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Learn the Language

Learn the Language 

What is your definition of wealth?

If you haven’t yet, read about defining wealth in the Introduction, before learning the language.

To create personal wealth, you must understand the language. The first lesson is to understand the meaning of assets, liabilities and net worth.

What is your net worth?

Use this formula: assets (what you own) minus liabilities (what you owe) equals net worth (your wealth).

ASSETSLIABILITIES = NET WORTH

ASSETS – LIABILITIES = NET WORTH

A wealth-creating 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.

Some possessions (like your car, household furnishings and clothes) are assets, but they aren’t wealth-creating assets because they don’t earn money or rise in value. A new car drops in value the second it’s driven off the lot. Your car is a tool that takes you to work, but it’s not a wealth-creating asset.

Liabilities are your debts — what you owe. This may be

  • your home mortgage,
  • your credit balances,
  • a car loan,
  • student loans or
  • medical bills.

Net worth is the difference between your assets (what you own) and your liabilities (what you owe). Your net worth is your wealth.

 
Home Equity

The market value of a home is an asset; the mortgage is a liability. Let’s say your house is worth $120,000, but your mortgage is $80,000. That means your equity in the home is $40,000. Equity contributes to your net worth.

You want to increase your net worth, right?

Remember, AssetsLiabilities = Net Worth. You can use this formula to calculate how much you are worth. Start by making a balance sheet listing all your assets and liabilities.

See how the people of Building Wealth determined their net worth using a balance sheet.

  • Anthony
  • Bess
  • David
  • Gabby
  • Sonya
  • Vince

Anthony, a 35-year-old who works for a manufacturing company, calculated his net worth by filling out his own balance sheet.

He discovered he had $46,500 in assets and $22,500 in liabilities, with a net worth of $24,000.

After making these calculations, he realized he would be unable to meet his financial goals and chose to embark on a personal wealth-creation strategy.



Figure Your Net Worth

Using Anthony’s balance sheet as an example, complete your own online, or download a spreadsheet or PDF of the blank balance sheet. Be sure to add any assets or liabilities you have that Anthony didn’t list.

example web xls pdf

Bess, a 73-year-old retired secretary, calculated her net worth by filling out her own balance sheet.

She discovered she had $111,200 in assets and $13,302 in liabilities, with a net worth of $97,898.

After making these calculations, she realized she could meet her financial goals, as long as she continues her current personal wealth-creation strategies.



Figure Your Net Worth

Using Bess’s balance sheet as an example, complete your own online, or download a spreadsheet or PDF of the blank balance sheet. Be sure to add any assets or liabilities you have that Bess didn’t list.

example web xls pdf

David, a 30-year-old new small-business owner, calculated his net worth by filling out his own balance sheet.

He discovered that his and his wife’s household totals $182,000 in assets and $120,700 in liabilities, with a net worth of $61,300.

After making these calculations, David and his wife realized that although they have been able to save to meet their goals, they will need to make a few changes to increase their net worth.



Figure Your Net Worth

Using David’s balance sheet as an example, complete your own online, or download a spreadsheet or PDF of the blank balance sheet. Be sure to add any assets or liabilities you have that David didn’t list.

example web xls pdf

Gabby, a 24-year-old who works for a high-tech company, calculated her net worth by filling out her own balance sheet.

She discovered she had $15,150 in assets and $12,800 in liabilities, with a net worth of $2,350.

After making these calculations, she realized she would be unable to meet her financial goals and chose to embark on a personal wealth-creation strategy.



Figure Your Net Worth

Using Gabby’s balance sheet as an example, complete your own online, or download a spreadsheet or PDF of the blank balance sheet. Be sure to add any assets or liabilities you have that Gabby didn’t list.

example web xls pdf

Sonya, a 36-year-old teacher, calculated her net worth by filling out her own balance sheet.

She discovered she had $217,500 in assets and $122,000 in liabilities, with a net worth of $95,500.

After making these calculations, she realized she could meet her financial goals, as long as she continues her current personal wealth-creation strategies.



Figure Your Net Worth

Using Sonya’s balance sheet as an example, complete your own online, or download a spreadsheet or PDF of the blank balance sheet. Be sure to add any assets or liabilities you have that Sonya didn’t list.

example web xls pdf

Vince, a 42-year-old writer and part-time bartender, calculated his net worth by filling out his own balance sheet.

He discovered he had $6,700 in assets and $3,500 in liabilities, with a net worth of $3,200.

After making these calculations, he realized he would be unable to meet his financial goals and chose to embark on a personal wealth-creation strategy.



Figure Your Net Worth

Using Vince’s balance sheet as an example, complete your own online, or download a spreadsheet or PDF of the blank balance sheet. Be sure to add any assets or liabilities you have that Vince didn’t list.

example web xls pdf

Complete your own online

Remember that net worth is your wealth.
Are you where you want to be?