Earning a great annual salary is fantastic, but if you are spending it away then it will not help your financial position. Many professionals are doing just that, and are becoming increasingly indebted. Debt.org stated “The more educated you are, the more debt you have. That’s because higher education leads to higher income, and higher income leads to higher spending.”

A higher income level does not dictate wealth, but how you manage your money does.

The way to measuring your wealth is by calculating your personal net worth.

Personal net worth = Total assets – total debt

Too often people get caught up with the showmanship of wealth, meaning they look at the material things that they believe a wealthy person should have, such as a big house, flashy car, all the latest gadgets. But if you don’t own these items and you have purchased them on borrowed money, it does not increase your net worth.

The most surprising millionaires are the ones who don’t have a lot of flashy purchases and don’t look the part, because they invest their money and get their money working for them. The millionaires work on building their portfolios, they understand the value of an asset and how liabilities can decrease their net worth. Millionaires like to own assets, not debt. Nobody ever gets rich by being in debt.

Debt is expensive, and it costs money to borrow money. But saving your money and investing it earns money.

Taking the time to know and understand what your personal net worth means is important for two reasons:

1.       You understand your current financial position and what you need to work on to improve it.

2.       Personal net worth is the true value to measure your financial progress when you are getting out of debt and building wealth.

Because measuring your financial worth is important, here are some motivating factors to start calculating your personal net worth:

1.       Calculating your net worth offers you the most accurate picture of your financial health. Personal net worth is how much money is left over for you if you were to sell off everything you had.

2.       Net worth tracks your financial progress. You can measure month to month or year to year and watch your progress grow.

3.       Net worth moves the focus from income to wealth. As we can see, it isn’t about how much you earn, but how you get your money to work for you. The best portfolios are those of the savers, not the ones who are constantly spending their money.

4.       Net worth helps you keep your debt level in perspective. When you understand your financial position, you can work at increasing your wealth.

Calculating your net worth is simple and straightforward, and easy to track periodically. It is the most important number when measuring the true sense of how rich you are.

If you calculate your personal net worth and find your net worth is in the negative, this is your wake up call. You need to start paying down that debt and getting your net worth into the positive.

Now calculate that net worth and make a goal of increasing that number month over month or year over year! Become that wealthy woman you desire to be.

By Melissa Houston, Contributor

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Aaron Fransen, CFP®, CHS
Fransen Financial Inc.
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