Learn the Language
To create personal wealth, you must understand the language. In this section, you'll learn about assets, liabilities and net worth.
To create personal wealth, you must understand the language. In this section, you'll learn about assets, liabilities and net worth.
What is your net worth? Use the following formula: assets (what you own) minus liabilities (what you owe) equals net worth (your wealth).
An asset is anything an individual or business owns that has commercial or exchange value. Personal assets may include a savings account, a retirement plan, stocks and bonds or a house.
Liabilities are your debts — what you owe. This may be your home mortgage, your credit card balances, a car loan, student loans or medical bills.
He lists all his assets...
| Cash/savings | $ | 2,500 |
| Investments/retirement | $ | 30,000 |
| Value of home and car | $ | 14,000 |
| Other assets | $ | 0 |
...and all his liabilities.
| Home mortgage | $ | 0 |
| Car loan balance | $ | 13,000 |
| Credit card balance | $ | 3,000 |
| Student loan balance | $ | 5,000 |
| Other liabilities | $ | 1,500 |
Bob subtracts his liabilities from his assets to calculate his net worth, or wealth.
| TOTAL ASSETS | $ | 46,500 |
| −TOTAL LIABILITIES | $ | 22,500 |
Using Bob's balance sheet as an example, you can figure your own net worth here.
| $ |
| $ |
| $ |
| $ |
Here is the calculation of your net worth.
| TOTAL ASSETS | $ | 0 |
| −TOTAL LIABILITIES | $ | 0 |
In this lesson, you learned the meaning of:
And you learned how to calculate your net worth.
For an expanded version of the interactive balance sheet, visit www.dallasfed.org.
