ways to earn some extra income. Check out DC’s new book Hustle Away Debt for more about how side hustles can help you grow your income outside of your 9-5.
Once you establish a firm foundation for your salary or career, you’ll be in a better position to focus on your net worth. As you earn a higher salary, invest the difference in stocks, bonds, and real estate. You’ll be able to increase your net worth exponentially faster if you focus on increasing your income as well as your “disposable or investable income.” Increasing income now will mean laying a more solid financial foundation for future decades.
Fluctuating markets can drive you crazy
The market has historically moved in cycles of boom and then bust. Downturns are always around the corner, whether that corner is months or years away. Don’t ever forget that the market could have yet another downturn or even a recession like we saw in 2008.
By only focusing on net worth and watching the numbers fluctuate from day to day, you’ll drive yourself crazy. If you have the means to invest as a millennial, then absolutely, get started in the stock market or find your first rental property. Just be sure not to focus too much on the daily numbers. Investments are long-term prospects, and there isn’t much you can do to fix your net worth in a day.
Net worth can inflate your perceived wealth
When most of your fortune is tied to bonds, stocks, and real estate, your perceived wealth can be higher than your actual wealth. Seeing those net worth numbers grow can make you overly confident in your wealth.
If you’re keeping track of your net worth, and business is booming, you may be more likely to make less financially sound decisions. It’s important to live a life appropriate to your income. Don’t speculate on your own net worth and lose out in the long run if the market takes a bad turn. You don’t want to be stuck with credit cards debt, car loans, or debt on expensive toys because you thought that you could afford something based on your net worth.
Focus incrementally more on net worth
I believe that if you are just starting out in your career, you’ll be better off in the long run by focusing first on your income. After you have established a solid financial foundation through your income and profits, you’ll be able to focus incrementally more on net worth and have that “millionaire mentality” that net worth aficionados rave about.
Until you reach that point, however, make getting out of debt and increasing your income your number one priority. As you have more income to spare, you’ll be able to focus more on your net worth. Making your income your priority is the first step to becoming financially independent because that income is what will allow you to purchase dividend stocks or passive income properties, therefore increasing your net worth.
So don’t feel bad if you’re more focused on your monthly income and career at this point in your young adult life. It’s normal, and you’re well on your way to being able to make net worth your highest priority.
Check out a FREE tool for tracking both your net worth as well as income and expenses.
Do you focus on income or net worth? What are your reasons?
FrugalRules says
I think you make a good point Kristi – it can be difficult, at best, to focus on your net worth when just starting out. You can still focus on the things that’ll make up your net worth in the long run, but need to be done incrementally in relation to your current situation. If you’re just starting out, focusing on upping your income and knocking down your debt should take priority and everything else will work itself out.
Beachbudget says
I kind of focus on both, but when I’ve reached a point where I can only make so much money and stile sane, I focus on net worth. If you’re just starting out with your career and have no debt, I would just star on the smaller end. You want to build that habit, even if it’s only very small amounts.
Hannah UnplannedFinance says
I certainly agree that those who are just starting out need to devote quite a bit more creative attention to bringing more in as opposed to reducing what goes out.
I mean, some attention needs to go to how to reduce car, housing, daycare and food expenses, but beyond that, it’s probably best to earn more through a primary occupation or through side hustles.
AbigailP says
I agree that if you’re just starting out, you should focus on income in relation to debt and savings. Net worth needs to be a little ways down the road — especially for people with large student loans. Focusing only on net worth could discourage them, which is the last thing that will help them build net worth in the long run.
thebrokeprof says
It’s difficult to focus on net worth when you’re just starting out, so I agree that increasing your income should be the ultimate goal. But, there are some things you shouldn’t neglect, such as getting an employer 401k match. Starting investing early on, especially with money provided by your employer, is a great idea because you have a lot of time on your side. If you invest appropriately, time is your best friend.
financialsamura says
I focus more on net worth because the government taxes income, not so much net worth!
You can even get Obamacare as a multi-millionaire if you have a low enough income, for an extreme example.
DC @ Young Adult Money says
financialsamura Great points! I think for people in their 20s and early 30s, though, you really need to focus on income. The more you increase your income the more you can throw towards your retirement, savings, and investment accounts.
moderatemuse says
FrugalRules Absolutely. Once you get your debt knocked out, you’ll be in a better position to focus on your net worth.
moderatemuse says
Beachbudget That’s a great point. Even if you don’t have a ton of money to invest, starting that habit early on with smaller amounts will make it easier to do once you’re in a better place.
moderatemuse says
Hannah UnplannedFinance Absolutely, definitely find that balance between reducing your costs and increasing your income so that you’re able to pay down debt and start saving.
moderatemuse says
AbigailP The “focus on net worth” argument is definitely discouraging to people just starting out.
moderatemuse says
thebrokeprof If you can find a 401k match employer, then absolutely, do what you can to save through that account. It’s free money, basically, and you’ll want to take advantage of that opportunity.
Jason @ The Butler Journal says
Right now I’m focusing on income. Once the majority of my debt is paid off then I will start working on my net worth. I will have more money to invest with by then.
Chonce says
I don’t focus on my net worth as much as I should. It’s definitely still in the negative due to my debt. I figure maybe once I start investing more or buy some property I will focus on it more.
mycareercrusade says
I look to (as much as possible) focus on both ;), cheeky answer I know & great question as well :)..
To me I say why not consider both however the bigger focus is probably on income and another concept called residual (rather than passive) income, which is really what I’m after, earning income that comes in month after month to then give flexibility to do with my time as I choose!
Millennial Boss says
I’m actually going back and forth right now. I have a competitive offer from a company that is in a higher cost of living area but super reputable int he industry and then I have my current job which I feel would increase my net worth more quickly but not be as flashy on a resume. I am leaning towards the net worth and staying at my current company because financial independence is what I want more than the corporate C-suite but still deciding!
NZ Muse says
I’ve only just started really tracking my net worth (age 28). Income has been my main focus through my 20s and so I would tend to agree with you…!
Keith "Shin" Schindler says
Hey, Kristi.
Although I’m all over keep tabs on Net Worth, I’m also a firm believer in Income is SO important. One can’t build net worth without income.
I learned years ago, when my income was low, that I had to increase it to move forward in life and have a chance of increasing my net worth. I Side Hustled quite a bit over the years.
Even now, as a retired educator, I’m still looking at ways to increase my income. Freelancing is paying of.
I really enjoy reading stuff like this. I’ll be looking forward to more.
All the best!