There are two ways to increase one’s net worth: increase assets or decrease liabilities. That is all there is to it. It really is a simple equation in principle but very difficult in practice. That is because we are conditioned by the media, our friends, and many other external influences to think that we need this or that such that when we spend our hard earned money on these items, we really aren’t doing anything to increase our net worth.
Why Track Net Worth?
Tracking your net worth gives one an idea of financial progress. It is calculated by adding up all of our assets and then subtracting the sum of all of our liabilities. The resulting number is your net worth, which can be positive (meaning you own more than you owe) or negative (which means you owe more than you own.)
One number by itself may not mean much (unless your net worth is several million). But being able to follow the trend can help you determine if you are improving your financial situation or not. [Continue reading]