It’s a term we have heard of often – net worth. The calculation is relatively simple – add up what you own and subtract what you owe. Viola! You have your net worth. If that calculation seems complicated, most basic budgeting programs show your net worth every time you open your budgeting software.
The goal of many individuals is to increase their net worth over a lifetime.
There is, however, a common misunderstanding regarding net worth. Many think net worth is visible to the neighbor.
Here is our misinformed formula:
The bigger the house + the newer the cars + the larger the salary = a larger net worth.
Instead the following is typically more accurate:
The bigger the house + the newer the cars + the larger the salary = a greater burden of debt.
Here is the actual formula for increasing your net worth:
Salary – Expenses (bills, shopping, insurance, payments …) = $1 < (a dollar or more)In other words net worth is build only by having something left over at the end of every month.
One cannot increase their net worth by:
Net worth could be said in the following ways: the sum of your value, your entire significance, your complete meaning.
We fool ourselves if we think our worth, net worth, can be calculated with a pen, paper, or calculator. We prepare ourselves for a lifetime of disappointment if we think our worth is determined by what we own.
Our worth is found in our relationship to Jesus Christ.
Our most significant assets are husbands, wives, children, church, and friends.
Our most important investments are those with eternal implications.
Our gains truly increase only when we give.
“What good is it for a man to gain the whole world, yet forfeit his soul?” (Mark 8:36, NIV)
Your worth can never be calculated by a number on a bank statement. Your value can never be attained by adding some numbers. Your significance is not found in what you have, but to whom you belong.
So get out there and build your net worth. But, be sure you define net worth by something broader than money.
Today’s article is a guest post previously submitted at Bible Money Matters.
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Great reminder Craig. Almost 10 years ago I was addicted to OPM (other peoples money) and tried leveraging my net worth. Working full time 45+ hours, flipping a house and buying a triplex. In a 4 month span, I was divorced, downsized at work and all 3 tenants decided not only not pay rent but destroy (drugs) the complex. I am and was a Christian but lost focus after trying to get rich quick.
I often wonder why people are so infatuated with net worth. Here’s the flaw: Assets increase your net worth but if they aren’t producing any income, they’re costing you money.
My parents own their home. This increases their net worth. However, that home isn’t producing any income for them. They get no cashflow from their house.
I think the focus should be on cashflow. Increase your cashflow and net worth becomes a thing of the past.
Heck, it’s what the rich do.
@Bern
Net worth can easily become an obsession. Having a good net worth with a liquid portion should provide the necessary cash flow. But, to have one without the other makes it hard to succeed financially.
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