Financial Enlightenment Pt. 2: Net Worth

It’s been great sharing with you my experience and journey so far. Lately my blog has taken on a different tone and direction. Currently I’ve been focusing on something very personal about my journey to financial independence (FI): My Financial Enlightenment. I revealed some of the financial truths about myself and the world we live in. Today, I will continue sharing with you some of the interesting things I’ve discovered about a common term in the personal finance world: “Net Worth.”

More than likely, you’ve heard people talk about net worth. Or,, maybe you haven’t. Either way, if you are serious about getting your financial house in order and investing in your future, it will do you a world of good to know, calculate, and track your net worth over time. It will be a key measure and tool to see the big picture and check your progress toward reaching your financial goals.

The Two Variables of Net Worth

To get down to basics, net worth is a rather simple equation made up of just two variables: Assets and Liabilities

What is an Asset?


Assets are all the things you own and the value they currently hold. This value shows up as a dollar value. The dollar value equates to what you can get in cash if you were to sell the asset right now. There are all sorts of assets. I like to classify them in to liquid (easily sold for cash – usually within hours or days) or illiquid (not easily sold for cash – may take weeks or months to sell to an interested buyer).
  • Liquid Assets: Cash, stocks, bonds,
  • Illiquid or Hard Assets: House, cars, paintings, businesses
What is a Liability?


Cue ominous music. Liabilities are all your financial obligations. This is just a fancy word for saying debt or the people you owe money to and how much. Usually this is called debt, and you are obligated to pay these debts back and in most cases at a cost (we call this interest).
  • Short Term: Line of credit, home equity line of credit, credit card, payday loans
  • Long Term: Mortgage, car loan

Calculating Your Net Worth

To calculate your net worth, you need to add up the dollar value of your assets and then you subtract from that the total dollar value of your liabilities:


So That’s It?

So there you have it. Simple, easy…

Hold Up! That’s It?

In a word: yes. Nothing I have presented this far is new or radical. It’s basic financial literacy 101.

Your net worth is a snap shot in time of how well you are building your wealth. It is similar to getting a regular check-up with your doctor. It tests your financial health.

No matter where you are in life, your goal is to grow your net worth by either increasing the number and value of your assets or reducing or eliminating your liabilities. Preferably both.

Tracking Your Net Worth: Where the Enlightenment Begins

Knowing the definition of your net worth, assets, and liabilities is not where enlightenment begins. It begins when you actually start doing an inventory of your assets and liabilities and track it over time. When I first started, I knew of net worth and how it was used, but I did not internalize the information.

When I started tracking my net worth over time, I realized 3 personal truths:


Here is something most people don’t learn in school. First, you are an asset. Ok, let me explain. You and your abilities are considered an asset to someone else. Usually this is in the form of work and in exchange for for your labour you receive money. Second, you are an asset collector. We are all players in the economy, and we use our money to collect assets that either go up in value or produce you cash. Now I can understand how this can be controversial, because people conflate this with saying that the whole point in life is to get rich. But this is far from the truth and beyond the realm of personal finance.The truth is, to be financially successful in life, you need to convert your labour and the money you earn into assets so that you are free to pursue bigger and greater things. Your assets are foundational to reaching financial independence, and if you choose not to build your wealth through assets, you are setting yourself up for failure
If you read my post earlier, you will know about my story of shifting from a consumer mind set to an investor mindset. I identified three forces working to kill your asset game: Consumerism, marketing, and debt. These forces are trying to convince you that the whole point of spending your time working and getting a salary is to buy things and if you don’t have the money to buy things, you can always borrow some money from the bank and pay it off later. This is a losing proposition, because it kills your wealth in two ways:
  1. It kills your asset game: A consumer mindset distracts you from your asset collection game, by taking your hard earned dollars and purchasing consumer items that do not create value or produce cash to build your wealth. Basically, you lose the opportunity to purchase assets by choosing to purchase consumer goods and services.
  2. It leads you into debt: By using other people’s or business’ money (i.e. credit) to purchase non-assets, that means you are increasing your liabilities. That is not good when it comes to your asset collections score (i.e. your net worth). The worst part is that sooner or later, you will need to take your personal income and use it to pay off the debt and the costs associated with renting money (i.e. interest). In this case, it is a double whammy. First you are using your money to pay off debt and second, you lose the opportunity to purchase more assets.
Most personal finance blogs focus on tracking your budget, but I believe you need to start with your net worth first. Why? Well my whole enlightenment experience is directly tied to understanding, calculating, and tracking my net worth. By knowing the equation and understanding the different assets and liabilities I have, I began to see a much bigger picture beyond the week to week or month to month perspective. It shifted my focus of spending on consumer goods, to give me a reason to save. I save to invest in productive assets that appreciate and provide cash flow.

Where to go From Here

This whole personal finance thing can be confusing and super intimidating. For example, if someone does the net worth calculation and sees a negative number it can really shake your confidence. To those folks, I say take heart! Your net worth is not a reflection of your value or worth as a human being.

By knowing your net worth you are arriving to an essential cross roads in your financial enlightenment: You are learning a truth behind your financial story. Remember, your net worth is just a snapshot in time of the financial movie that is your life. Either way you can be your own ultimate asset and change your narrative by upping your asset collection game.

I encourage you to track your net worth every month and see what happens when you track your financial story. I would love to hear from you on your experience, how it made you feel and what you are doing to up your asset game. Feel free to leave a comment, follow me on twitter or join my email newsletter (simply reply back and your email will arrive in my personal inbox).

Best of luck and much love!


Mr. Prairie FIRE