What Is Your Net Worth?

I asked this question to a group of women a few weeks ago, and 1 out of 10 knew the answer without having to think about it.  As part of actively building your wealth, you have to know where you are to know where you are heading.  Sounds a bit cliché, but it is extremely important.  I was watching the story of Nike and the founder/CEO had a personal net worth of $9 billion outside of the companies worth.  Each year he can determine how much he wants to increase his personal net worth, but keep in mind, he created a company out of just a thought!  This is a fun exercise, and I cautioned the ladies that this number could be negative, as some of them laughed.  Sonia, how can I have a negative net worth?  You add up everything you own (asset column) and then add up everything you owe (liability column).  The difference is your net worth, you may be shocked of the amount of things that you have, yet you don't own. 

As an example, you consider the house you live in an asset that you own.  It is worth $300,000 and you owe $240,000, the part that will apply to your net worth bottom line is $60,000.  You own your car and it is worth $30,000 on a good day and you owe $15,000, the difference of $15,000 will drop to your bottom line.  Your life insurance and other securities including 401K and IRA's are considered assets at full value, so let's say $250,000.  Currently your net worth is $325,000, but you have not paid off those credit cards of $50,000, now your net worth is reduced to $275,000. 

See how this works, this is an exercise that any bank or lending institution goes through before deciding to make you a loan.  Not only can you pay it back, but what other debts do you have?

The good part is that you can grow this $275,000 to whatever number you like.  You purchase some investment property and you have an instant net worth increase of $50,000.  You can purchase additional life insurance of $500,000.00, you have now increased your net worth  to _______________.

You start a business making $20,000 a year in additional income that you plan to increase to $50,000, you have just increased your net worth even more.

• You are approached and get to take part in a multi-million dollar project that requires you to risk $50,000 for the opportunity to make $500,000 over two (2) years.  It pans out and you have just increased your net worth by another half-million dollars.

• Your property is continuing to appreciate (personal home and investment properties), you owe $200,000 total, the value of your holdings are now $300,000.  You have $100,000 net worth.

I personally like to complete this exercise each year and then I personally plan what I can realistically increase my net worth to.  It helps to guide my investment ideas during the year because I have an objective and a strategy.  So if I plan to increase my net worth by $250,000 I am looking for deals that will yield a large return, sometimes I make it and sometimes I don't and sometimes I blow my goal out of the water.  It is just like savings, which will also become one of those things that you begin to do for fun just to see how much you can save.  However, we will talk about that later, but for now let us grow your net worth!

Happily investing in myself!

Sonia