Most financial advice is about financial assets. In fact, when we measure our true net worth, we need to consider five very different kinds of assets. In case you haven't thought about them, or the differences between them, here are the five kinds of wealth.

     • Personal assets. This is the stuff we buy for          ourselves--- our clothes, our home furnishings,          our jewelry, etc. Most of it loses about 75 percent          of its value the moment we buy it. Then it continues          to lose value until it is next to worthless.         • Household assets. These are the things we buy and          own to manage our lives and provide personal services.          We buy houses or condos to provide us with shelter          services. We buy cars to provide us with transportation              services. We buy home appliances because owning them is          more beneficial than renting them--- they provide a high          "return." Most Americans are rich in personal and          household assets but poor in the next three assets.

     • Employment assets. Some workers still have defined          benefit pensions through their employer. If you're one          of these fortunate (and endangered) people your future          pension is a virtual asset. Without it, you'd need to          save a lot more. A lifetime pension of $10,000 a year          may never be counted in your net worth but it is worth          about $170,000.   Many people discount the value of these          assets because many corporate and public sector pension          funds are under funded.   As a consequence, the promises          may not be fulfilled.

     • Social Security assets. Most of us have significant          wealth we don't even think about. It's the value the          income we can expect from Social Security. We may get          that income early in life through disability of death          of a spouse. Or we may get it by working and retiring.          However we get it, its value is enormous. A Social          Security income of $10,000 a year is worth over $200,000          because it is indexed to inflation. Like corporate and          public sector pensions, Social Security is also under          funded. This means those who are already retired and          collecting benefits can be pretty secure but those who          are still working may experience reductions in their          expected future benefits.

     • Financial assets. These are the stocks, bonds, mutual          funds, and CDs that we accumulate in taxable and          tax-deferred accounts. These capture our attention          because they are the most flexible and have the fewest          strings attached. If you have enough in financial assets,          you don't have to worry about Social Security or          employment assets. Nor do you have to worry about          household or personal assets because you can simply buy          what you need when you need it.   

Few people have enough financial assets. We are reminded of this almost daily by one survey or another.   Most of us have to put our future and security together with a patchwork of all five.

We can do it.

It isn't impossible.

But we need to avoid some seductive illusions.

The most harmful illusion is that personal assets--- the clothes and jewelry we wear--- will contribute to our future security. They won't. While some items retain value, a visit to any yard sale or Good Will store anywhere in America will quickly reveal the true market value of most of the stuff we covet. Since every dollar that we borrow to buy such things can cost us about two or three times as much as the return on common stocks and four or six times the return on fixed income investments, personal assets may eliminate the possibility of ever accumulating financial assets.

Some readers will wonder why I am writing about something that is obvious. The answer is simple. It may be obvious but we still haven't changed our behavior.

The second most harmful illusion is that household assets can be turned into financial assets. This is a harder illusion to break because several generations of Americans have actually turned household assets into financial assets. Many residents of Florida and Arizona had little in financial assets until they sold their homes in New York or California. Unfortunately, this doesn't work as well for residents of Kansas, Iowa, and Ohio as it does for residents of California, Washington, and New York.

Although fewer may benefit from this in the future, being flexible about our shelter remains the single most powerful button we can push when we want to improve our personal security. We do it by moving to a less expensive area or, better still, to a less expensive house in a less expensive area.

So what's the fastest way to know if we're doing the right thing with our five kinds of assets? Here are the basic rules:         • If your personal assets are growing faster than          your financial assets, your attention is in the          wrong place and you're headed for trouble.         • If your household assets are growing faster than          your financial assets, you're fortunate to live          where you are. But you may be heading for an          "end-game" problem--- some day you will have to sell          your house because that's where all the money will be.

     • If your financial assets aren't growing significantly          faster than your earned income, you're heading for          trouble. Why? Because your financial assets will have          to be a large multiple of your earned income if you          want to retire. Is there a sign you're doing well?   Yes.

You're not preoccupied with acquiring or paying for personal assets, your home mortgage is shrinking ahead of schedule, and your financial assets are growing at least two or three times faster than your income.