You hear a lot of talk about personal net worth, and you know it’s important, but do you understand what it means? Knowing your net worth is how you determine your level of personal wealth.
What is net worth?
The net worth definition is adding up all the assets you own and subtracting all the liabilities you owe, and what remains is your net worth. If you follow this formula and your net worth is positive, that is the measurement of your wealth.
Conversely, if your net worth calculation results in a negative amount, this means that you owe more than what you own, and that is not a desirable position to be in. It would be best if you got out of debt fast.
You can find net worth calculators online that can help you calculate and manage your personal net worth. When you know how to track your net worth, you can measure it month over month or year over year to see how well you are growing the value. The higher your net worth, the wealthier you are.
It’s not your salary that makes you rich or how much money you can make in a year that makes you wealthy. The secret to being a millionaire is in how you manage your money.
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Here are the top five tips for managing your money and building your personal net worth:
1. Don’t carry debt
Carrying debt and owing money is expensive, especially when taking high-interest debt such as credit cards. Nobody ever got rich off being in debt, and you pay higher interest rates to borrow money than you would to invest that money. If you have debt, pay it off quickly.
2. Spend less than what you make
The quickest way to building debt is when you spend more per month than what you bring in. When you manage your money and practice mindful spending, which allows you to live within your means, you will stay out of debt and be in a position to build your personal net worth.
3. Create a financial plan for you to follow
When you have financial goals that you want to work towards, you create a plan for your money. Even if your goal is to generate passive income to live off, you need a plan. A goal without a plan is just a wish, so get that plan nailed down and put it into action.
4. Buy assets that appreciate
The key to building wealth is to invest in assets that will increase in value over time. Depreciable assets, such as cars lose value over time, but when you invest your money wisely into assets that gain value over time, such as houses, rental properties and other financial assets, you are investing your money smartly.
5. Give generously
Despite the amount of wealth you want to build, don’t forget to be generous and give to the less fortunate and people who need your help. Giving makes us feel good, and a life with wealth is fruitless if you can’t enjoy it with others.
The bottom line is that regardless of what stage your finances are at, net worth is possible to build. When you have a plan for your money, it makes your goals achievable. You can monitor your progress against those goals and know what you need to work on to ensure you reach those goals. Positive net worth is attainable by anyone willing to work for it.
The opinions expressed in this article are not intended to replace any professional or expert accounting and/or tax advice whatsoever.