Net Worth - Part 2

OK, so assuming you have a list of all the things you own and all your savings accounts etc. it's time to tally them up.

This will introduce an important distinction between two classes of "stuff": Assets and Liabilities. The definition is simple - an Asset is anything that earns money and a Liability is anything that costs money.

In its simplest form, an asset is money in a savings account earning some interest. One of the most obvious forms of liability is a loan or credit card debt.

A more complex example is a car. This is an assest because it's worth something, but it's also a liability because it loses value each year. The same is true of "stuff" (TVs, furniture etc.)

The most disputed is probably that of a house, but we'll leave that for a later post. For the moment, it counts as an asset.

1) Total up the assets - savings, pension, value of your home, stuff you own etc.

2) Total up the liabilities - loans (don't count a UK student loan remember), credit cards, outstanding mortgage remaining

3) Assets - Liabilities = Net Worth


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