Short-Term Performance or Predictable Sustainable Income

Many investors watch their statements like a hawk!  And while that's not all together bad, it's not all together good either.  In the business world, I'd liken it to having your business appraised daily.  Yes, of course, that sounds crazy.  At the end of the day the function of any business and it's valuation is a reflection of how much income it can produce in the long-haul!  This is particularly true for the most savvy of business people and investors.  They understand that predicable and sustainable income will drive valuation at some point.  They also have a keen understanding on spending less than they earn, so understanding income is their first key in producing financial confidence followed by how much they spend.

 

Let me give you another example.  Lets say investor A has a predicable of income of say $6,000 per month and only spends $4,000 per month routinely and investor/Saver  B has a 25% positive return in his investment account the last two years.  Which investor would you suspect will develop sustainable wealth over time?  I'll certainly take investor/saver A.  Investor/saver A is obviously tracking the right things.  Investor B might simply have had good fortune two years in a row, not to mention that those returns are extremely high which is only possible with significant levels of risk.  As such, it's easy to determine who can go on that extra vacation or upgrade the family truckster do to the surplus income.

 

Bottom-line, tracking is a good thing and maybe even a great thing.  But you have to track the RIGHT things to be effective at anything.  Track income and be aware of investment risk and the impact it can create on your long term income.  Make every stride to spend less than your predictable income can produce and you'll be wealthy.  

 

More income than expenses defines wealth. 

 

It's that simple.

 

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