Your personal net worth can be defined as everything you have minus everything you owe others. This is a simple way of saying your assets minus your liabilities - the more formal net worth definition.
Lifetime Net Worth
Your net worth can change quickly through your life. Good financial discipline typically leads to an increase in net worth. Conversely, your net worth can rapidly deplete if your liabilities are increasing or your assets are decreasing.
Always start with the end in mind and consider what net worth you would like along your life journey - in your 20s through to retirement.
Consider This Couple's Net Worth
John and Jill have $50,000 of car assets, a home worth $350,000, an investment portfolio worth $125,000 and cash to the value of $25,000. Their total assets are $550,000.
They also have some liabilities owing against their assets. They have $20,000 outstanding on their car loans, $180,000 on their mortgage and a line of credit of $25,000. Their total liabilities are $225,000.
To calculate their net worth, we need to subtract what they owe from what they own. In this case, we need to subtract $225,000 from $550,000 to get a total net worth of $225,000.
Grow Your Net Worth
Aiming to win the lottery is not a good strategy to increase your net worth. Instead, you want to look at your largest sources of income and then what will likely be your largest purchases.
For most of us, our salaries and bonuses are where we get our largest and most consisten income. Some rely on their investments for income in their retirement years or even when they are younger if they have sizeable investments.
Your home will typically be your largest purchase in your life time. A home and property value can increase dramatically over many years and thereby increase your net worth. Cars and boats are also big assets, but they tend to depreciate over time.
Target Net Worth
Having clear targets of what you want to be worth will help you create a wealth development program to achieve those targets.
Depending on where you live and many other factors, you will want to set a target for your net worth by age - your net worth when you are 20, 30, 40, 50, 65 and 80. You can be more granular or adjust to suit your life patterns and practices.
Calculate Your Net Worth
Use the Current Net Worth Calculator and Future Net Worth Calculator to determine what you are worth now and what you may be worth in future if you save and develop your wealth strategically.