Net Worth vs. Income
Many people focus on how much money they make and totally ignore net worth. The true measure of wealth is not income, it is net worth. Net worth is your assets – liabilities, also known as what you own – what you owe. The reason net worth is much more relevant than income is that is describes your monetary worth if you liquidated your assets into cash after settling your debts. No this doesn’t include your clothing, furniture, etc. It would be your bank accounts, business, retirement accounts, investments, and real estate.
Net Worth = Assets (what you own) – Liabilities (what you owe)
Net worth is a valuable tool in helping individuals to form sound financial goals. Net worth is an indicator of how you use the income you receive from work. Individuals with negative or low (less than annual income) net worth, fail to hold onto the income that they earn annually. The failure to increase net worth is the direct result of over consumption/spending. When we spend all of our earnings, it doesn’t matter how much we make each year. The value of a good paying job means nothing if we fail to keep any of the earnings from it.
The purpose of net worth is to give a focal point to a desired financial position so that a target can be set, and progress can be monitored. You cannot be plan to be wealthy without understanding what role net worth plays in your financial plan.
I have learned that reading is the only way to obtain knowledge on a topic that you are unfamiliar with, if you want to be rich and enjoy the fruits of your labor then you must read on financial principles,fundamentals, and practices. There are several articles, books, and blogs that outline how to build wealth. The truth about wealth is that the people who seek it, were going to achieve it anyway. It is those who don’t read, those who don’t seek to solve ignorance… who are the victims. They suffer from their own unwillingness to look beyond their general knowledge of things. Net worth is not a widely known term, it seems to only be known by those who seek it, just as wealth it will only be obtained by those who put time to understand how to obtain it. All others will simply gaze from afar as if this thing called wealth is a thing for “special” individuals. I challenge you to seek to improve your net worth by reducing your debt, selecting your desired net worth, and choosing the age in which you will achieve it.