What is your net worth?

What is your net worth?

If you asked me that question 2 years ago, I’d have thought you’re crazy. Broke people don’t have a net worth, right?

I’d have also immediately thought of Warren Buffet, Oprah Winfrey, Jeff Bezos, Chris Kirubi, Beyonce… because to me, some games are reserved for the wealthy.

Lakini Mungu ni nani…

I was liberated from that world.

How to calculate your net worth

Your assets-your liabilities = your net worth.

What is an asset? A resource that you own. Something useful or financially valuable.

A liability is what you owe. Such as debt.

Simply, your net worth is what you own minus what you owe.

Positive net worth

If your assets minus your liabilities equals a positive number, you have a positive net worth. Example: $6,000-$4,000 = $2,000

In this case, what you own is more than what you owe.

If your assets minus liabilities equals zero, that’s also a positive net worth.

Example: $6,000-$ 6,000 = $0

What you owe is equal to what you own

Negative net worth

If your assets minus liabilities equals a negative number, you have a negative net worth.

Example: $4,000-$ 6,000 = -$2,000

What you owe is more than what you own.

It’s that simple.

It can be a very anxiety-inducing and embarrassing exercise if you think your net worth is 0 or negative. It’s worse if you start thinking that you haven’t achieved a certain financial milestone at your age.

Unfortunately, the world we live in equates our net worth to our self-worth. Money is important, yes, but you should work on yourself to make sure that you also don’t equate the two.

I enjoy looking at my net worth spreadsheet (which I’ll get to in a bit) and sometimes I worry that I’m worth too little, but if there’s one battle I have won, is knowing that that spreadsheet is not my self-worth.

I’ll share how I track mine.

How to track your net worth

1. Set a calendar reminder

One of the things that makes life easier and helps in solidifying positive habits is using Google calendar to set up reminders. How is tracking your habits coming along btw?

When I learnt about tracking net worth, I set up a monthly calendar reminder that reads ‘Tiny, what is your net worth?’ Every end month, my phone will buzz and I’m forced to think about how I’m doing financially. This also coincides with payday which gives me an opportunity to redeem myself just in case I’m not doing so well.

2. Update your spreadsheet regularly

I save and invest on a monthly basis but I don’t update my net worth excel sheet every month. I do it every 2 months or when I ask for statements from companies I invest with/in.

Here is how my simple Assets spreadsheet looks like:

A simple spreadsheet to track your assets

For some assets such as a house or land, you wouldn’t know the value outright. For such, you’d need to consult a property valuer.

My investment 2 above is stocks. To update it, I usually request a Portfolio Valuation Report from my broker. This is a report that shows the value of my stocks which is dependent on the loss or profit gained.

For the other three investments, I receive monthly statements. I update the spreadsheet when I do.

The rest of the assets are in hard cash at the moment and are updated when I make deposits.

For my liabilities, I have one debt. The mighty student loan debt (HELB). I currently owe exactly $1,880. Very proud of myself because I crossed the above $2,000 mark. And I’m consistently paying on a monthly basis.

My assets-my liabilities = a positive number 🙂

Use a simple spreadsheet such as the one below to track your liabilities.

A simple spreadsheet to track your liabilities

3. Have specific financial goals

Saying ‘I want to be rich’ or ‘One day I will be rich.’ is not a goal. Fantasizing about your future wealth (as much as I do it a lot too) is not a goal. Sorry! To be worth an X amount by 31st December 2020 is a goal.

When this year began, I told my two girlfriends that by 31st December, I will be a solid millionaire. I know I like using $ when talking about money here because I have international readers, but this millionaire goal is in Kenyan shillings.

When I told them that, I didn’t know how I was going to do it. However, I was willing to put in the work. Most importantly, I was willing to bet on myself and my ruthless appetite for reading and upgrading my skills.

If you remind me, in my last article this year, I’ll share if I achieved my goal or not.

What is your specific net worth goal?

Key tips and lessons on growing your net worth

1. Don’t worry if your net worth is 0 or negative especially if you’re still in your 20s

The book A Simple Path to Wealth by JL Collins taught me that there are two stages in our investing lives. The Wealth Accumulation stage and The Wealth Preservation stage.

The Wealth Accumulation stage is when you’re working and have earned income to save and invest. I can bet that 99% of my readers are in this stage. Focus on learning ruthlessly, upgrading your skills, and building (a business, a craft, investments etc), living within your means and paying off debt.

It’ll take years for most of what you build to pay off. Be patient.

Some people might be incurring more debt at this stage if they take a loan to start a business or finish studies.

Point is, this is the stage to focus on building.

Having a 0 or negative net worth is not wrong. But having a 0 or negative net worth and also zero knowledge when you have access to the internet? That’s doing yourself an injustice.

Don’t judge each day by the harvest you reap but by the seeds you plant. — Robert Louis Stevenson

2. Cultivate an attitude of deservedness

One of my favourite personal finance podcasts is Mastercard’s Fortune Favours the Bold hosted by Ashley C. Ford. In one of the episodes, one of her guests said…

“Entitlement isn’t always bad when it’s in the service of love of self as opposed to the degradation of others. Have a feeling of deservedness as opposed to ‘I’m lucky enough to get a shot, I need to prove myself to this committee.’ Some people are born in a default of ‘I deserve’ while others are not. Even if you don’t have the financial resources, feel that you deserve. It makes you strong and grounded to go out and get. Be shameless in your ability to express desire.”

Honestly, I have been one of those ‘I’m lucky enough to get a shot’ ‘I need to prove myself to this committee’ people all my life. When he said it, I was mindblown. Like such a world exists?!!! I replayed that part thrice. And wrote the quote in my notebook.

The sad bit is, sometimes, most times, I’m usually qualified. But I still insist on carrying this self-defeating mentality around. I’m guessing I’m not the only one who does this.

He also mentioned that this mentality is mostly common among people who grew up poor. We need to stop.

3. Work on reducing your liabilities

Budgets are liberating. They allow you to prioritize and tell your money where to go.

To move from a negative or zero net worth, one of the key items in your budget should be debt payment.

Here is a simple step by step guide on how to build a budget.

4. Increase your ability to earn more

Take a new course. Upgrade your skills. Negotiate for a raise. Start a side hustle.

Have a deliberate plan on how you plan to increase your ability to earn in the next 6 months.

A pitcher can be filled drop by drop and so is the case with your wealth. Acharya Chanakya

5. Be consistent, be patient

Your net worth is dependent on how much you save and invest. And the growth of your investments is dependent on the magic of compounding. Don’t interrupt your compounding.

Better still, don’t focus on winning small financial battles and end up losing your financial war. What do I mean? Read my 2 part series on it:

6. You are a business one one

Remember that you can’t manage what you can’t measure. You should be able to say what your net worth is to know if you’re making progress or not.

Take yourself seriously. Be hands-on about your financial health.

You’re so broke you don’t think you should budget and bookkeep? False. You gotta value your brokenness the same way the rich value their wealth. Don’t take pride in it, but value it and take accountability for why you’re broke and how you gon climb out of it. — Financial Philisopher on Twitter

7. Avoid big financial losses

I got conned $300 in November last year, a story for another day. It took me a while to recover emotionally.

Rule number 1: Never lose money.

Rule number 2: Don’t forget rule number 1.

- Warren Buffett.

Once you make tracking your net worth a habit, it becomes a rewarding experience to look back on your journey. It’s also exciting to watch as the figures go up and down.

So, how much is your net worth? Take time and fill the spreadsheet. I can help you through this process if it sounds daunting. Halla: agatha@thewealthtribe.com

And remember that your net worth does not define you as a person. Take control.

Originally published at https://www.thewealthtribe.com on June 25, 2020.

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Agatha from The Wealth Tribe

Agatha from The Wealth Tribe

Your voice of reason before you blow all your money this weekend! www.thewealthtribe.com