7 money tricks rich guys know

I recently picked up a copy of the magazine Men's Health as part of my ongoing effort to lose 50 pounds (240 - 190lbs). I'm 80% of the way to my goal which I started in May, 2008. I haven't looked at a Men's Health in years. Apparently they now run a regular section called 'Men's Wealth' where they deal with all things financial. When I first glanced at the article in this section titled '7 Money Tricks Rich Guys Know', I wasn't expecting much, as I find typically when media resources that don't focus on personal finance try to tackle the subject the advice comes out weak and scripted. I must admit Richard Sine from Men's Health does a nice job on this article thanks to Charles Farrell, a Denver-based investment advisor. Here is a summary of the first 3 tricks:

1. Figuring Out Your Net Worth
Would you start a diet without knowing your weight? I think that's a great point. For all the slings and arrows shot at net worth from the personal finance universe, if you take it as a relative measure to gauge your progress I think measuring your net worth regularly is fundamental to working toward your financial goals. Apparently fewer than half of Americans can even approximate their net worth. It's even a good way to better understand whether you should take on certain debts etc. Men's Health goes on to warn that the equity in one's home is an asset but its value is subjective and it's not as useful in a pinch as cash or non retirement investments (too bad more people hadn't concluded this recently).

2. Running Your Ratios
Men's Health points out checking three key ratios to see if you are on track for a secure retirement.
Savings / Income = Changes through life 0.1 to 12.0
Debt / Income = Changes through life 1.70 to 0.0
Savings Rate / Income = 12%

More good advice. As readers have seen from my net worth updates and savings rate calculations, I really like using ratios like this to gauge my progress. I also use:
House Value / Total Assets = Currently about 70%
Debt / Asset = Currently about 53%

3. Gauging Interest
Men's Health argues that all debt is bad debt if you do not keep debt in proportion to your income by using the Debt / Income ratio above. By the way the 1.70 above is suppose to apply to 30 year olds. My Debt / Income is currently 1.36. Men's Health also notes that it is not always better to pay off 'bad debt' before 'good debt' citing an example that shows that the size of the loan matters more given close interest rates. This is good advice that seems to be lost on many people judging by peoples love for real estate and student debt in recent years.

I'll review the next 4 tricks in a future post.