In the “Basics” series, we covered:
• Maintaining a personal cash flow statement
• Reviewing your cash flow statement
• Cutting out un-utilised/unnecessary luxurious expenses
• Debt (bad debt and good debt) and pay down/off any bad debt
• Building an emergency fund of at least six months (top it right back up after the crisis is averted).
• Working towards your income being more than your expenses and to achieve this
o Don’t up your expenses as your income increases
o Start a side hustle
o Invest in assets that generate an income for you
o Start a business you work on (not one you work in)
We then went on to talk about various investment vehicles/classes and over the last few weeks I have written about the various investments classes I have ventured into and how I am approaching things (more of that to come in future posts).
This week I want to finalise the “Basics” series by concluding with knowing your Personal Net Worth. Our net-worth as I described it in the first of the basics post equates to a company’s balance sheet. It is a snapshot of what one owns and what one owes at a specific point in time. The more assets over liability one has, the greater one’s net worth. The aim is to continue growing one’s assets so it is more than any liabilities one has.
As also previously mentioned, money is a tool/resource and while it is not the be-all and end-all, it is a real powerful tool. The options and opportunities it affords one, makes it worth taking actions that ensures possession of an abundance of it. By abundance, I mean enough to achieve financial freedom; bearing in mind that financial freedom means different things to different people.
You might wonder why it is important to know your net worth/keep track of it. In my opinion, the most important reason is that it shows you a picture of your current financial position. Once you know your current position, you are able decide what you want it to be in comparison to what it is and then set goals that move you towards what you want it to be. Depending on where one is in the journey to financial freedom, the goal could be to pay-down debt, grow your emergency funds or to grow assets to a target level. Reviewing your net worth periodically, then tells you how well you are doing towards achieving the goal (remember to celebrate wins, but not in a manner that will set you back).
Remember the goal is not the money itself, rather it is the options and opportunities having money affords one e.g. living one’s own definition of a financially free life, be able to embark on fulfilling projects, etc. To conclude, let us keep the goal in mind (whatever it is) and this will definitely help make the journey a lot easier.
Some reminders/perspectives below.
Final reminder; my blogs are based on personal experience and personal journey to financial literacy and freedom and do not constitute financial advice. Do your own research before making any financial decision.
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📝 Originally shared under my first blog, bitalks; part of the journey that shaped Life’s Riches.