So what exactly defines net worth for a person…
To make it really simple it’s the total amount of liabilities you have and the total amount of assets. Well now you might be asking yourself, “I’m not 100% sure I know the difference between assets and liabilities and what really constitutes the difference.” A liability is money you owe on something. This could be anything from a car, credit cards, student loans, etc. Just think of it as money you owe. Your assets on the other hand is money you have which includes: checking accounts, investments accounts, market value of your home, any personal property that has significant value which could be jewelry, fine art, etc. So very simple subtract your liabilities from your assets.
But, why do this. Well for one you might quickly realize that you don’t own much lol. But seriously, the majority of Americans are in debt and when it comes down to it, don’t have much of a net worth built up. I remember I started tracking my net worth the year before I graduated college. I made an excel file of all my investment accounts and money I would be owing when I got out of school, which was primarily student loans. But, now three years out of school and with my second company and I just see a crazy upward trend in net worth at age 25. The reason I did this is because I wanted to see how much my money would grow in a short period of time, and when you really look at it on paper it makes a whole lot of a difference. Being that you have some sort of retirement account or investment account with a brokerage you really see the power of compound interest, and as I’m currently typing the market is at an all time high.
I’ll be talking about different accounts to open in a later post, but just tracking your personal net worth in an excel sheet or using some sort of software is something I definitely recommend! You’ll be able to see how powerful compound interest comes into play when you put your money in the market and it begins to grow. There’s obviously going to be ups and downs at certain points, but you’ll see a trend!