30 Aug Do you know your net worth?
Knowing your net worth is a powerful tool to assess:
- Whether you are on the right track with reaching your financial goals and building real wealth or,
- a wakeup call for you to get your finances right
Just like any business has to review their balance sheet, so should you at least once or twice a year. How else will you know if you are on track with attaining and building wealth if you don’t draw your personal balance sheet?
So how do you calculate your net worth? You simply take your assets and subtract your liabilities, but what is important is what you consider an asset or a liability.
Your assets exclude expensive bags, jewellery and yes your car. A car is a depreciating asset, as soon as you drive off the showroom, it starts losing value, and so no matter how expensive it might have been when you bought it, I would not include it as an asset. An asset is something economically valuable and you expect to derive future benefit from it.
Determining your assets
Make a list of your assets together with the value of each asset as below:
|Property||R 2 000 000|
|Shares||R 200 000|
|Unit Trust||R 90 000|
|Retirement fund||R 200 000|
|Business interest||R 150 000|
|TOTAL ASSETS||R 2 640 000|
You might be asking why I do not include money in a savings account as an asset – it is because these funds are normally earmarked for a future expenditure and can quickly be used should an emergency arise.
Determining your liabilities
A liability is any financial obligation or debt you have.
|Bond||R 1 200 000|
|Personal loan||R 40 000|
|Credit card||R 20 000|
|TOTAL LIABILITIES||R 1 260 000|
How to get to your net worth
|Total Assets||R 2 640 000|
|Less: Total Liabilities||R 1 260 000|
|Net worth||R 1 380 000|
Clearly the ‘secret’ here is that, if you want to increase your net worth, you need to increase your assets while reducing your liabilities. For everything you want to achieve, it starts with a goal. Write down how much you want your net worth to be in the next 5-10 years and actively work towards that goal.