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Do you know your net worth?

 

Knowing your net worth is a powerful tool to assess:

  1. Whether you are on the right track with reaching your financial goals and building real wealth or,
  2. 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:

 

ASSET VALUE
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.

 

 

LIABILITIES VALUE
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.

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