If you want to create personal wealth, the first step you need to take is to learn the language of money. Assets, liabilities and net worth are three words that make up an important formula to help you accumulate personal wealth. The formula is:
ASSETS – LIABILITIES = NET WORTH
So what is an asset? It is a possession that generally
increases in value or provides a return, such as:
- a savings account
- a retirement plan
- stock and bonds
- a house
Some possessions (like your car, big-screen TV, boat and clothes) are assets, but they aren’t wealth-creating assets because they don’t earn money or rise in value. A new car is a tool that takes you to work, but it’s not a wealth-creating asset. Take note, I’m not talking about the likes of a celebrity’s antique car that can increase in value.
A liability, also called debt, is money you owe, such as:
- a home mortgage
- credit card balances
- a car loan
- hospital and other medical bills
- students loans
Net Worth is the difference between your assets (what you own) and your liabilities (what you owe). Your net worth is your wealth. Are you worth as much as you want to be?
Becoming financially stable takes discipline. And it is a discipline only you can teach yourself.
If $ in < $ out, there’s a problem.
Invest in yourself. Believe in yourself and be willing to improve yourself by mastering a new skill or increasing your knowledge base.
Download my free ebook, Money-O Management Kit for Beginners. I have a section called Moneycabulary(tm) which will help you learn the language of money. One Moneycabulary word to learn: Money Values – a code of money ethics that adults and children may want to live by. For Example, honesty, responsibility, family and health come before money.