The Value of Tracking Net Worth

Every year, Forbes, a business magazine, publishes a list ranking the world’s wealthiest individuals.  How do they compare everyone?  By using their net worth.  

What is net worth?  It is the sum of all of an individual’s assets (positive number) and liabilities (negative number).  In other words, everything you own minus what you owe.  It’s also important to note that in order to grow financial wealth, it makes sense to track your financial decisions that contribute to your net worth. 

Not all assets are created equal.  Some appreciate while others depreciate.  Take cars for example: cars are an asset, but it is a depreciating asset.  How many times have you heard that after purchasing a car, it’s value instantly decreases as soon as you drive it out of the dealership lot? One’s net worth goes down with a car purchase.  However, with real estate, an appreciating asset, although an investor incurs debt to purchase a property, the property’s value adds to a person’s net worth.  The mortgage acts like a built in “investment plan” with each payment adding equity and lowers debt.  

Now imagine having more real estate properties and also having someone else pay down the mortgage.  How much faster would your net worth grow?  Even better, what if the rent paid on the property was greater than property expenses and there was something left over every month generating positive cash flow!  Wouldn’t that be amazing!  Investing in real estate is definitely one sure way to grow net worth.

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