Speaker 1: Welcome back to the Net Worth Podcast. This week we are diving into net worth versus income and building real wealth. Check out the full edition on our website, wearenoyack.com. Our mission today is, well, it’s really practical. We’re using the framework from this edition of Your Wealth Blueprint to figure out why so many folks, especially high earners, still feel kind of stressed and stuck financially.
Speaker 2: Right? The paycheck looks good, maybe even great. But those big life goals just don’t seem to be getting any closer.
Speaker 1: Exactly. And we want to give you that blueprint, you know, for building durable wealth, something solid starting like right now.
Speaker 2: It’s a paradox we see all the time. You meet someone with a fantastic salary, six figures, maybe pushing higher, but they’re worried. Worried about bills, cash flow, what if the job disappears?
Speaker 1: Yeah. They’re confusing the income stream with actual wealth.
Speaker 2: Precisely. Income is vital. No question. It’s the fuel.
Speaker 1: But this edition uses that great analogy, doesn’t it? Income’s a stream flowing through your life.
Speaker 2: But net worth is the reservoir you’re building. The goal is the reservoir.
Speaker 1: A powerful stream is great, but if there’s no dam, if it all flows out, well, your security doesn’t really change much, does it?
Speaker 2: Not fundamentally, no. So, our whole focus today is on building that reservoir, measuring it, and growing it.
Speaker 1: Okay. So, if that’s the goal, measurement is step one. Let’s get that definition clear. Net worth is, simply put, assets minus liabilities. What you own minus what you owe. That’s your headline number.
Speaker 2: Sounds simple, but the power of that number really hangs on being truthful with yourself, right? Listing everything out.
Speaker 1: Absolutely. You can’t fudge the numbers. The inventory needs to be honest, maybe even a bit conservative in how you value things.
Speaker 2: So, what goes into assets? What are the common things people should list?
Speaker 1: Okay. Think cash, obviously. Money in a high-yield savings account, your HYSA.
Speaker 2: Yeah.
Speaker 1: Then your retirement accounts, 401(k), IRAs, Roths, and taxable brokerage accounts, too.
Speaker 2: Yep. Those count. Equity in your home if you own. And this is key for many high earners, business equity or things like RSUs, restricted stock units.
Speaker 1: Okay. You mentioned high earners. This edition talks about HENRYs quite a bit. Let’s just quickly define that again.
Speaker 2: Sure. HENRY stands for High Earners, Not Rich Yet. Typically, younger professionals, maybe in their 20s to early 40s, are earning good money, let’s say $150k up to maybe $400k, even higher sometimes. But because of high living costs, maybe student debt, job changes, and volatile markets, they haven’t actually accumulated significant wealth. The income’s high, but the net worth might be flat or sometimes even negative.
Speaker 1: Got it. Makes sense. So, back to the inventory, assets listed. What about the liabilities side? The subtractions.
Speaker 2: Ah, yes. The usual suspects: credit card debt; definitely student loans; car loans; mortgages; and one people forget, taxes you owe but haven’t paid yet, especially with complex compensation like stock options.
Speaker 1: Right? That can be a big surprise hit. Okay, so you get this baseline number, month zero, you called it. What’s the rhythm? How often do we measure?
Speaker 2: This edition strongly recommends monthly tracking.
Speaker 1: Not weekly. I might be tempted to check it all the time if I’m motivated.
Speaker 2: Yeah, common urge. But weekly is just too noisy. The market hiccups on a Tuesday, your number tanks, and it feels discouraging. It can actually break the habit you’re trying to build.
Speaker 1: Okay, so weekly is out. What about quarterly? Less work.
Speaker 2: Quarterly kind of weakens the feedback loop. You lose that regular pulse check. Monthly hits the sweet spot, enough time to see real progress from your savings and actions, but frequent enough to keep you accountable. Keep that gentle nudge going.
Speaker 1: That makes a lot of sense. Okay, let’s talk about the environment these HENRYs are operating in. You mentioned high costs, job changes, complex pay, and changing interest rates. Why does focusing just on income fall short in this world?
Speaker 2: It falls short because that high salary can actually mask some fundamental problems. It feels comfortable, but underneath, wealth might not be building at all. This edition gives five core reasons why net worth has to be the main metric.
Speaker 1: Okay, let’s break those down. Reason number one.
Speaker 2: Paychecks are not portfolios. Simple but profound. Earning cash is one thing. Converting that cash into assets that grow is a completely different skill in action.
Speaker 1: You can earn a ton, but if you spend almost all of it, your net worth barely budges, which leads straight into reason two: taxes and debt create leakage.
Speaker 2: A big raise feels great, right?
Speaker 1: Of course.
Speaker 2: But if you haven’t planned for the higher tax bracket or adjusted withholding, bam, bigger tax bill. Then maybe you celebrate with a nicer car and a bigger loan. Suddenly your liabilities are up, taxes are up, and your net worth might have actually gone down despite the raise.
Speaker 1: Wow. Okay, that’s a huge trap, the leakage. What’s next?
Speaker 2: Number three: volatility is real. We’ve all seen it. High incomes can be less stable than people think. Layoffs and industry shifts mean your income stream can dry up unexpectedly.
Speaker 1: And that’s where the reservoir comes in.
Speaker 2: Exactly. Your net worth, your accumulated assets, that’s your balance sheet. That’s what provides stability when the income stream gets choppy. It’s your resilience.
Speaker 1: Makes sense. Reason four: goals compete. Think about the big things: buying a house, paying for kids’ education, maybe starting your own business, or taking a sabbatical.
Speaker 2: Yeah, they all cost money. Serious money, right? And income just tells you if you can maybe afford the payment right now. Net worth visibility forces you to make the necessary tradeoffs between those big goals. It shifts the focus to what you can actually achieve long term.
Speaker 1: Okay. And the last one, number five, this one’s pure psychology, really.
Speaker 2: Yeah.
Speaker 1: What gets measured grows. When you track your net worth every month, you are constantly reminded to focus on building the asset side, not just managing the cash flow in your checking account. It’s a powerful behavioral nudge.
Speaker 2: So shifting to this net-worth-first view actually changes how you make decisions day-to-day.
Speaker 1: Completely. You stop asking that dangerous question, “Can I afford the monthly payment on this?” And instead, you start asking, “Will this choice, this purchase, this investment, this debt, raise or lower my net worth six months from now?” It shifts you from just managing flow to actually building structure.
Speaker 2: And that unlocks the magic word: compounding.
Speaker 1: Exactly. Getting your dollars working for you even while you sleep, those tiny little shovels digging away. The benefits are huge: clarity on where you stand; the resilience we talked about; alignment of spending with actual goals; and momentum. Seeing the number go up is motivating.
Speaker 2: Okay. But even if you’re tracking net worth, things can still go wrong. What are the biggest threats, the enemies of net worth growth, especially for people earning well?
Speaker 1: Oh, number one with a bullet is lifestyle creep. It’s almost invisible sometimes.
Speaker 2: Explain that a bit more.
Speaker 1: Your spending just rises automatically to meet your income. Get a raise, and suddenly you need the slightly nicer apartment, the more extensive meals out, the upgraded subscriptions, and the better vacation. Your income goes up, but your savings rate, the percentage you actually keep and invest, stays flat or even drops.
Speaker 2: So you’re running faster but staying in the same place wealth-wise.
Speaker 1: Precisely.
Speaker 2: Yeah. Another big one, especially in certain industries like tech, is concentration risk.
Speaker 1: Meaning too much tied up in one place.
Speaker 2: Yeah. Too much of your financial life, your current income and a large chunk of your investments via company stock or options, depends on one single employer. If that company stumbles, you get hit twice: income risk and investment risk simultaneously. Diversification isn’t just for investments. It’s for your whole financial picture.
Speaker 1: That’s a scary thought. What else?
Speaker 2: Debt traps. These often start small, maybe a 0% APR offer on a credit card. It seems harmless. But then the promo period ends and suddenly you’re carrying a balance at like 22% APR.
Speaker 1: Ouch.
Speaker 2: That kind of interest compounds against you ferociously. This edition is clear: any debt with an APR over, say, 8%, or definitely 10%, needs to be priority number one to eliminate. Forget optimizing investments until that high-interest debt is gone.
Speaker 1: Aggressively pay that down first.
Speaker 2: And the last threat you mentioned, this one catches so many people with equity compensation: RSUs and stock options.
Speaker 1: How does that work?
Speaker 2: Well, when RSUs vest, for example, they’re taxed as ordinary income right away. You might see a big number vest, but then a huge chunk, maybe 30–40% or more, is immediately withheld for taxes. If you weren’t expecting that, or if you sold shares without planning for the capital gains on top, it feels like you got this big windfall, but your actual net worth increase is much smaller after the tax man takes a slice.
Speaker 1: So proactive tax planning isn’t optional; it’s essential.
Speaker 2: Non-negotiable, especially at higher income levels with complex pay. It really is like being the CFO of your own life. You have to manage income, expenses, assets, liabilities, and taxes.
Speaker 1: Okay, that makes the case clear. We need to focus on net worth. So, how do we actually do it? This edition lays out a 90-day plan, right?
Speaker 2: Yes. A four-phase roadmap. And the key here is simplicity. The best plan isn’t the most complicated; it’s the one you’ll actually stick with.
Speaker 1: Let’s walk through it. Phase one, the first couple weeks.
Speaker 2: Phase one, weeks one to two, is “Establish Baseline and Cash Map.” Three simple steps. One: calculate that month-zero net worth, assets minus liabilities. Get your starting number.
Speaker 1: Step two: list all your liabilities. Note the balance and the APR. And critically, flag anything with that high interest, say over 8–10%. Know your enemy.
Speaker 2: And step three: open a dedicated high-yield savings account, an HYSA, specifically for your emergency fund. Give that safety cash a proper home where it can at least earn something.
Speaker 1: Okay. Foundation laid. Weeks three and four.
Speaker 2: Phase two, weeks three to four, is “Automate the Wins.” This is about building guardrails, setting things up so good behavior happens automatically.
Speaker 1: How?
Speaker 2: Set up auto-transfers from your checking account. The target mentioned is around 20% of your net pay. Split that automatically between investing accounts, your HYSA for savings goals, and maybe a sinking fund.
Speaker 1: Get the money moving before you can spend it. What else for automation?
Speaker 2: Your retirement accounts; turn on those 401(k) or IRA contributions. And absolutely make sure you’re contributing enough to get the full employer match. That’s free money. Don’t leave it on the table.
Speaker 1: Always get the match first. Okay. And there was something about cutting expenses here, too.
Speaker 2: Yep, the quick win. Run an expense kill switch. Find three recurring subscriptions or bills you can cancel or negotiate down. That frees up cash flow instantly; think streaming services, gym memberships you don’t use, that kind of thing.
Speaker 1: Little wins that add up. Okay, phase three, weeks five through eight. This sounds like where the real engine gets built.
Speaker 2: It is. Phase three, weeks five to eight: “Build the Engine.” Three key parts here. First, draft a simple one-page Investment Policy Statement, an IPS.
Speaker 1: Why is a one-page IPS so important? It sounds formal.
Speaker 2: It’s not about formality. It’s about clarity and discipline. It states your target asset allocation, like maybe 80% stocks and 20% bonds, and your rules for rebalancing. Why? So when the market goes crazy, you have a plan to follow instead of panicking.
Speaker 1: It’s your financial constitution, basically.
Speaker 2: Exactly. Second part of this phase: implement your core portfolio. Usually this means simple, low-cost broad market index funds. Maybe add some diversified alternatives if appropriate for your situation, but keep the core simple.
Speaker 1: And the third part of building the engine.
Speaker 2: Insurance review. This is crucial for protecting your net worth. Check your disability insurance (income protection), term life insurance if needed, home or renters insurance, and critically, umbrella liability insurance.
Speaker 1: That umbrella policy seems like a key piece many people overlook.
Speaker 2: Absolutely. It protects your accumulated assets from lawsuits. A catastrophic event without the right insurance can wipe out years, even decades, of net worth growth. Resilience is key.
Speaker 1: Okay. Final phase, weeks nine through twelve: optimization.
Speaker 2: Phase four, weeks nine to twelve: “Optimize and Grow.” Now we fine-tune. First, tax efficiency. Look at Roth versus traditional contributions for your retirement accounts based on your current and expected future tax situation. Maximize HSAs or FSAs if you have them.
Speaker 1: Squeeze out those tax advantages. What else?
Speaker 2: Create separate sinking funds for specific near-term goals, things 6 to 18 months out. A wedding, a down payment, a big trip. Keep this cash safe and liquid in that HYSA, separate from your long-term investments. Don’t invest money you know you’ll need soon.
Speaker 1: Smart; it protects you from having to sell investments at a bad time. And the last piece of this phase.
Speaker 2: This one’s super strategic: income upgrade planning. Before you even get your next raise or bonus, decide now what percent will automatically go towards building net worth, investing, saving, and debt paydown.
Speaker 1: Pre-commit the raise.
Speaker 2: Exactly.
Speaker 1: Maybe it’s 75% of the raise goes straight to investments, and 25% for a controlled lifestyle bump. You decide upfront. This is how you systematically defeat lifestyle creep before it even starts.
Speaker 2: That feels like the master move, locking in future growth. So, bringing it all together, if there’s one core piece of wisdom, like a mentor’s note from all this, it’s to shift from income to net worth.
Speaker 1: I think it really boils down to this. High income is just the fuel. It’s potential energy. Net worth is the vehicle you’re building with that fuel. It’s your stored progress.
Speaker 2: Fuel versus vehicle. I like that.
Speaker 1: When you shift your focus, your measurement and your attention, to the vehicle, to net worth, you naturally start making the choices and building the systems that make it grow.
Speaker 2: And look, the goal isn’t just the number itself, although that’s part of it. The real goal is the life that number enables, which means more options, more flexibility, the ability to maybe take calculated risks, spend more time with family, retire earlier, and weather financial storms. The ability to say yes to what truly matters to you. Building that net worth foundation is what unlocks everything else, the whole growth layer of your financial life.
Speaker 1: Remember to subscribe to Your Wealth Blueprint on our website, wearenoyack.com, to read the article behind today’s conversation and to get our weekly newsletter straight in your inbox.
