Have you ever heard about the net worth of Mukesh Ambani or Jeff Bezos? And started thinking about what is net worth and why it is required to know? In this article, you will know what is net worth and why your net worth tracking is important?
Whether you are rich or poor, tracking your net worth will surely help you to grow financially. It will give you an eagle eye view on your wealth.
In simple language, it is your total assets minus your liabilities or the difference between what you own and what you owe.
For example, if you are earning ₹50k per month and spending ₹20k per month, so your total wealth will be ₹30k (₹50k – ₹20k = ₹30k).
If you have a positive net worth, it means that you are probably in the right direction to your financial path. But if your net worth is coming negative, it means you are spending more than you are earning, then it will create issues for you. The power of compounding plays a very crucial role & the long-term investment always helps to increase your wealth.
WHY YOUR NET WORTH TRACKING IS IMPORTANT FOR YOU?
If you do not focus on your wealth today, then you may face many problems in the future. Spending more than your earnings will be harmful to your financials. If you want to save some money for your retirement fund, then you must need to focus on your wealth more often.
If you are not happy with your current net worth value, then you must change your way of living or find alternative sources of income. By tracking it regularly, you know where the flow of your money is. Is the flow increasing in your asset bucket or your debt bucket?
Understanding Your Assets:
According to Robert Kiyosaki, Assets are those that add money to your pocket. The different kind of assets which counts in your assets buckets are:
Cash & Cash Equivalents – The amount of money you have in your bank account directly add up to your asset column. Also, the cash you hold at your home added value to your assets.
Real Estate – Your house, land, shop, or anything which you own as a real estate will count as your assets.
Gold/Silver – Almost every middle-class family in India has some amount of gold, be it ornaments, or any expensive metal can add to your asset.
Network – A network asset is an interdependent asset, means you work in a system of people & each one is interconnected with each other.
Stocks – If you own shares of good companies in the stock market, then those stocks will play a vital role in your assets. Buying stocks for the long term will probably give you tremendous profit that will add to your assets.
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Understanding your Liabilities:
According to Robert Kiyosaki, Liabilities are which take money from your pocket. The different liabilities which affects your net worth are below:
Daily Needs – Your daily needs include food, clothes, bills, fuel for your vehicle, etc. Off-course these are the daily needs that require you to live. But still, it empties your pocket.
Credit Card – The credit limit given to you by your bank will count as your considerable liability.
Luxuries – The amount Spent for your unwanted luxuries like your new car, new music system, fancy gadgets will add to your liabilities.
Traveling – If you are like me, then probably you love to travel for which you need the money & that money you spend on traveling is your liability.
Loans – Whether a student loan or house loan, the interest paid on the amount will count as liabilities.
Hobbies – Most people have a hobby, for example, my hobby is to ride various bikes. And to ride them, I must spend some amount, and that amount adds up to my liability’s column.
Addictions – Various addiction like drinking alcohol, smoking tends to drain most of your income and counts as your liability.
WAYS TO INCREASE YOUR NET WORTH
Find different sources of income
Most of the people in India depend on a single source of income especially those who are not financially educated. They also have a pre-defined retirement fund. But if you want to increase your revenue you need to generate more sources of income. By which you can spend more on your desires without worrying about savings. Always remember, job income will never make you rich. (Time to decode your salary).
Your real estate property is probably one of the considerable assets you have. Rental real estate property in a marvelous area can multiply your wealth by many folds. But yes, there are some challenges at starting but once you have in your portfolio your net worth shoots ups.
Investment in Stocks
Investing in stocks can increase your wealth like a skyrocket. In current time, there is no other investment which can give you returns more than 100 folds, 200fold. If you invest correctly and at good times, then in a short period you can achieve a good profit.
Investment in gold is also an asset that gradually increases your net worth over time. The price of gold in India encompassing ₹49000/-. Just one year since it was around ₹35-36K. Further, you can read How to Invest in Gold?
Now the question comes, how can you manage your net worth?
For this, you can create a network tracking spreadsheet.
For your better understanding, let understand with an example:
Suppose I am a government employee and I want to calculate my net worth. My yearly liabilities and assets are mentioned below:
As per the above table,
Total Assets = ₹ 173.5 Lac
& Liabilities = ₹ 25.1 Lac
Total net worth = (Assets – Liabilities)
So, Total Net Worth = ₹ 148.4 Lac
Reading an Article over investments will give you good knowledge, but to manage your actual growth or keeping a track of it is equally important. For a better life, your wealth should always be positive and increasing gradually. For the positive net worth, you should always investigate various investments. A simple way to increase your net worth is by spending less.
“As the definition of net worth (Assets- liabilities), it is inversely proportional to liabilities. The less you spend, the more will be your wealth.” – SARTHAK