One of my favorite subjects that I talk a lot about on this blog, is the subject of wealth. As you know, I share my net worth monthly. Although there are many beliefs and philosophies on how wealth could be accumulated, the mathematical nature of wealth is all the same: Wealth (Net Worth) = Assets – Liabilities.
Here?s a little graphic to help us visualize this concept:
Net Worth Assets Liabilities
So what are some basic facts that we could derive from this?
1. If I want to increase my net worth, all I have to do is increase my assets and reduce my liabilities2. If my income is greater than expenses, then I could use the surplus to:
* pay down my debts, thus reducing my liabilities
* save and invest, thus increasing my assets
* the net effect is increased wealth, or net worth
3. If my income is less than expenses, then the deficit:
* could force me to liquidate my assets to cover the excess expenses, thus reducing my assets
* could force me to accumulate more debt, thus increasing my liabilities
* the net effect is decreased wealth, or net worth