What comprises your net worth?

Easy, it’s all of your Assets minus all of your liabilities. In my opinion, your net worth is the best report card you have.

Barring special circumstances (i.e. you’re in school with no income working to increase your earning power) if your net worth is going up, you earn a “passing grade.”

Do you want to get an A+? then you need to focus on the velocity of your net worth growth, with is driven by a few things:

  1. Controlling the gap between income and expenses. The wider the gap, the more quickly your net worth will grow
  2. Investment returns – while this isn’t always something you can control, putting yourself in a good position by investing in a well-diversified portfolio will help you to grow your net worth through capital gains
  3. Avoid depreciating assets. You could “invest” in a car, and while I do count vehicles toward my net worth, since I could conceivably sell them for cash today, cars will only ever go down in value, so the goal is for an ever decreasing share of your assets to be made up of depreciating and non-income producing assets.

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