Let’s face it: we have been obsessed with tracking people’s net wealth. Whether it was a protest about inequality or a list of miliarder Forbes, we spent a lot of time checking the richest people in the world and their net worth at a certain time.
This may have unhealthy side effects. When we see this billionaire and read about their net-worth fluctuations, it can seem fully out of reach for us. But it’s not. Each and each of us can get from tracking our net worth, either once a year or after a quarter.
What is net worth?
While the 24-hour news cycle may fool us to believe that calculating net wealth requires a forensic accountant team, in fact, it is a very simple equation:
Assets – Liabilities.
There he is! No longer and no less, and as we will see – everyone holds both, not only rich individuals clean.
What is an asset?
There are many types of assets. A simple way to think of assets is anything with your name that has value and that can be sold with cash. The most common assets for all of us are cash we lie and the value of our checks and savings. If you hold an investment portfolio, your portfolio market value is also considered an asset. Be stock, bonds, or et ph all included in the asset classification. This is a financial asset.
Other categories will be real assets. When we think of real assets, the most common example is a car and real estate. Your home, even with a mortgage still has value and is an asset (we will get to the mortgage in a second). Your car is also an asset with value.
Finally, we get into other items that hold values. This can be jewelry, silver, gold, collections such as stamps, and items such as top-level watches.
What is the liability?
Liabilities are our obligations to pay other people. Even though it’s a fun list asset, it’s very fun is to register all our debts or obligations.
A general example of responsibility is the mortgage of the house mentioned above. It is important to bring up this example to show that not all liabilities are created equal, and while there are bad obligations that must be avoided, there is an obligation that allows us to advance in life.
Most people really do not have hundreds of thousands of dollars lying down to buy a house. The mortgage allows us to buy the house even though it doesn’t have cash. There are similar arguments for student loans – in many cases, the long-term benefits of education exceed the cost of the debt.
Another example of debt is an automatic loan and credit card debt. It is important to note that all these loans carry a very different interest rate to vary the varying times. However, when considering your obligations, all this must be included in the calculation.
The best way to increase Net wealth
If you see the formula above, it’s not rocket science. You have two options: Increase your assets and/or reduce your obligations.
In general, more cash is needed to get more assets. To do that most must work or produce more – which is not always an option for those who have high obligations. For many people, the easiest first step is to focus on the liability section.
Here you must consider important debt and debt that is not important. Avoid high credit card balances or balance at all. Along with high-interest rates, credit card debt can quickly cost. Paying this high flower debt basically gives the future – you are more liquidity because the money will pay off the flower.
After paying off debts and making savings, you can divert cash into investment. The investment will grow your assets from time to time and at the same time reduce your liabilities. This is a path to grow your net worth.
Mindset
The act of tracking your clean wealth puts you one step ahead of someone else. Like budgeting, it frankly shows you where the problem is and what needs to be done. It also gives you a sense of achievement when you see the number that is increasing.
Even so, you have to do this all manually, today there are applications and fiduciary investment services that sign directly to your bank and investment account. Services such as repairs and health front produce clean wealth reports along with interactive graphics and other features. Click here to read the comparison between two services by InvestorJunkie.
The second part of the mindset shift is to start asking yourself before every major purchase: Will this object help grow my assets or obligations?
For example: buying your first car in an area that does not have public transportation can allow you various job opportunities, which can cause a better wage. If you need to spend a loan for this car, the edges may justify the means. On the other hand, if there are many public transportation alternatives around, money saved on cars and expenses can be used to pay off debt or invest.
Unite everything
Everyone can increase their net worth. The most important thing is to be a conscious and small goal to start. Net wealth does not swing on the moon, this is a long-term process.
Instead of being obsessed with celebrity net worth or billionaires, take inspiration from them. To put it in perspective, the most individual net has several revenue streams. Remember, even slowly making two income streams will significantly benefit a person’s net wealth.
