Key Takeaways
- The Formula: Assets - Liabilities = Net Worth.
- The Purpose: Income measures speed. Net Worth measures distance traveled.
- The Habit: Track this number quarterly. What gets measured gets managed.
Introduction
Corporations have CFOs. You are the CFO of "You, Inc."
If you don't know your Net Worth, you are flying blind. You might be earning $200k/year but be broke (negative net worth).
Deep Dive: The Personal Scorecard
1. Assets (What you OWN)
Anything that can be sold for cash.
- Liquid: Cash, Savings, Stocks, Bonds, Crypto.
- Illiquid: House, Car (depreciating, but still an asset), Jewelry.
- Note: Do not include your "potential future earnings." Only what you have today.
2. Liabilities (What you OWE)
Anything that pulls money out of your pocket.
- Good Debt: Mortgage (low rate, asset appreciates).
- Bad Debt: Credit Cards (25% rate), Payday Loans.
- Grey Area: Student Loans, Car Loans.
3. Net Worth
Assets - Liabilities = Net Worth.
- Scenario:
- Assets: $400k House + $50k 401k + $10k Cash = $460k.
- Liabilities: $300k Mortgage + $40k Student Loans = $340k.
- Net Worth: $120,000.
Summary
Stop obsessed over your salary. Obsess over your Net Worth. A person making $50k who saves $10k is getting richer faster than a person making $200k who spends $210k.
