Do you wish you had more money? More resources to be able to do what you want to do? Would you prefer to not feel the pressure of owing someone, also known as debt? These are all questions that relate to your net worth.
Net worth is a financial measure, but it can mean so much more. To compute your net worth, you add up the value of all the things you OWN, such as bank accounts, retirement plans, your car, your house, and your belongings. Then you add up the value of all the things you OWE, such as credit card balances, your car loan balance, and the balance due on your mortgage. Don’t include regular expenses here – this only tallies up the total of the balances due on your various debts.
Once you have those two totals, do a bit of math: your assets minus your liabilities equals your net worth. Or more simply:
What you OWN – What you OWE = Your Net Worth
Hopefully your math will result in a positive number! But if it is negative, don’t fret. This gives you some motivation to work on reducing those debts.
Tracking your net worth
Net worth as a financial measure is only a snapshot. Over time, the value of your assets might fluctuate, and so might the amount of debt you are carrying. The goal is to have a positive net worth, and then work to grow your net worth over time. Slow and steady is fine, progress is progress!
Tracking your net worth is a useful practice. Most people want to get out of debt eventually, and watching the components on your net worth change over time can be inspiring. It can also be educational.
For example, if you track the value of assets such as vehicles over time, you will notice the value declining as time goes on. Those assets are known as depreciating assets. The value of your home and your investment accounts, on the other hand, should show increases over time. The lesson here is to focus your accumulation of assets on appreciating assets, not depreciating ones.
However, your net worth is not your LIFE worth
Net worth is merely a measure of your financial health at some point in time. Sure, we should all be striving to have strong financial health, so striving to improve our net worth is a worthy goal. A larger net worth might indicate better financial security. But it doesn’t indicate that you are a better person.
It is definitely true that if you accumulate more wealth, you can do more good in the world. But not all millionaires are generous, other-focused human beings. I am a huge fan of working to improve your financial life so that you can do the things you want to do, live the live you want to live, and give back to the world in some fashion. Accumulation of wealth just for the sake of accumulation or just for the sake of self-indulgence doesn’t impress me.
There is more to life than accumulating a bunch of wealth though, my friends. Your real worth is the difference you make in the world. Even if you only make a difference to one person, that counts. Living your best life is what matters.
Keep an open mind about net worth
That said, don’t make the mistake of eschewing growing your wealth on the grounds that money is evil, or you are morally superior as a person of low or no wealth. Instead, create your own definition for the success you want to achieve with your life and strive for the sort of net worth it will take to get you there.
Don’t follow the crowd and build wealth just to show off. Build wealth to provide security for your family and make a difference in the world.
What does your net worth say about YOU?
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