Net Worth

How much we earn and How much we save is the most commonly used measuring instrument to many people. Actually, it should be What is our Net Worth. If you see any successful people on this planet, they speak only in terms of the Net Worth and they never speak how much they earn or save. Net worth in simple terms can be described as ( Value of all Assets - Total of all liabilities )

When we talk about this Net Worth, lets say if we earn 30 Lakhs a year and if we spend or our liability is around 25 Lakhs. Our net worth is still less. We can never term ourself somewhere near to 30 Lakhs. So, our focus should be to increase our net worth not just how much we earn and save

There are 3 concepts which can increase our net worth

• Increase the earnings or assets and maintain or control the expense or liability
• Maintain the earnings or assets and reduce the expenses or liability
• Increase the earnings or assets and reduce the expenses or liability

As we can see from the above points, we can easily understand the third point is more powerful and it can increase the net worth quickly as possible. Let's deep dive into this concept, let's say we are earning Rs.5,000 today and everyday. If we spend Rs.3,000 everyday for daily needs and save Rs.2,000 for future. Then our Net worth is Rs.2,000 per day. If i do this everyday, our net worth increase by Rs.2,000 everyday and in a months of 30 days, we would be holding a net worth of Rs.60,000

Instead of saving Rs.2,000 everyday, we invest in a quality company or in any investment channel like FD / RD / Bonds and so on... which gives additionally Rs.50 per day as interest without compounding. This means additionally we are getting Rs.1,500 per month from this interest. So the net worth is Rs.61,500

Now, lets say we are getting an interest of Rs.50 per day (1st day) from our investment of Rs.2,000 and it compounds its interest the next day. Let' say we get an interest of Rs.55 the second day and Rs.60 the third day and so on. If this compounding is done efficiently, the interest which we received from the compounded amount itself will take care of our expenses and liability in the long term. The earnings made by us will be an total net worth

If this is managed efficiently further, the compounded amount alone will have an extra after deducting our expenses and liability and our Net worth will be more than our earning made. Which means in our above example we would have earned Rs.30 Lakhs per year and our net worth would be Rs.30 Lakhs + earnings made from investing after deducting our expenses

So, our focus should be on having the Net worth more than our earnings. This can be achieved only through consistently investing and compounding our money. This requires huge amount of patience. Patience can be achieved by continuous learning and self-discipline

I wish everyone who reads this blog compounds money effectively and increase your net worth. Focus on your Net Worth not just on your Earnings and Savings.

Have a Great Day

B G Nareshkumar