Net Worth

What does Net Worth means?

According to Wikipedia:

"In business, net worth (sometimes called net assets) is the total assets minus total outside liabilities of an individual or a company"

"In personal finance, net worth (or wealth) refers to an individual's net economic position; similarly, it uses the value of all assets (long term assets) minus the value of all liabilities"

As per Investopedia:

"The amount by which assets exceed liabilities. Net worth is a concept applicable to individuals and businesses as a key measure of how much an entity is worth."

"A consistent increase in net worth indicates good financial health; conversely, net worth may be depleted by annual operating losses or a substantial decrease in asset values relative to liabilities."

I agree with both definitions. Which are basically saying:

Assets - Liabilities = Net Worth

If your liabilities are more than your assets, you are technically a bankrupt. But of course in real life you are not because of the great human invention since time immemorial called debt.

Assets - Liabilities < 0 = Technically Bankrupt

Similarly, if your assets are more than your liabilities you are technically rich.

Assets - Liabilities > 0 = Technically Rich

Why do I say only technically rich? Because if you have zero liability - no house, no car, no everything but you have $100 in your bank account. Well technically you can be considered as "rich" but we all know that is far from the truth.

In fact more often than not a technically bankrupt people live a more affluent lifestyle than a technically rich people.

However, if you want to achieve Financial Freedom you must make sure "technically" rich becomes a reality for you.

By the end of Chapter 2, you should be able to know where you stand financially. If you are among the "technically rich", congratulations for beating the odds. Your journey forward should be easier than the rest of us.

Most of us unfortunately are “technically bankrupt”.

So don't hate your banks too much. Don't curse your banks either. You may not realise it but they are actually your life saver. Without them, most of us will not be able to afford our current lifestyle.

The most important thing at this point is to be honest with yourself.

You don't have to share your findings with other people so be as brutal and honest as you can handle. After you know where you are now, then only you can chart the journey to where you want to end up financially.

“Sometimes it seems safer to hold it all in, where the only person who can judge is yourself.”
― Sarah Dessen

“Most men would rather deny a hard truth than face it.”
― George R.R. Martin

“Denial is an ugly thing.”
― Nicholas Sparks