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Learn the Language

To create personal wealth, you must understand the language. In this section, you'll learn about assets, liabilities and net worth.

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What is your net worth? Use the following formula: assets (what you own) minus liabilities (what you owe) equals net worth (your wealth).

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You want to increase your net worth right? So does Bob.

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You want to increase your net worth right? So does Bob.

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You want to increase your net worth right? So does Bob.

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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.

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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.

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To calculate his net worth, Bob created a balance sheet using this formula.

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He lists all his assets...

  • Bob's Assets
  • Cash/savings $ 2,500
  • Investments/retirement $ 30,000
  • Value of home and car $ 14,000
  • Other assets $ 0
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...and all his liabilities.

  • Bob's Liabilities
  • Home mortgage $ 0
  • Car loan balance $ 13,000
  • Credit card balance $ 3,000
  • Student loan balance $ 5,000
  • Other liabilities $ 1,500
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Bob subtracts his liabilities from his assets to calculate his net worth, or wealth.

  • TOTAL ASSETS $ 46,500
  • TOTAL LIABILITIES $ 22,500
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Using Bob's balance sheet as an example, you can figure your own net worth here.

  • Your Assets
  • $
  • $
  • $
  • $
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You can figure your own net worth here.

  • Your Liabilities
  • $
  • $
  • $
  • $
  • $
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Here is the calculation of your net worth.

  • TOTAL ASSETS $ 0
  • TOTAL LIABILITIES $ 0
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Lesson Summary

In this lesson, you learned the meaning of:

  • Assets.
  • Liabilities.
  • Net worth.

And you learned how to calculate your net worth.

For an expanded version of the interactive balance sheet, visit www.dallasfed.org.