Your Net Worth is the difference between the total value of everything you own (assets), and the total value of all of your debts (liabilities). Think of net worth as the amount of money you would have (or owe) if you sold everything you owned except the clothes on your back and payed off all of your debt. Your net worth would be the money I have remaining.
Steps in Determining Your Net Worth
- Identify all your assets (possessions that can be converted into cash like your house, cars, cash in your bank accounts, stocks, retirement accounts, etc. ) and then total it.
- Identify all your liabilities (loan value or amount you owe/ borrowed) and then total it.
- Compute your net worth by subtracting your total liabilities against your total assets.
- If the amount is positive, you are financially okay. While if the amount is negative, you are financially poor or unstable.
If you want to become and remain financially rich, your goal is to focus on increasing your NET WORTH. It’s done by a combinaison of acquiring possessions that goes up in value overt time (increasing your assets) and getting rid of loans and things that cost you money (decreasing liabilities). Once you are able to do this, only then you can truly become rich and wealthy.