Do You Know Your Net Worth?
Here is why it can be helpful to keep track.
Every quarter, public companies are required to report their finances to shareholders and potential investors. These reports can significantly shift stock prices and company value—even a small deviation from expectations can trigger big reactions.
At the core of those reports are three main financial statements: the balance sheet, the income statement, and the statement of cash flows, followed by pages of projections and commentary.
If you know how to read them, these reports can tell you a lot about the strength of the company and its likely future growth story. That can also apply to your personal finances, and it is a smart idea to review your own financial position at least once a year. Doing so helps you identify when things start drifting outside your intended financial guardrails.
My last post focused on your personal income statement (a.k.a. your budget). This post is about the balance sheet, or net worth statement.
A Snapshot in Time
Unlike a budget, which tracks income and expenses over a set period, a balance sheet is a snapshot. It answers the question: How much are you worth right now?
The formula is simple:
Net Worth = Assets – Liabilities
In business, this can involve more complexity (like accounts receivable or payable), but in personal finance, it’s fairly straightforward: total everything you own and subtract everything you owe.
What Counts as an Asset?
If it can be sold or converted to cash, it’s an asset. Major examples include:
Bank accounts
Investment accounts
Real estate
Vehicles
Jewelry, art, and collectibles
If you want to get more granular, you can include personal property: furniture, electronics, bikes, tools, etc.
But remember, not all assets increase in value. Most personal items, including vehicles, depreciate. When projecting your future net worth, you need to account for that depreciation.
Growing vs. Shrinking Assets
Focus on acquiring appreciating assets: investment accounts, income-generating real estate, interest-bearing accounts, and maybe even certain collectibles.
Depreciating assets (cars, gadgets, most household stuff) may still serve a purpose, but they won’t build wealth.
What Counts as a Liability?
Any money you owe:
Credit cards
Mortgages and HELOCs
Student loans
Auto loans
Personal or medical debt
Since most debt accrues interest, it will grow unless your payments exceed the interest. That’s why high-interest debt should usually be your top priority to eliminate.
Whether or not to pay down low-interest debt more aggressively depends on your feelings about debt and what kind of appreciating asset you could invest in instead. But every decision should be made through the lens of how it will ultimately affect your net worth.
Final Thoughts
Building wealth means increasing assets and reducing liabilities. Buying an asset by adding a liability doesn’t necessarily improve your net worth—it depends on the expected growth of the asset versus the cost of the debt.
Adding a liability to buy something that loses value? That’s almost always a drag on your financial progress.
True wealth means your assets are growing enough, and your liabilities are low enough, that you can eventually live off the growth and no longer rely on a paycheck.
That doesn’t happen by accident. It takes intentional planning, smart investing, and disciplined spending.
Want Help Tracking It?
When you’re doing it right, you’ll see your net worth grow exponentially over time. I built a free net worth calculator that helps you track where you are now and project where you’re headed over the next 10 years.
You can download it free from the Financial Tools page on my website. You’ll have to adapt it to your own situation, but this should get you started.
Read the full blog post on my website at www.bryanjepson.com. And if you’d like help with a more detailed and nuanced plan to help build true wealth, consider becoming a client. Book a free exploratory call here: https://calendly.com/bryan_jepson/30min