The Five Steps to Financial Freedom

The Five Steps to Financial Freedom


What’s the difference between being financially free and being financially independent? What do these terms really mean?

Many people use them without fully understanding what they mean or how to get there.

In this blog post, I’ll go through the five steps to reach financial freedom – and even generational wealth.

Level 1: Debt-free

First and foremost, you need to get rid of all your expensive debt. This could be consumer debt, quick loans, and overdrafts on your credit cards.

It doesn’t make sense to start investing if there’s a hole in your bank account where money is pouring out.

The rule of thumb is that you can start investing if you expect the return on your investment to be higher than the rate on your loan.

If you pay 15 percent on your loan and expect to get a return of 8 percent on your investments, you’re setting yourself up to lose money. You pay more for your loan than you gain on the investments.

In reality, it’s hard for beginners to get a consistent rate of return that’s higher than 10-15 percent a year, so any loan with an interest above 10 should be paid off as soon as possible. This should be your first priority.

But if you have a mortgage of one or two percent, it’s a no-brainer to keep that loan and start investing, as it’s not too difficult to earn more than that in the stock market.

Level 2: Financial security

To reach level 2, you need to build enough cash savings to cover any unforeseen expenses like car repairs, a new fridge, or sudden medical bills.

You should have about a month’s salary in a separate account for these kinds of unforeseen events so you don’t stress out about money on top of having to deal with some kind of misfortune.

Knowing that you have the money for any sudden mishaps creates a sense of calm in your mind – and you really need that if anything happens.

Level 3: Financial Self-Reliance

To reach level 3, you need enough cash savings to be able to quit your job at any time.

This should be about six months’ salary, preferably in a separate account.

Having this will create a feeling of freedom and having the luxury to choose. When you get up in the morning, you go to work because you choose to, not because you have to.

Level 4: Financial Independence

To reach level 4, you need to invest and be able to cover basic expenses like food and housing with the return on your investments.

How much do you need?

It depends on both your expenses and the return you expect to make on your investments.

Here’s my method. It assumes that you get a minimum return of 15 percent:

  • You add up your monthly expenses.
  • You multiply that by 12 to get a year’s worth of expenses.
  • Then you take the yearly amount and divide it by 0.08.
  • That’s the amount of money you need to have invested with a minimum return of 15 percent.

A little note here: Not everyone can expect to make 15 percent consistently in the stock market. It requires a method, and for me, value investing has worked well. You can read more about how I invest in my e-book by clicking here.

If your basic expenses add up to $2,000 per month, you need $300,000 invested at 15 percent.

Knowing that you’ll never have to let your kids go hungry or leave your home creates a feeling of security.

But be aware: at level four there is no room for luxuries like parties and vacations.

Level four is meant as an alternative to unemployment benefits.

If you want to include fun and luxuries, you need to get to the next level…

Level 5: Financial Freedom

To reach level 5 you need to create a consistent return that can cover a completely ordinary life with all the normal luxuries like ski trips, birthday parties, and living upgrades.

How much money do you need to live well and have fun?

It’s the same method as above – you just add all the fun and parties to your expenses and divide the total by 0.08.

Why divide by 8 percent if you expect to make 15 percent annually? Because you want to save room for taxes and have a margin of error.

What if you don’t expect to make a consistent 15 percent return on your investments?

What if you invest in index ETFs and expect around 8 percent annual return on average?


You do the same as before, add up your monthly expenses, multiply by 12 to find yearly expenses, and instead of dividing by 0.08, you divide by 0.04.

What do you do when you reach this level?

You can either stop and decide to live comfortably for the rest of your life.

Or you can also choose to advance to the next level…

Level 6: Generational Wealth

At this last level, you have more than you can spend, and you can influence the world by giving to charity.

Did you know that Warren Buffett has donated more than $37 billion to charity? Imagine how much you can change the world with $37 billion.

The family behind the Danish shipping firm Maersk created a fund that donates money every year to things like helicopter landing sites and new football fields. Their most important donation was the Copenhagen Opera House, which was the most expensive opera house in the world at the time of construction.

When you reach this level, you’ll be able to impact the world long after you die.

If you were to set up a fund that donated money, what causes would you want to support?

To learn more about investing, read my e-book. You can download it here.



Five Ways To Buy More Happiness

Five Ways To Buy More Happiness

There are a lot of blogs and well-intentioned advice about saving, but very little information about how to spend your money. 

How many times have you read or heard that you should avoid buying cafe lattes and invest the money instead?

But what if going to a cafe is one of the highlights of your day?

Why not talk about how to get the most enjoyment and happiness out of your income?

Isn’t that what it’s all about? 

Why save and live frugally for decades in order to one day be able to afford the things you desire? 

 Why postpone the good life?

Here are five ways to get more happiness out of the money that you have right now. 

1. Buy Experiences Instead of Things

Experiences can create far more happiness than material things. 

Let me explain by comparing two different kinds of purchases in my own life. 

I went to an amusement park called Tivoli Gardens with my boys. I took them individually, so I could give each of them a lot of attention and avoid the interest conflicts of a four-year-old and a seven-year-old. I actually did it twice with each kid. That’s four days in a fun park.  

Compare that to the many presents they get around Christmas. They got what they wanted, for example:

  • An electric keyboard – only used three times 
  • A guitar – used even less 
  • Plastic action figures – only played with for half an hour

The Christmas presents have become a nuisance that takes up space and collects dust in our apartment. It’s a reminder of money wasted. 

However, the trips to the fun park remain in our memory, like an Island lit up in the night (I wrote this during a lockdown). 

We often talk about it while tucking in at night. 

We’ll go through all the rides, the lollipops, the cotton candy, the apples dipped in caramel. 

We talk about being afraid and being brave.

We talk about being scared of the bumper cars, but being brave and taking a ride when no one else was on the track (it was a rainy weekday during the pandemic). Gradually driving faster and bumping into the walls and staying in the car when other people got into other cars and bumping into them too and feeling very brave. 

 We talk about how it tickles when you ride a roller coaster. We talk about how beautiful the city looks from the ferris wheel when the lights are turned on. 

We relive those days again and again. 

When you buy experiences like a day trip, a vacation or even just an evening in a restaurant, you strengthen bonds and gain an experience that can change who you are. 

Plastic figurines can’t do that. 

2. Purchase Knowledge

I never try to save money on books, newspapers, or education. 

Knowledge creates a rich inner life. 

 As long as something exciting and enriching is taking place within you, you can manage getting through lockdowns and pandemics. 

The pandemic might pass, but don’t fool yourself.  There will be other times in life when you’ll be required to rely on your own company for various reasons.

 Maybe you get stuck in an airport. Maybe you break a leg or get hospitalized. 

3. Buy Presents for Others

The other day, I received a package. 

It contained candy, chocolate, stickers, a Donald Duck magazine, and a PJ Masks sticker book. 

I was very touched (tears were involved) and the boys were truly ecstatic. 

 When the magazine had been read, the stickers stuck and the candy eaten, we began planning what to send in return.

My kids handpicked the candy and the gifts (colored markers, a coloring book, and the alphabet in stickers). 

They made drawings, figures of beads and modeling clay. They helped me write a letter and put dinosaur stickers on it. 

We were excited as we waited for the package to arrive, and we had to restrain ourselves from calling them every five minutes. 

Days later, I asked my seven-year-old what he liked better. To receive a package or to send a package? 

“To send one,” he said.

That’s how it is. 

 It creates tremendous joy knowing that you’re surprising someone and making their day better – especially if you put some effort into it. 

 When you give, don’t expect anything in return. 

 If you expect something in return, it’s not a gift, but a trade, and that’s different. 

 Give with pure intentions of spreading joy. 

4. Spoil Yourself

 If you love the trip to the coffee shop to get your cafe latte, don’t let some grumpy financial planner talk you into making your coffee at home. 

Buy it and enjoy it. Tell them to mind their own business. 

I’m alone with my boys, and over the course of a weekend, I’m pretty busy cooking and tidying up. 

So, I have an agreement with myself that Monday morning, when the kids are dropped off, it’s my turn. I go to a local cafe and I order breakfast and coffee. 

Then it’s my turn to have someone serve me something and clean the table after me, and honestly… I love it. 

I can look forward to that the whole weekend. It’s my reward.

I’ll sit all alone and read the newspaper or a book, while others wait on me – and no, making the coffee at home doesn’t do it. There’d be some laundry waiting, and it would feel different. 

Whatever you love, buy it and enjoy it.

A little trick might be to plan your pampering for after you complete a task that was a little difficult.

Then it’s waiting for you at the end of your task like a carrot in front of a donkey. 

5. Pay Upfront

Always pay up front (or as quickly as possible).

 There is something about paying before you get the service or product – or just after you receive it – and avoiding credit card payments or installment payments. 

 You pay while the excitement is there, and you look forward knowing that you earned it. 

 If you pay afterward, you don’t really enjoy it that much, because first of all, it’s not really yours yet, and by the time you’ve paid it, the excitement is gone.

 For example, if you pay for a phone in installments, you risk paying off the phone after the screen breaks or the phone gets stolen, and there’ll be some bitterness attached to the payments that seems to go on forever. 

 Besides, it’ll cost you more with installments. Do the math.

 By the way, if you do have some recurring payments, like rent or school tuition, remember to set up an automatic payment so you don’t have to spend time on it and don’t risk missing a payment and getting reminders and fees. 

Balance Between Consumption And Savings

Of course, you can’t just consume without being mindful about it. 

There should be a certain balance between your income and expenses.

Your income should always exceed your expenses, and you should invest the difference. Try to save at least 10 percent of your income. If you can save more, that’s great, but without starving yourself financially. 

If you can purchase what you enjoy, where should you cut down?

I’d look at cutting where it hurts the least. 

Like going through the boring stuff like your insurances and make sure you aren’t double insured. 

You can read one of my blog posts about saving money here, but before you do that, go get that latte. 

Don’t forget to that e-book about making your money grow. You can get it here


How to Make a Successful Financial New Year’s Resolution

How to Make a Successful Financial New Year’s Resolution

There is no better time to look forward than New Year’s Eve.

It’s a great time to plan ahead and choose something new to do or something old to improve.

But chances are it’s nothing new. You’ve probably set a New Year’s resolution before – and failed to keep it.

Maybe you just forgot about it as the champagne bottles were packed away and life resumed.

What’s going to make this year any different?

How do you make your decision stick?

No worries, I’ve got you covered. 

Here are ten steps for successful goal-setting to make 2021 your breakthrough year. 

1. Make It Be Measurable and Specific

New Year’s resolutions are often vague. Real goals are specific and measurable.

It’s the difference between saying,

“I want to start running in 2021”

and saying,

“On September 26, 2021, I’ll run the Berlin Marathon in less than 3.5 hours.”

Ask yourself, what specifically do you want to achieve in 2021? By how much do you want your fortune to grow?

When talking about investing, it makes sense to set up long-term goals as your primary goals. Let’s say 10 years. It makes you less vulnerable to fluctuations in the market. So let’s begin there. 

How rich do you want to be in 2030?

Then ask yourself, how rich do you want to be when we reach 2022?

Be really specific. 

2. Be Ambitious 

Big goals are a lot more compelling.

Cultivate your inner Napoleon. At least your inner Napoleon Hill, the mastermind behind Law of Attraction.

He says that ambitious goals are like strong fires, while small goals are weak fires.

There’s not a lot of energy in mediocre goals.

You have to be a bit audacious to become motivated.

Set a goal. Then double it. Or quadruple it.

How does it feel now?  

3. Have a Strategy 

If you’re training for a marathon, you’d better have a running schedule.

You can’t show up on September 26 and expect to be successful.

You’ll have to know how many days a week to run, when to train intervals, when to train stamina, and when to rest. You need to know what kind of food to eat before long runs. You’ll even have to plan what to wear when going on long runs. 

The same with investing.

You need a plan and a strategy.

How are you going to invest? Which strategy will you follow? Value investing? Passive investing? Day trading? Momentum investing? Copy trading? Pick a strategy. 

You’ll also need to plan how much money you’ll save for investing purposes.

4. Set up Subsidiary Goals

If you’re training for a marathon, it’s a good idea to measure your progress with other running events than the major one.

You’ll want to sign up for a half marathon and even shorter runs throughout the year to see how you fare in a competition and how fast you’ve become.

When you’re investing, you want to measure your progress at least every quarter.

Investing is a slow sport. Kind of like watching grass grow.

You don’t notice any difference from day to day.

But if you take a picture of a plant, you’ll notice a huge difference over time.

So take stock of stocks, so to speak. Track your progress by measuring your wealth. It’s enormously motivating. 

5. Commit Yourself  

You’ll only be successful if you promise yourself that you’ll stick to it whatever it takes.

You have to make that promise to yourself. 

Whenever I’ve accomplished something in life, it’s taken sheer determination and a promise to really do it.

If you’re not committed, like really committed, you won’t have success. It’s that simple.

6. Have a Purpose 

You have to know why you’re really doing it.

Let’s take running as an example again.

Hopefully, you don’t run just for the sake of running.

Hopefully, there’s a bigger purpose, which could be an intent to live a long and meaningful life without lifestyle diseases that could cripple you.

The same with investing.

Ask yourself why you invest. “To make more money” is not an answer. That’s like saying you run to become faster.

Ask yourself why you want to make more money.

When you get a new answer, ask yourself why again. Keep on doing that until you reach the last answer. In the end, you’ll reach your true purpose.

It might be avoiding stress. It might be having more choices in life. It might be securing a future for your children.

The purpose is different for each of us.

For me, it’s a combination of things. It’s about creating generational wealth so my children and grandchildren (to come) can make the best choices without being restricted. It’s also about securing my own freedom and finally it’s also about wanting to influence the world through my investments.

7. Visualize Your Success 

If running that marathon is your goal for 2021, visualize yourself crossing that finish line.

Hear the cheering, feel the sweat and adrenaline. Notice how you feel. How is it going to change your life? Affect your relationships? Your mood? 

If investing is your goal, see yourself reaching your target. Notice how it feels. Who are you going to be when you get there? Reaching goals changes our inner script. It changes who we are psychologically. 

Visualize it until you actually live it. Taste it. Believe in it. 

8. Face the Monster

Avoidance is also a choice.

If you don’t run, you are voting for lifestyle diseases.

If you don’t invest, you are voting for poverty.

Create a worst-case scenario. What’ll happen if you don’t take action? Visualize that too, and decide that it’s not who you are anymore.

I visualize my own diseased mother who spent her last decades on government subsidies, locked in an apartment, suffering from a bad hip and rheumatism. Being unable to afford a taxi, a meal at a restaurant or any extra help. Being very dependent on her children for support.

I’ll never put my boys in that situation.

That’s not who I am.

Therefore, I invest and take care of my finances.  

9. Get Educated       

If you want to run a marathon, you’ll probably read some blogs and books about the best nutrition, the best running schedule, the best running equipment. 

You’ll want to avoid making beginner mistakes that may result in you getting injured and failing to reach your goal of running the marathon. 

The same with investing.

You need information so that you can be the best investor possible and avoid making silly mistakes that could cause you to lose your money.

Ever considered taking an investing course?

Maybe now is the time. It’s money well spent. 

10. Get Some Running Mates  

Running is more fun if you join a club and find people to run with.

The same goes for investing.

You’ll stick to it if it becomes a social event and if you meet people who will hold you to your new standards.

This is another reason for taking an investing course. This is where you’ll meet your peers.


Where does your journey begin today?

Right here with me.

You begin by reading my e-book.

Then you join my Facebook Group

Don’t forget to read my e-book Free Yourself. You can get it here.


How to Gift Shares for Christmas

How to Gift Shares for Christmas

Why not give shares for Christmas or birthday presents?

They don’t clutter or take up space, and it’s the type of gift that keeps on giving.

If you select shares in some good companies, they’ll hopefully increase in value over time.

But more importantly than that, you are gifting interest, knowledge, and experience with the stock market.

Hooked? So how do you actually give shares to someone? 

Here are some ways you can do it.  

1. Create the Trading Account and Buy the Stocks for the Person

If it’s your own child or grandchild under 18, it should be pretty easy to set up the trading account and just buy the shares for them. 

Grandparents might need a photocopy of the children’s ID from the parents, but once they have that, they can open a savings and investment account in their own bank and buy shares for the children. 

This is the easiest way to gift shares.

2. Buy the Shares and Transfer Them Electronically

This method is a little more complicated.

You’ll encounter a bit of bureaucracy at the banking level and some high fees, but it’s doable. 

There are options other than old-school transfer today though. There are some apps that make it easier to buy shares as a gift.

You can look up SparkGift, Stockpile, and Public. They even make it possible to buy fractional shares and give them through the apps. 

3. Open an Account and Buy the Stock Together

An alternative is doing it together. You can coach the person through the process of opening a trading account and buying a share. 

If the person is a newbie on the stock market, this is like a double gift: You offer the stock and some basic knowledge about how the stock market works.

Many newbies freeze when they see an online platform because they don’t understand the language. What’s limit? What’s market? They become afraid of doing something wrong, and some people never get past that level. 

You can get them over that hurdle by investing an hour of your time.

4. Give an Investing Course Instead

What about gifting some investing knowledge either along with the stock or instead of giving shares? 

The best investment you can make is investing in your knowledge. The master investor Warren Buffett said something to that effect (the exact quote: “Ultimately, the best investment you can make is in yourself.”).

A stock can fall in price, but knowledge never depreciates in value. After all, it’s knowledge of the stock market that makes you able to make good investment decisions.

Have you considered giving an investing course as a present?

5. Gift the Stock Together with the Physical Product

It might be a little boring to receive an envelope with information about a stock – especially for children.

In that case, what about giving the stock in combination with the product?

Gift Nike shares with a pair of Nike shoes, Apple shares with the new iPad, or Disney shares with an Elsa (Frozen) outfit?

Tell the child, “You own the McGuffin/the gadget/the iPad/the game station, but even better than that, you now own the company that makes it.”

That’ll wake them up. Believe me. I’ve tried it. 

They’ll go, “What?”

Then you can say. “Well. Part of it.”

You’ve got their attention now. Then you give them the envelope. 

If I had bought a share or two for myself and my nieces and nephews for every item they put on their wish list, we would all be very rich by now.

Looking back, I can see now that my teenage nieces and nephew had very good antennas for wonderful investments.

If I had invested in Appple when my nephew was aching to get the first iPod on the market, I would have had a wonderful return (Apple was trading at less than 40 cents a share in 2001). Or if I had invested in Nike when the sneakers were on my niece’s wish list (around 5 USD per share then). Or if I had invested in Amazon when I gave my first Amazon gift card at Christmas in 2001 (around 10 USD per share).

No use crying over spilt milk, but we can do it differently going forward. 

Look at the items on the wish list. Do you spot any companies that are public? Could they be good investments?

How Much Can You Give? 

We usually don’t give taxes much thought when we’re wrapping Christmas and birthday presents, but when you give stocks, you have to be mindful of the tax laws in your local country.

Gifting stocks is like giving money, and the rules are different from country to country. You might incur some taxes, so look up the tax regulations. 

In the US, you can give 15,000 USD without triggering the gift tax (2020).

In the UK, everyone can get a cash or stock gift of 3,000 pounds without triggering taxes (2020). 

Before you get a headache about taxes, just remember, the stock is just part of the gift.

You’re also giving interest and experience in the stock market. 

Don’t forget to download my e-book Free Yourself.  It’ll teach you how to calculate how much a company is worth. You can get it here

How to Reduce Taxes on Stocks

How to Reduce Taxes on Stocks

Taxes can eat up a big chunk of your capital gains, and they really affect the long-term effect of compounding. 

The good news is that there are steps you can take to minimize the taxes you pay on stock gains. The tax regulations are different from country to country, and I’m trying to generalize, but most of the examples that I use are from the US tax system.

Let’s get cracking. Here are a few things you can do.  

1. Maximize Your Contribution to Accounts that Offer Tax Advantages

In most countries, there are some kind of savings accounts that give you tax advantages.

These could be 401(k) plans where you can contribute a part of your paycheck before taxes, thereby reducing the amount you have to pay taxes on (if you are self-employed, the equivalent is a SEP IRA).

This could also be a Roth IRA that lets you contribute money you already paid taxes on, where your money can grow tax-free. In other words, putting money into an Roth IRA doesn’t reduce your taxable income the year you make the contribution, but you get a tax benefit on the back end.

The UK equivalent would be an ISA account.

These types of accounts have a different name in every country, so you should research your options and take advantage of them. You might want to call an accountant or call your local tax authorities to learn what accounts that offer tax advantages are available to you. 

2. Invest Long-Term

If you don’t sell your stocks, you don’t pay taxes on them. 

Did you know that Warren Buffett pays a lower tax rate than his secretary? How come one of the richest men in the world doesn’t pay a lot in taxes?

That’s because Warren Buffett doesn’t sell shares.

Warren Buffett’s income is actually very modest. His annual salary from his company Berkshire Hathaway is just $100,000 a year, and his secretary is rumored to make at least $200,000.

Warren Buffett’s wealth comes from holding just one stock: Berkshire Hathaway, and he doesn’t sell it – which means he pays no taxes on his accumulating personal wealth.

Some countries give you a more favorable treatment if you are a long-term stockholder. In the US, you pay regular income tax on a stock you hold for less than one year. If you hold it for one year and a day or more, you pay capital gains taxes, which are lower than regular income taxes. 

3. Combine Gains and Losses Strategically 

If you have an investment that has gone bad, you can sell it off strategically to offset capital gains.

If you sell shares with a loss in your taxable brokerage account, that loss can help offset other short-term or long-term gains. 

How does that work? In most countries, you only pay taxes on your net gain (the amount you have realized in gains minus your losses). So if you know you have some realized gain, you have an opportunity to realize some losses too to offset that gain. This is called tax harvesting.  

Of course, you don’t want to have any losing position on purpose just to avoid taxes, but if you happen to have an investment that didn’t go as planned, you can be strategic about when you sell it.

4. Structure Your Investment for Tax Efficiency

On some accounts, you don’t pay taxes, and on others you do.

You can position your investments so you get the best of each system. 

Why not place the very long-term investments in your taxable brokerage account where you only pay taxes when you sell them?

Why not place dividend paying stocks or short-term investments in your Roth IRA, where you don’t pay taxes? 

Don’t Let Taxes Overshadow Your Investment Strategy

You should buy or sell investments based on your belief that they will gain or lose value over the long term. Don’t make investment decisions just to reduce your tax burden.

Taxes are a luxury problem. If you pay taxes, it means you’ve made money. Don’t forget that. Be grateful for it.

Also remember all the things you contribute to with your taxes. Like my uncle used to say, “I pay my taxes with gratitude.” 

I’ve thought a lot about that during the COVID-19 pandemic.

I live in a country (Denmark) with one of the highest tax rates in the world, but also in a country with one of the best free healthcare services in the world. I’ve been fortunate enough to feel safe throughout the pandemic – and that means a lot when you have small children.

I try to pay my taxes with gratitude and think of how I contribute to society.  

Don’t forget the e-book Free Yourself.  It’ll teach you how to calculate how much a company is worth. You can get it for free here

Why You Might Be Richer Than Your Wealthy Neighbor

Why You Might Be Richer Than Your Wealthy Neighbor

You might be a lot richer than you think you are.

Even if you own nothing, you might be richer than the person down the road with the big house and the fancy car.

Why is that?

I’ll tell you why.

Let’s look at what wealth is by using the example of two people.

The first person is a surgeon. She owns a big house with an ocean view, a Lamborghini and whatever else impresses people.

The other person is a nurse. She rents an apartment, and she takes the metro to work. She doesn’t own a car or any property.

Who is richest?

Most people will say the surgeon right away, but you can’t be sure. Don’t let yourself be fooled by a fancy exterior and job titles.

We have to look at their assets and liabilities. In other words, how much debt do they have? Do they own anything that makes money for them? 

Let’s pretend that the surgeon recently began working, and that she has a lot of student debt. Let’s say that she bought the car using consumer debt and a credit card loan. Let’s also say that she has a lot of debt on the fancy house. What the bank didn’t lend her, she borrowed from her parents. 

Let’s say the nurse is new on the job too.

Neither of them have had any chance to save money or invest in anything.

Who is the richest of the two?

The nurse is. At least if you define net worth as assets minus liabilities. The surgeon has a negative net worth due to all the debt. The nurse is in a neutral position. It may be that the surgeon makes more money, but she is actually poorer. 

A Fancy Exterior Says Nothing About Wealth  

Remember this, because it’s really important.

You can’t judge a person’s financial situation by measuring exterior status symbols such as a house, car, or title.

How wealthy someone is really depends on how they manage their money.

This is really good news, if you think about it.

It means that if you don’t own anything, but if you don’t have any debt either, you are in a neutral place – and that’s a pretty good place to be in.

You are in a better position to build your wealth than the majority of people. A lot of people start out with a negative net worth. First they have to chip away at the mountains of debt, and only then can they begin to build their wealth. 

Debt moves you backwards because it sucks money out of your finances. You could say there’s a hole in the bucket, and your money is dripping out of it.

You want to let your money work for you, so you don’t have to work so hard for money.

Debt is the exact opposite of that. It’s letting your money work against you, so that you have to work harder for it.

People with a lot of debt are pushing a cart up the mountain, and it’s harder for them to reach the top and become financially independent.  

How to Calculate Your Net Worth

How do you actually calculate your net worth?

It’s pretty easy, and a bit of an eye-opener (if you haven’t tried it before).

Here’s how you do it.

You have to find the present value of everything you own, and figure out how much debt you have. In other words, you have to figure out what your assets and liabilities are.

Just a note before we begin: I normally don’t consider your house or your car to be assets, unless you rent them out and make money from them. But for the purpose of this exercise, we’ll count them as assets. 

How to find assets:

  • What’s the value of the house or apartment you own (if you have one)?
  • What’s the current value of any stocks or other securities that you own?
  • What about your retirement savings?
  • If you were to sell your car today, how much could you get for it?
  • How much do you have in cash?

Then you have to find all your liabilities, meaning all your debt.

How to find liabilities:

  • How much do you owe on your house?
  • How much in student debt?
  • What about credit card debt?
  • Or any consumer debt?
  • Do you owe anyone else anything?

Then you add up all your assets and deduct all your liabilities. What’s the result?

I encourage you to keep track of your net worth –  it’s very motivating. 

Top 10 percent 

When I did this calculation for the first time, I discovered that I was among the top 10 in my country (Denmark).

At the time, I was an unemployed single mother of two small children, and I was living in a small apartment in the capital. 

I didn’t feel very wealthy, but this exercise changed that perception.

I could easily calculate the result. I took my cash savings, added my stock portfolio, the value of my apartment, plus my retirement savings. There was nothing to subtract as I had no debt.

I discovered that I was richer than a friend who had recently bought a huge house in a fancy neighborhood. I knew that she had no retirement savings (we talk about money), no investments, and that the house and the car were bought with borrowed money.

This made me feel different about my own priorities, and instead of feeling like the poor friend, I began feeling like the smart friend.

The next time you hear about some friend who bought a huge house or drives a Tesla, remember the old saying:  Don’t judge the book by (the house or the car) on its cover.

It says nothing about how they’re really doing.  

Do you want to learn how to build assets? I teach you how to get a good return on stocks in my free e-book Free Yourself. You can download it here.