March 20, 2013

The net worth statement shows us how we are doing financially. What assets will help us increase our net worth and what assets will decrease our net worth? Why?

3 thoughts on “March 20, 2013”

  1. Thomas Graham says:

    The assets that will help us increase our net worth are checking/saving accounts, retirement funds, and the market value of our vehicle(s) and/or house(s). This will make our net worth increase because these items are assets and are worth something.

    The liabilites that will decrease our net worth are: mortgage/2nd mortgage loan, students loans, credit card debt, all other loans. These will decrease our net worth because they are money that we have to pay back.

  2. Mike Finley says:

    You got the primary points right, Thomas. Let me add a few key points. Appreciating assets (Real estate, stocks, bonds, and to a lesser degree savings) will increase your wealth over time as they grow (passive income) by themselves. Depreciating assets (cars, clothing, big boy toys, basically “stuff”) lose value at an accelerating pace over time and will deplete your wealth.

    Thomas was correct when he stated that debt will also decrease one’s wealth. Debt on top of depreciating assets is a very, very bad idea. So what can we take away from this discussion. Buy appreciating assets early and often in your life (be efficient with no-load index mutual funds) and limit how many depreciating assets you buy (avoid taking out loans on these wealth depleting items) in your life. Time is your friend with appreciating assets and your enemy on depreciating assets attached to debt. Educate and act.

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