Before you can build wealth, you must first understand the concept of worth…worth…worth!  I’m going to dedicate the first few lessons to helping you diagnose and understand your net worth! For financial purposes, worth is expressed in the term “net worth” and is illustrated in the following formula:

ASSETS – LIABILITIES = NET WORTH

This simple formula  is the same for Mark Zuckerberg, Bill Gates, Oprah Winfrey and YOU!  Your net worth can be either positive or negative, but your road to wealth begins with understanding how this simple formula can diagnosis your current affairs and put you on the road to success.  This is the bedrock of personal finance and we can accomplish nothing until you understand what these terms mean.  Wealth begins when your ASSETS are greater than your LIABILITIES!  It’s that simple, but what are ASSETS and LIABILITIES?

In layman’s terms, an ASSET is something that you “OWN” of  value!  That’s it…you OWN it (as in ownership) and it’s yours or you have a principal claim to it, which can be expressed in a value!  Some examples of ASSETS for individuals are as follows:

• Cash
  • Savings Account
  • Checking Account
  • Prepaid Cards (e.g. Simple, Western Union, Chase Liquid Card)
  • Money Market Accounts
  • Cash Value of Annuities
  • CDs

• Investments  (other than retirement – you own these either in your name or jointly with one or more persons. Some examples are:
  • Stocks
  • Bonds
  • ETFs
  • Mutual Funds
  • Municipal Investments
  • Other

• Money owed to you (think – Cousin Betty owes me $50)

• Retirement Accounts
  • IRA (Roth , Traditional, SEP, Simple)
  • 401k, 403b, 457
  • Keogh
  • Pension Plans

• Real Estate
  • Your Prinicpal Home, condo, or coop
  • Second Home
  • Timeshare
  • Vacation properties
  • Rental properties

• Businesses (where you own an interest)
• Household effects (in some cases, clothing)
• Collectibles (jewelry, art, etc.)
• Commodities (gold or silver)
• Currency (other than USD that you hold)
• Vehicles (autos, RVs, etc.)
• Health Savings Accounts
• College Savings Plans
• Flexible Spending Account (be careful here because this can be lost)
• Whole Life insurance (cash surrender value)
• Personal Property (boats)

The list can go on and on, but it’s something that you OWN that has a liquidating value.  Liquidating simply means that if needed, the respective ASSET can be sold and converted to cash.

Important terms from this lesson:

1. Net Worth – The difference between your assets and your liabilities.  It can be either positive or negative.
2. ASSET    –  Something that you OWN that has a value attached to it.
3. Liquidating Value – The value that you would receive from  an object sold today.

Action Step:       What ASSETS do you OWN?

Please print out and complete the Asset Inventory worksheet. This may take a little effort, but force yourself to jot down every single item that you own and take an real inventory of your life!  For categories like ‘household effects’, simply ascribe a single value to your total possessions.  I mean it!  Pull out your statements if needed, find your property tax bill to see what your house is worth, log on to your web account if needed, but you absolutely need to understand what you OWN! Take an inventory of your life!

Click the link to download the Asset Inventory Worksheet – http://bit.ly/1kVbJwI