Assets, Liabilities and Net Worth

Rich people usually do not have tons of money in their bank accounts but they own a lot of assets. Net worth is the number that is describing how wealthy a person is:

Net Worth = Assets – Liabilities

Your assets are everything you own that has value. Your liabilities is everything that you owe to others. Your net worth is the amount of money you would have if you sell all your assets and pay all your liabilities.

To increase your net worth you can:

  1. Increase the value of your assets.
  2. Decrease the value of your liabilities.

One way to achive this is earning money and then buying assets or paying down liabilities. But your liabilities and especially your assets can also change their value intrinsically which is why you want to:

Own assets that appreciate in value.

If you own assets that appreciate in value you can grow your net worth without earning money which is a pretty enjoyable experience.