Net worth vs lifestyle: why appearances mislead

0:00If you feel like everyone has more money than you, you're not behind. Here's the truth. In this video, I expose the illusion. I give you the real scoreboard and hand you a simple plan to get ahead without comparing yourself to anyone.

0:15People live paycheque to paycheque. It's insanely common. Even at high incomes, people making $100k, $250k, they live paycheque to paycheque. I know it because I see the data. We've worked with over 20,000 students. I see a lot of data points. And a large share of Americans even report that they struggle with a $400 to $1,000 surprise bill.

0:36Now, put this in the chat for me. Would a $400 bill, is that easy for you? Something unexpected? Or is that something that is hard? Something that means you're going to be adding to the credit card? Put it in the chat. Easy or hard? I'd love to see it.

0:52I told you those refills weren't free. No, no, no, no. We're not splitting the bill. Pick up the check. Why do I have to pick up a chair? You're LeBron James.

0:59Because liquidity is the real test. It's not the photo. Comfortable looking lifestyles can be one flat tyre away from a credit card swipe that they can't afford. What's everyone doing? Everyone's got car loans, right? Nobody buys a car anymore. Maybe there's a tax reason for that. For most people is they can't afford the actual car.

1:19Everybody does buy now pay later. You can order a takeaway now with buy now pay later. You know what that means? That means your credit card is maxed out because why the heck would you otherwise not just pay it like a normal human being. So this is a hugely dangerous thing to get into. And then we have high interest cards.

1:44Hey, do you mind paying for this? I don't have any cash. Sure. I'll just put it on my credit card. I'm never going to pay it back anyway.

1:48That $60,000 SUV you might see your neighbours drive, well, what does it actually cost? Well, it could be maybe $1,100 a month if you include insurance. So they can just about make that work, but it's a struggle. So it looks like status, but it compounds as a massive drag.

2:12Maybe you're living in the big apple. Maybe you're living in Boise. Is that how you pronounce it? So what's going on here? Well, this person might be solo. They might have roommates, right? So they have really, really great Instagram posts, whereas this person here might have kids. It might have a mortgage. And actually, their life doesn't look as shiny, but this could be way, way, way financially more responsible than what's going on over here.

2:42So you're comparing apples and oranges. What is the actual thing that matters? It's a very, very simple phrase which is called net worth. That's the only thing that matters. Not the dinners, not the car, not the clothes, not the bag.

3:00A lot of people right now that look great, we call them HENRYs. It's a friend who was Henry and he was a real HENRY. High earners, not rich yet. They save very little. Why do they save very little? Because they think my income's going to keep going up, so I might as well enjoy myself.

3:17What's actually net worth is your assets minus your liabilities. Now, what are assets? Stocks, cash, real estate. Yeah, to the extent that it's paid. So you got a million dollar house and you owe $900,000 on that, well, your asset is possibly $100,000, possibly nothing. And this here is exactly that. It's debt. It's mortgage debt. It's credit card debt. It's the car loan that you got to pay. It's whatever purchase for higher type stuff you got, the BNPL, the credit card payments. That's all liabilities.

3:56And most people who do that calculation actually end up with a big fat negative. And maybe you're thinking, hang on, but my friend just bought a house, so they're definitely ahead. Well, could be a different city, could be a different mortgage rate, could be a different down payment.

4:08Somebody help me. I'm being spontaneous.

4:12So one purchase never reveals net worth, cash flow, or how they're going to be doing. You're seeing a headline, you don't have the footnotes. And it's a bit like YouTube. People say to me, that was a very, you flip-flop between things and videos. I'm like, well, you read the headline, you didn't watch the video, right? It's the same story.

4:31There are really only a couple of types of people in life. And the more I, the older I get, the more I realise there really are only a couple of types. This is type A. This is the high earner and unfortunately the high spender. Anybody want to go to lunch? I'm buying.

4:50So let's just say they have an income of $120,000. They spend $130,000. That's really common. So how do they bridge that gap here? Credit cards and lots and lots of stress.

5:07How do you spot type A? They rent a really nice place somewhere, usually in a city. They have a nice shiny SUV or something like that. They travel a lot. It looks really, really nice. They dine out all the time. Their favourite restaurants, the nice ones, they greet them with a handshake when they walk in. They also have lots of subscriptions. They're members everywhere. Their phone is brimming with apps they don't need. And their credit cards receive the minimum payment. So they are losing, they're making essentially minus $10,000 a year, right? Minus. That's your friend number one.

5:48I got to get out of here. I think I'm going to lose it. Uh-oh. Sounds like somebody's got a case of the Mondays.

5:56Then you have your friend number 2. This is the kind of average looking guy. Well, they might have a slower income. Let's say it's just $60,000. $10,000 of that is investments. So that goes into his investment account. Smaller rent. You see an okay car, something nothing too flashy, probably 6 or 7 years old.

6:25And the key thing is they automate the investing part. So in the first of every month, this person puts, say $800 into that investing account. So what's going on with their money? Well, I tell you what, it's going to go up and up and up and up and up and up and up. And how are their emotions? They're pretty calm. They're pretty happy.

6:52What you don't see on social media is this savings rate, right? And maybe you think, well, what's he going to do with $800? Well, let me shake you to your core. If you invest $500 per month, and let's say you're really bad at this, I mean really, really bad at this, and you get 7% per year. So why do I say that's bad? Because the market on average has done 12% the last 10 years, 10% the last 30 years. So you suck at investing, but you still get 7%. In 30 years, this guy's going to have $588,000.

7:30Bear in mind, his house has paid off. He doesn't need flashy things. He feels comfortable where he is. His cost of living is probably pretty low. In 40 years, this is going to be $1.2 million. That's on $500 a month. I think you can do better than $500 a month. I think you can do a heck of a lot better than 7% a year.

7:52Here's what I want you to look at from now. Are you cash flow positive every month? You want there to be more money left over than what you spent. The next thing I want you to do, this is step 1, is what per cent of your income, and I mean after tax income, like really take-home income, is auto invest. Now, ask your broker if they do that. Otherwise, type it into Google or any AI and they'll tell you who does it with the lowest fees. If you know this, you know what, you know you're going to get wealthier. You know you're going to get wealthy. You know you're going to get freer.

8:36Now, the third thing you got to do is you need something for that emergency. How much do you need? Bare minimum 3 months. Better you have 6 months. Depends a bit. If you have more income streams, say there's two of you working in your household, maybe 3 months will be all right, but you kind of want to push that towards the 6 months over time. So these are the 1, 2, 3 things you got to be doing right now.

9:02And if you're realising you've been keeping score maybe with the wrong game, well, join me live at felixfriends.org/training and I'll take your game up a level and we can also do something about that 7% return thing there because that's a scandal. If you want to get out of whatever it is that you're in that you're not enjoying right now financially, you want to retire, you want to actually travel, you want to pay for your kids' college funds or whatever it is you want to do, that requires the savings rate to be positive.

9:31You got 500 bucks on you? I absolutely do. Great. That's perfect. Great. That's great.

9:35So my sole piece of advice to you today is this. I want you to track just 3 things. The first you want to remember is your savings rate. Now, I write savings. I kind of mean investment rate, but that's a different conversation. Watch another video of mine on that. Basically, if your take-home pay is $1,000, you're investing $100, your savings rate is 10%. Right? You get it? Now, I want you to take that $100 and invest it.

10:04The second is what are you worth? What is your actual net worth? And the first time you do that kind of sucks the record because it's usually less than you want it to be. And then over time it becomes funner and funner and funner. So that is the assets, right? That's your shares, your stocks, your cash. You could add the equity in your home to it if you wanted, but just the equity. And then you deduct from that all the liabilities, all the stuff that you owe, like car payments.

10:32The loans, all that stuff, right? You deduct all that. That's your net worth. Did I say I wanted you to track 3 things? I did, didn't I? Actually, just track these 2. Less is always more if in doubt. Less is always more.

10:43Pop up. Nope. Too slow. Do less. Pop up. Pop up. You're doing too much. Do less. Pop down.

10:51Someone's going to write in this comment. I have too little income to save. You don't. Start with $25. Seriously, $25 or $50. Start with a small amount. If you don't start, you're never going to do it.

11:06And then you want to scale that up. How much do you think the truly wealthy are saving? I'll tell you, 99% of their money. But start with what you can do right now and then figure out how you can improve that over time. So you're going to pay yourself first. That means take some money that you're not going to spend in the next month and you're going to invest that.

11:24There are a couple of other easy shortcuts for you, my friend. That 401k that you probably have. You got a 401k. If you have a full-time job, put FT in the comments down below. You want to invest that up to the match. What does that mean? Your employer will put money into this up to a certain amount and you want to max that match out.

11:46Beyond that, don't do it. But the free money, don't leave it on the table. This is your step number 1 as an investor. Step number 2 is you get yourself a Roth IRA. That's the Ferrari of investment vehicles. So the gains in that are tax-free.

12:05I've also made a video in the past on HSAs. I'm not going to get into super detail here, but if you're eligible for one of those, it's a retirement account. It's got a triple tax advantage. It's a beautiful thing to get into. And then you need that emergency fund. What do you do with that?

12:19Savings account, the one that pays you the most interest. It's often those new banks, those online banks that pay you more interest than the old traditional ones. And that's basically it. Now, what are you going to do in that Roth IRA? Well, I would start off with simply buying index funds.

12:40They're called ETFs, index funds, and I would buy them for, if you're starting out, buy them for the S&P 500. You want to get a bit more exotic with that, you want to ramp up the potential outcome there, join me live at felixprehn.com/trading. But for beginners, that is the best place you could possibly be starting.

13:02One final bonus. Most people have some form of debt. I want you to write them out. Write them out. Every single account, every single thing that you owe. There is one way to do it. It's called the snowball. That basically says pay the smallest debt first.

13:23Why? It's motivating. Behaviourally, this works. There is science on this that says this works. So if you've got 10 things you owe and one of them is only $100, well pay it off today. You're going to feel good about it. Now you're going to want to pay off the second one, right?

13:35Whereas if the biggest one is $100,000 and you've only got $100, it's going to feel like it's going to take me forever. So that's one way of doing it. Just pay the smallest. Now there is another more logical way of doing it, which is pay the highest interest first. Rationally, that makes more sense. Mathematically, that's the fastest, right?

14:02So you look at whatever's got the highest interest rate and you pay that off first. The most important thing is you pick one and you stick with it. That's the most important thing in the world.

14:11And then you're wasting money. Everybody is. You've got subscriptions, you've got unused services, you've got memberships to things, impulse stuff that you didn't really need. Just get rid of them. It'll take you an hour to try go through your credit card statements for the last month and all the stuff you don't need. Just go and cancel it and you're going to be surprised by how much money you actually save.

14:31So stop playing the Instagram game. Start playing the real scoreboard. Surplus, savings rate, net worth, and then track those numbers monthly, maybe even weekly if you want to go nuts. Let me know which one you're going to do down below.

14:46And improve it. Raise the savings by a per cent or 2 every month or every quarter. You're going to find ways to do that and then the compounding will work quietly for you. And remember, you're not behind. You were just keeping score wrong.

15:00And if you want to see how you can potentially accelerate the investment part of this, which is the real fun game, because that's money working for you without you having to do anything. It's like a business you don't even need to show up for except a tiny bit of management. Then come and join me live for the live training at felixprehn.com/training.

15:19I thank you for watching. If you got some value out of this, let me know down below in the comments by writing value and share this video with somebody you think might benefit from this. I thank you for tuning in.