In a photograph, we see a car, a holiday or a new watch. We do not see the instalment bill, the savings left over or who paid for the purchase. Appearances reveal much less about someone's finances than they seem to when we scroll quickly through social media.
Income and wealth measure different things
Income is money received over a period of
time. Assets are what you own. Subtract your debts from the value of your
assets and you have your net worth. A high monthly income can provide a good
foundation, but it does not tell you how much remains after spending and
commitments.
In a simplified example, someone owns a car
with a current sale value of €12,000 and has €1,000 in savings, but still owes
€10,000 on the car. Their net worth from these items is €3,000. The calculation
uses today's sale value, not the car's original price.
Someone else may have a cheaper car, more
savings and less debt. Although their lifestyle appears more modest, they may
have greater financial freedom to move, study or cover an unexpected expense.
Without the relevant information, we cannot draw either conclusion about an
individual.
Choose measures of your own financial progress
Before a major purchase, ask what it will
actually give you. A good computer can support study and work. A trip can offer
an experience you have wanted for a long time. What matters is that the
purchase suits your life and resources, rather than an idea of what you should
own.
To track personal progress, you could
monitor the share of earnings you set aside, a reduction in debt or the number
of months you could manage without income. These measures are not for competing
with friends. People have different expenses, family support and starting
points.
If particular content constantly pushes you
to compare yourself with others, consider what you actually gain from it.
Following a profile is a choice you can change, just like a subscription or a
shopping habit.
Assets can be discreet and tangible
Precious metals are among the assets that
do not need to be displayed in everyday life. With properly established direct
ownership of gold, you own the metal. This is a different legal and economic
relationship from having a claim against a provider. If someone stores the
metal for you, the ownership arrangements need to reflect that distinction. [17]
This can be an understandable option for
someone allocating part of their earnings to a distant goal. They can record
the quantity, costs and purpose, and explain the decision without guessing
tomorrow's price every day.
Still, do not automatically value gold
jewellery or a collectible coin at its retail price. Part of what you paid may
cover craftsmanship or a collectible feature that you will not recover when
selling. Use a realistic buyback amount when assessing your assets. [6]
Let your assets serve your life
Building wealth does not require postponing
everything enjoyable. Decide which experiences and objects matter to you and
give them room alongside saving. This makes it easier to avoid swinging between
total self denial and uncontrolled spending.
Every few
months, review what has changed. You may have less debt, a larger emergency
fund or more assets for the future. Progress has value even when nobody else
can see it.
Something to consider:
Would you want your last major purchase just as much if you could not show it
to anyone?
Sources
[17] LBMA (n.d.).
Precious Metal Accounts
[6] FINRA (2024).
Investor Bulletin 10 Things to Ask Before Buying
Physical Gold or Other Metals
