Updated on August 2, 2007
Building Wealth Workbook – Part 2 – Wealth Creation
You want to create personal wealth, right? So does Juan.
Juan is 35 and works for a manufacturing company. He looked at his finances and realized that at the rate he was going, there wouldn’t be enough money to meet his family’s financial goals. So he chose to embark on a personal wealth-creation strategy. His first major step was to pick up a copy of this workbook for guidance. Juan began by learning the language of wealth creation. The first lesson was to understand the meaning of assets, liabilities, and net worth. They make up this very important formula:
ASSETS – LIABILITIES = NET WORTH
A wealth-creating asset is a possession that generally increases in value or provides a return, such as:
- A savings account.
- A retirement plan.
- Stocks and bonds.
- A house.
Some possessions (like your car, big-screen TV, boat and clothes) are assets, but they aren’t wealth-creating assets because they don’t earn money or rise in value. A new car drops in value the second it’s driven off the lot. Your car is a tool that takes you to work, but it’s not a wealth-creating asset.
A liability, also called debt, is money you owe, such as:
* A home mortgage.
* Credit card balances.
* A car loan.
* Hospital and other medical bills.
* Student loans.
Net worth is the difference between your assets (what you own) and your liabilities (what you owe). Your net worth is your wealth.
To calculate how much he is worth, Juan used the following formula: ASSETS – LIABILITIES = NET WORTH. He made a balance sheet listing all his assets and all his liabilities. He listed his wealth-building assets first.
Juan discovered his net worth is P180,000.
Using Juan’s balance sheet as an example, figure your own net worth. Be sure to add any assets and liabilities you have that are not listed here.
Remember that net worth is your wealth. Are you worth as much as you want to be?
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