How To Become Rich
(sudhan)
An investment in knowledge always pays the best interest. Benjamin Franklin A new car drops in value the second it?s driven off the lot. Your car is a tool that takes you to work, but it?s not a wealth-creating asset. The market value of a home is an asset; the mortgage, a liability. Let?s say your house is worth $120,000, but your mortgage is $80,000. That means your equity in the home is $40,000. Equity contributes to your net worth. 2 Wealth Creation: Learn the Language You want to create personal wealth, right? So does Bob. Bob is 35 and works for a manufacturing company. He looked at his finances and realized that at the rate he was going, there wouldn?t be enough money to meet his family?s financial goals. So he chose to embark on a personal wealth-creation strategy. His first major step was to pick up a copy of this workbook for guidance. Bob began by learning the language of wealth creation. The first lesson was to understand the meaning of assets, liabilities and net worth. They make up this very important formula: ASSETS ? LIABILITIES = NET WORTH A wealth-creating asset is a possession that generally increases in value or provides a return, such as: ? A savings account. ? A retirement plan. ? Stocks and bonds. ? A house. Some possessions (like your car, big screen TV, boat and clothes) are assets, but they aren?t wealth-creating assets because they don?t earn money or rise in value. A liability, also called debt, is money you owe, such as: ? A home mortgage. ? Credit card balances. ? A car loan. ? Hospital and other medical bills. ? Student loans. Net worth is the difference between your assets and liabilities. Your net worth is your wealth. Federal Reserve Bank of Dallas Bob 3 Federal Reserve Bank of Dallas Bob?s Balance Sheet Wealth-building assets Amount Cash $ 1,500 Savings account 1,000 Stocks, bonds and other investments 5,000 401 (k) retirement plan/IRA 25,000 Market value of home 0 Other assets Market value of car 14,000 Total assets $ 46,500 Liabilities Amount Home mortgage $ 0 Car loan balance 13,000 Credit card balances 3,000 Student loan 5,000 Child support* 2,400 Miscellaneous liabilities 1,500 Total liabilities $ 24,900 Net worth $ 21,600 * Represents one year of payments. To calculate how much he is worth, Bob used the following formula: Assets ?Liabilities =Net Worth. He made a balance sheet listing all his assets and all his liabilities. He listed his wealth-building assets first. Bob discovered his net worth is $21,600. Using Bob?s balance sheet as an example, figure your own net worth. Be sure to add any assets and liabilities you have that are not listed here. Remember that net worth is your wealth. Are you worth as much as you want to be? Liabilities Amount Home mortgage Car loan balance Credit card balances Student loan Child support* Miscellaneous liabilities Total liabilities Net worth My Balance Sheet Wealth-building assets Amount Cash Savings account Stocks, bonds and other investments 401 (k) retirement plan/IRA Market value of home Other assets Market value of car Total assets
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