Calculating Your Investment Net Worth
There are many sites and tools that help you to calculate your Net Worth (try Googling "net worth"...
you'll get about 16,500,000 'hits'!).
The trouble is, not one of them is right ...
at least when it comes to helping you understand if you are financially on track.
The reason is that most people define Net Worth as: Your Total Assets - Your Total Liabilities.
That means that your house, your car, your furniture and many other items that don't put a penny in your pocket until you sell them are all included! So, to REALLY see where you stand financially, when calculating your Net Worth, you should LEAVE OUT: a) Any 'equity' in your house that you NEVER intend to release as investment (i.
e.
borrow against for purchasing, when the timing is right, income-producing-buy-and-hold-investment-real-estate).
b) Any supposed 'equity' that you have in your business.
c) Any depreciating 'assets' such as cars and furniture (unless they are PROVEN collector's items).
Let's call the result your INVESTMENT NET WORTH ...
It's the only one that matters! Why? Well, there are only TWO reasons to even bother calculating your Net Worth: 1.
To ensure that your 'portfolio' matches the Rules of the Rich (e.
g.
the 20% 'rule' on home equity that I talk about in a recent post), and 2.
To check whether your INVESTMENT NET WORTH (which should be in passive income-producing investments by then) can FUND your ideal retirement with at least 99% chance that your money won't run out before you do.
Now, what's YOUR Investment Net Worth ...
more importantly, can it fund your IDEAL retirement?
you'll get about 16,500,000 'hits'!).
The trouble is, not one of them is right ...
at least when it comes to helping you understand if you are financially on track.
The reason is that most people define Net Worth as: Your Total Assets - Your Total Liabilities.
That means that your house, your car, your furniture and many other items that don't put a penny in your pocket until you sell them are all included! So, to REALLY see where you stand financially, when calculating your Net Worth, you should LEAVE OUT: a) Any 'equity' in your house that you NEVER intend to release as investment (i.
e.
borrow against for purchasing, when the timing is right, income-producing-buy-and-hold-investment-real-estate).
b) Any supposed 'equity' that you have in your business.
c) Any depreciating 'assets' such as cars and furniture (unless they are PROVEN collector's items).
Let's call the result your INVESTMENT NET WORTH ...
It's the only one that matters! Why? Well, there are only TWO reasons to even bother calculating your Net Worth: 1.
To ensure that your 'portfolio' matches the Rules of the Rich (e.
g.
the 20% 'rule' on home equity that I talk about in a recent post), and 2.
To check whether your INVESTMENT NET WORTH (which should be in passive income-producing investments by then) can FUND your ideal retirement with at least 99% chance that your money won't run out before you do.
Now, what's YOUR Investment Net Worth ...
more importantly, can it fund your IDEAL retirement?
