What Is Your Net Worth And How To Increase It

What is your net worth and how to increase it

So let’s start with a definition so we’re on the same page. I think the most succinct one I found on the web which aligns with my own comes from Investopedia: “Net worth provides a snapshot of an entity's [or persons] current financial position”

Net Worth Deep Dive And How To Calculate

In a nutshell, your net worth is your assets minus your liabilities. Now if both of these terms are foreign to you, hopefully the illustration below should help. One key common misconception is that it includes your income which is not the case.

Let’s look at a simple example. Bill owns a 2 bedroom apartment in the city valued at $450k and has an outstanding mortgage of  $200k. He owns a Toyota Camry valued at $17k and has a collection of antique coins valued at $40k. If we use the figures in this example, Bills net worth is $307k ($450k + $17k + $40k - $200k).

I’ve included a link to a simple calculator which will allow you to calculate your net worth. You can make a copy of it to keep for your own records. 

Why Is It Important

Calculating your net worth on a regular basis is like a financial health card. It gives you a sense of which direction your net worth is heading (positively or negatively) and gives you a wake up call to take action if you need to. If it’s heading in a negative direction, now might be a good time to take a look at your finances and create a budget tracking plan.

How often should you track your net worth figure? Personally I do it monthly which I know could be a bit extreme for some people, so I’d recommend at least every 6 months. This gives you an opportunity to take corrective action before the year is up. 

According to the latest post by Forbes the median net worth of Australians is $778,583. How does this compare to your net worth figure? Whilst there are some people out there advocating that you shouldn’t track your net worth, I personally disagree. I’d rather know my current position, where I’m heading and what I should do about it. 

How To Increase Your Net Worth

Whilst the answer is simple (decrease your liabilities and increase your assets), the practical steps are a little more complex. One option to potentially increase your net worth is through investing. I offer a variety of courses who take absolute beginners and turn them into investment pros. Book your free 15 minute consultation today to discuss your situation.  

Summary

So let’s wrap up. We’ve talked about a simple but effective definition of net worth, how to calculate it, why it’s important to track it and how you can potentially increase it. So what steps are you going to be taking to increase your net worth? I’d love to hear in the comments below.

Disclaimer

None of  the content is intended to provide you with personal financial advice. Information provided is factual and educational in nature for you to apply at your own discretion. 

You may wish to seek independent financial advice from a professional advisor for advice pertaining to your specific situation.