My last few articles have been on the topic of the personal balance sheet. A while back I read about the concept of the personal balance sheet and one’s net worth being compared to a bathtub. I can’t remember which book it was in, but here’s a shout out to whoever came up with the analogy. Here’s how it works: You have the faucet and the drain. If you’re thinking financially, you’ve probably already figured out that the faucet is your income, or money coming in, and the drain is your expenses. The end goal is to get the bathtub as full as possible.
Obviously, if the drain is wide open, there’s a fair chance that the tube will never fill up because water is leaving as fast as you can get it out of the faucet. Conversely, if you close up the drain and crank the faucet wide open, the tub will overflow pretty quickly. If only it were so easy in real life, right?
The same concept does apply in our financial lives. It’s important to keep more coming in than going out. Our culture tends to think that budgeting is for those with a weak faucet, and those with a weak faucet think they can’t ever be rich. This is the doing of advertisers selling their goods. You have to remember that this is your REAL life.
Any financial decision you make needs to take into consideration the effect it will have on your net worth. That brand new car will be awesome, but it could slow the rate your bathtub is filling up, so maybe it would be better to buy a nice used car instead. Don’t get caught up in the race with the Jones’s just to end up with an empty bathtub down the road. Don’t fall victim to the idea that a wide-open drain signifies a full bathtub. There are plenty of people out there spending every dime they get. Once the faucet shuts off, and it does for all of us, these people are going to with they’d kept the tub full
The end discussion here is that you don’t have to have a huge faucet of money to “get rich”. You also don’t have to completely plug your drain. You just need to consider each decision in the context of your bathtub. “Is this going to help fill up my bathtub, or is it going to drain my bathtub?” Instead of thinking about what that next paycheck can buy today, think about how you can build wealth and protect against a rainy day with that paycheck. In time, you’ll become one of the “millionaire next door” types who has learned to control their money, rather than their money controlling them. Here’s to getting wet!!!
Obviously, if the drain is wide open, there’s a fair chance that the tube will never fill up because water is leaving as fast as you can get it out of the faucet. Conversely, if you close up the drain and crank the faucet wide open, the tub will overflow pretty quickly. If only it were so easy in real life, right?
The same concept does apply in our financial lives. It’s important to keep more coming in than going out. Our culture tends to think that budgeting is for those with a weak faucet, and those with a weak faucet think they can’t ever be rich. This is the doing of advertisers selling their goods. You have to remember that this is your REAL life.
Any financial decision you make needs to take into consideration the effect it will have on your net worth. That brand new car will be awesome, but it could slow the rate your bathtub is filling up, so maybe it would be better to buy a nice used car instead. Don’t get caught up in the race with the Jones’s just to end up with an empty bathtub down the road. Don’t fall victim to the idea that a wide-open drain signifies a full bathtub. There are plenty of people out there spending every dime they get. Once the faucet shuts off, and it does for all of us, these people are going to with they’d kept the tub full
The end discussion here is that you don’t have to have a huge faucet of money to “get rich”. You also don’t have to completely plug your drain. You just need to consider each decision in the context of your bathtub. “Is this going to help fill up my bathtub, or is it going to drain my bathtub?” Instead of thinking about what that next paycheck can buy today, think about how you can build wealth and protect against a rainy day with that paycheck. In time, you’ll become one of the “millionaire next door” types who has learned to control their money, rather than their money controlling them. Here’s to getting wet!!!
RSS Feed
