All financially successful people engage in the exercise of calculating their net worth. Does that include you? It’s time to fill in your net worth statement here:
The first time I filled in mine, I was shocked to realise how little I was worth (Lol). Now I make it an annual practice to compare my present and Dream Year Net worth statements. This exercise takes me through the most extreme emotions, it’s sooo not funny! From the rigour and depression of My Present Net Worth Statement to the exhilaration of being able to put my Dream Financial Life into figures!… I love this part of the exercise, no kidding!
So, let’s get to work. It takes a bit of time and patience, especially if you are doing it for the first time. Remember that your Assets should only be valued at what you can realise, i.e., get for them. The home you live in, is an asset, but it’s not an investible asset, as you can’t earn any income from it or realise it’s value! List all your Assets first. It’s better to list the Assets in groups as follows:
- Real Estate (investment in property, land and houses)
- Stocks and shares ( investment in businesses)
- Bonds and treasury bills (investments in assets that pay fixed income)
- Personal assets that have a resale value ( like cars, jewellery etc; remember to be highly pessimistic when valuing them and only record what you are sure you can get for them)
- Cash in mutual funds and bank balances
Now for Liabilities, these are what you owe and should be quantified and listed. Examples are:
- Bank loans
- Credit cards
- Personal loans
Ensure you capture all liabilities, including interest due on them
Now, the fun part; what you plan to be worth in the next 20/25 years. Decide a year and call it your Dream Year. What will your Net Worth Statement be in that year? Dream Away!! Fill in your Dream Year Net Worth Statement for the year you have chosen.
After you have drawn up your Present & Dream Year Net Worth Statements, then get to think through your roadmap. How are you going to get from here to there? This keeps you focused on your Productivity Plus Financial life. Hopefully, you are dreaming big and your FNW (Future Net Worth) will be much higher than the INW (Investible Net Worth) that gets you financially free.
Confused? Let’s break down some terms so you are really clear about the road to FF!
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Great! So you are fast becoming an expert on your Financial Freedom journey. If you have any questions, leave a comment below. Until then, remember to Design Your Life, Live Your Dreams, Day by Day!