This months life lesson is...
"Know Your Net Worth"
Your net worth is simply just that, how much are you worth? To figure out your net worth, add up all your money and assets then subtract all your debt & liabilities. Here is an easy example:
Assets Liabilities
Home $100,000 $60,000 home mortgage
Car $10,000 $8,000 car loan
Cash $3,000 $4,500 credit card debit
Total $113,000 $72,500
In our example your total assets are $113,000. If you subtract your total liabilities which is $72,500 - you are left with $40,500. So your net worth is $40,500.
I want to make sure you know the difference between an asset and a liability. An asset is anything that goes up in value and/or pays you money. A liability is anything that goes down in value and/or costs you money. So a car is a liability, it goes down in value AND it costs you money. You pay for gas, tires, license plates, repairs, etc.
As you do your budgeting and spending over the next couple months, pay attention to what you are spending your money on. Are you spending your money on something that is increasing your net worth or decreasing it? When you look at your mortgage payment it can easily change your point of view. I am now very happy to pay my mortgage because every month it increases my net worth by over $1,000!! How cool is that. This way of thinking is very powerful to help you achieve your goal of financial security and wealth.
There are many software programs that will help you keep track of your net worth. I personally use Quicken but there are others that will do the same thing. So your ACTION STEP for this month is to figure out your net worth as soon as possible.
This simple exercise is really powerful. It will help you consider every purchase you make and every dollar you spend. It will have you asking a very simple question... what I am spending my money on thats increasing my net worth or decreasing my net worth?
