As a financial adviser, I always reiterate that how much income you earn does not matter. How well you manage that money and put it to work to grow for you is what is important in the long run. That is why your personal Net worth is an important indicator of your financial well-being. Simply put, Net Worth is the difference between your Assets and Liabilities. But here I am referring to your Financial Net worth. So, this does not include your assets like your self-occupied property, physical gold, vehicles, other high value belongings. Although we own these assets, we use them but they do not yield any income for us. Rather, they may be liabilities for us if we are taking loan to buy them and there are maintenance costs as well.
That is why, Financial Net worth is a true indicator of your financial well-being, revealing how much income generating assets do you own. Here is how your Financial Net worth Statement can look like.
If your assets outweigh your liabilities, then you have a positive Net Worth. A negative Net Worth would mean you have raked in a lot of debt without creating any substantial assets to offset it.
Tracking your Net Worth
While Net Worth is a standalone number, comparing it over a period of time will give you an idea about the progress you have made. Keeping track of it every year will bring to your notice whether too much of spending or loans are preventing your Net Worth to grow. You can undertake this exercise half yearly or even annually. The ultimate goal is to increase your Financial Net Worth every year. Every financial decision you make should be aimed at increasing your Net Worth, i.e., either increasing your assets or reducing your liabilities. The key here is to inculcate a persistent habit of saving & investing regularly in a disciplined manner. As you see your Financial Net Worth grow gradually over time, you get a sense of accomplishment and confidence about your financial future. Keeping track of your Financial Net worth would eventually nudge you in a direction of thinking how much wealth do you really require and whether it would sustain you for a lifetime without worrying about money. That is what financial freedom is all about! Get started this New Year….