Money Mindset

Money Mindset discusses the experiences and opinions of a middle-aged professional on the topic of money, including: financial planners, investment experiences, part-time income sources, real estate investment and private sales, web site income opportunities, changing professions, home office organization, money education for kids, and many other subjects I have experienced first hand or even just thought about.

Tuesday, March 21, 2006

Your NIQ... or Network Income Quotient and NWQ

You'll hear this in most guru seminars and books. Things like "Your Network is Your Net Worth". I wasn't sure what this meant when I first heard of it. I thought it just meant that the more people you knew, the more you were worth... well, sort of.

But I have learned a bit more about what they mean. In one of Robin J. Elliott's bootcamps we discussed the exercise where you place a dot in the middle of a page. Then draw a small circle around the dot and place 4 dots on the circle. Name the dots with the names of the 4 people you spend the most time with. Then draw another circle just outside that one, with the names of the next 4 people you spend the most time with... and so on.

Now, the important thing is to estimate the income and/or net worth of the people on the circles around you. I'm not sure how the rest of the exercise went exactly, but it helps you put into perspective what the financial capacity of the people closest to you is.

It makes sense that as the income or net worth of the people closest to you goes up, you will be influenced by them in ways that changes your mindset on money and finances. It's a good exercise.

Being an engineer, I like to try to quantify things, so I think of it as a "Network Income Quotient" or NIQ.

So, try this. After you've labelled the incomes of each of the 4 people around you, take their average income.

For example, Joe ($45K), Fred ($40K), Alice ($55K), Mr. Boss ($100K) have incomes totalling $240,000.

Now, divide that total by 4 to get $60,000. That's the average income of the people you spend the most time with.

Now, your NIQ would be that average divided by your income. If the number is greater than 1, then your NIQ is hopefully increasing your net worth. If you spend more time with people who make 2 or 3 times your income, you can get NIQ values of 2, or 3. If you can get that number to be closer to 10, you will find your knowledge of money and finances becomes much greater.

Then, once you see where you are, try making a conscious effort to increase your NIQ by spending more time with people who have higher incomes.

But is Income the Best Indicator?

If you do the same exercise with net worth (total assets minus total debts), you will also learn things about how the people around you are affecting your attitude on money. I would call this your NWQ (Network Worth Quotient).

You can do it both ways NIQ and NWQ. You may find professionals who make a lot of money (high NIQ), but may not be increasing their NWQ. Try to find people with NIQ and NWQ that are much higher than yours to spend time with and learn from.

Just be careful if you hang around people with a high NIQ but a relatively low NWQ. These people don't seem to know or care how to manage their money, since they have not managed to put much of their earnings to work on building their assets. You will probably pick up their poor spending habits without having the income to sustain them. That can be very dangerous.

... Scott

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