In a nutshell, your net worth is your assets (what you own) minus your liabilities (what you owe). Your net worth is your wealth. Your net helps you ascertain if you are where you want to be and serves as a yardstick to measure your financial position periodically.
To calculate your net worth, it’s better you prepare your Statement of Financial Position. Let’s go back to the example we used in module 1 of this series.
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Jake’s Statement of Financial Position
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Wealth-building assets
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Savings account
Mutual funds (Investment)
Market Value of House
Pension Fund Account
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105,000
50,000
0
255,000
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Other assets
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Market Value of car
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750,000
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TOTAL ASSETS
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1,160,000
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Liabilities
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Expenses due
Car loan
Other liabilities
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95,000
500,000
75,000
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TOTAL LIABILITIES
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670,000
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NET WORTH
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490,000
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P.S: Wealth building assets are assets that increase in value or provide a return.
Following the activities of this series, after creating my financial statement, I calculated my net worth and I was so excited by my results. By August, I had already met and exceeded my end-year target net worth. This excitement pushed me to set another target net worth in one year’s time. Now, this is the beauty of setting a target, you do not set a target and go to sleep, you create plans that will help you meet that target. So, I went back to my drawing board and set out my plans that will help me reach this target in one year. I set out how much I need to save up monthly in investments and other wealth-generating assets to meet this target. I clearly stated out all expected earned income and decided how much I can set aside each month. Note, I didn’t add cash windfalls like cash gifts, bonuses etc. I can’t ascertain my ownership of these money. I needed to be S.M.A.R.T about my plans. I am so excited because I’m on my way to reaching my target net worth in one year. This is the beauty of setting a realistic and achievable target net worth. I can achieve them one milestone after the other and remain excited to set another target. I don’t have to be too hard on myself. I just should maintain a balance; reduce my liabilities and increase my assets.
I just did mine, what about you?
We believe in you!
To your financial independence and freedom
Reveiwing Your Net Worth
Thank you!!
Liabilities should consist of what you owe which includes debts and accrued expenses( expenses that have been incurred but not paid for).
An insightful article!!!
Can miscellaneous expenses be added to my liabilities?