If you are going to
check online, there are technical definitions provided to explain what net
worth is and how we can compute for ours. Allow me to explain it to you, the
simplest way possible.
Net worth is the monetary value of all your assets, minus debt.
It has two
components, assets, and debt.
Let us talk about the asset.
An asset is the
monetary value of any belongings you have that generate income. It means, it
is earning money to add to your savings or cover the costs of your needs and
responsibilities. It could be your savings, your business no matter how little
it may be, a car you use to earn money(example: TNVS) or land you bought and
developed for business such as rentals or for flipping and selling.
Other may find this
confusing but allow me to clarify, the house you are living in is not an asset
if you are using it for personal use and your car too. As long as they are not
generating income, but rather, you are spending money on it to use it and maintain
it, it is not an asset.
So, the first step
in getting your net worth is computing your total asset.
After computing your
asset comes the difficult part, how much debt do you have? Many people don't
want to confront this because there are people who don’t even want to pay
their debt at the expense for their reputation and relationship with other people,
but according to Psalm 37:21,
"The wicked borrows but does not pay
back, but the righteous is generous and gives;"
It means, even
though the debt that you have is really old, you need to take a proactive
effort in acknowledging it and paying it back the soon that you can.
Second, total all
your debt.
After you have
computed your debt, deduct it from your asset value and the answer will be your
net worth.
It is so easy, right?
Now, there are three kinds of net worth and I have created labels for them so
you can know where you are.
The first one is
Positive Y, positive Y happens when your net worth is higher than Zero, it
could be that you have a debt, but your debt is not higher than your asset
value or maybe, you have no debt at all. Second is Zero, meaning, you do not
have an asset, you also do now have debt but once your debt is higher than your asset and your net worth is
negative, it means, you are in category Negative Y.
Regardless which the category you are in, I want to assure you that everything is going to be okay
and since you already know where you are, you have officially started your
journey to building your financial fortress.
P.S. I do this for
free and if you want to speak personally about this, I will do it for free too. Just
let me know ahead of time.
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