Your pathway to wealth!

Financial freedom and stability are privileges that not everyone enjoys from birth, but nearly all aspire to achieve as they grow. And although attaining them is not rocket science, it is a task that demands both knowledge and discipline. Ultimately, it boils down to answering one simple question: How does one increase their net worth?

No matter your starting point, whether in terms of financial situation or education, financial planning revolves around a single concept: increasing and protecting your net worth. That’s it.

The real challenge, however, lies in the process of accomplishing these two objectives simultaneously. In my experience, there are three core processes. But before we explore them, let’s clarify a few important concepts.

The first is assets. What do we mean by “assets”? Simply put, assets are the things you own such as your money, your car, your house, your investments, and other possessions. Their fair economic value represents a significant part of your financial worth.

The second is liabilities. Liabilities are the things you owe, such as credit card debt, student loans, auto loans, or a mortgage. They also represent a significant part of your financial worth.

Finally, there is net worth, which is the figure you obtain by subtracting liabilities from assets. This number may be positive or negative; but regardless of where it stands, your ultimate goal is to increase it. Which brings you to the next question: how do you do that?

As I mentioned earlier, there are three processes for building net worth:

1. Reduce your liabilities. This means using some of what you earn to pay off what you owe. This process decreases both your assets and your liabilities, and it is only effective when your liabilities decrease faster than your assets.

2. Increase your assets. This is done mainly through investing, which, if managed properly, increases the value of what you own. However, just as in the first process, the pace matters. Your assets must grow faster than your liabilities.

3. Increase assets while decreasing liabilities. By far the most efficient and powerful method for achieving financial stability.

   
   

Which process you follow depends on your goals and your specific circumstances. They are not mutually exclusive, since you can shift your focus and strategies as your situation evolves.

This is the big picture behind your financial goals. The reason many people struggle to achieve them is that they don’t fully grasp what they are aiming for. The framework I use to teach financial stability works like a pyramid. At the top, you see and understand the main task and its meaning. As you move down the pyramid, you dig into the details of each subtask of the main goal.

By the time you reach the base of the pyramid, where your daily financial decisions take place, you understand why you are taking each action and how it connects to your larger objective. This clarity removes anxiety, reduces stress, and eliminates aimless wandering. And remember: “It’s not too late, it’s not too early.”