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Collin Harness


Calculating and tracking your net worth

The best way to figure out how you are doing with money is to calculate and track your net worth.

It may not look pretty in the beginning, but over time you should see the numbers move in a positive direction and your financial position get better and better.

    1. Net Worth = Assets - Liabilities

    Your number could be negative if you have debt than assets. That is ok. It takes a while to increase this number.

    You may also choose to increase your income using debt and then it will always be negative.

    The point of figuring out your net worth is to determine where you are now and where you want to go in the future. Your gains will start to compound. As you start to increase your assets they will start compounding. The more time you give your assets the more they will work for you and the larger your net worth will grow.

    2. Assets

    Assets are anything that has value that you own. You may owe a house with a mortgage. The portion of the home that you have paid off is considered the asset.

    I like to think of assets as anything that brings me money rather than takes away money.

    Examples of Assets:

    - Stocks

    - Bonds

    - Real Estate

    - Artwork

    - Mineral Rights

    Assets are the most important thing you need to think about when it comes to your money. How can you create or acquire more assets into your life?

    If you are like me you will have to start working a job and trading your time for money, but slowing you should make that shift where you have accumulated enough assets that your time becomes more valuable than the money. But this only happens if you acquire assets that work for you.

    3. Liabilities

    You want to be really careful around liabilities. There is the old expression: "It takes money to make money."

    This is true. Amazon could not operate without building wharehouses to store and ship that goods. But you have to carefully figure out the equation of how much you should spend in order to make money.

    Not enough people do this. How much are you going to make by going to college? And how much are you going to spend to make that much money?

    You want to limit your liabilities as much as possible.

    4. Increase Assets

    Always be increasing your assets. Buy more stocks. Buy more bonds. Buy more real estate.

    The more assets you have the more freedom you have. If you can acquire enough assets you can quit your job. You can travel or buy a bigger house or even start your own charity.

    5. Reduce Liabilities

    I consider liabilities anything that costs you money. You want to keep your consumer spending in check.

    You want to limit the amount of stuff that you need to take care of and spend money on.

    My mission is to only buy liabilities that increase my cash flow. If I want to bring in more money I may need to spend money on labor or equipment that will bring me more customers.

    6. Net worth tracker

    If you want to track you net worth month after month download my forms here.

    7. Personal Capital

    Personal capital is a great tool to track your net worth. You connect your bank accounts and assets and then track their performance over time.

    I prefer to enter in the asset value manually, because many times the bank connection will disconnect and that gets annoying.

    8. YNAB

    If you are having a hard time growing that net worth then I would recommend you start using You Need A Budget. It helps you clarify what are your goals and where you are spending your money and where you want to spend your money.

    It helps you get ahead of your bills and obligations and start growing that net worth. I have used this software for about 2 years and it has really help me plan for big events in my life. New car, travelling, healthcare etc.

    9. Time and compounding

    Growing your net worth seems like a really slow process and it is somewhat, but the more you focus on it and growing your skills the faster the compounding works. Be patient and keep following the plan and the compound will transform your money and life.

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