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A few weeks ago, Rihanna finally hit billionaire status. Now, you might be thinking that this means she done earned a billion dollars. In reality, she probably already hit that mark a long time ago.
Instead, being a billionaire means that her personal net worth is over a billion dollars. As we speak, she is continuing to increase her personal balance sheet with Fenty Beauty and Savage Fenty.
If you didn’t already know, a person’s net worth is their assets minus their liabilities. An asset is everything that contributes to a person’s wealth. For example, the money in your bank account is an asset. So are investments you have, like shares or bonds.
Even your car or house can be classified as an asset. Liabilities, on the other hand, are things that deplete your wealth. This includes things like student debt, car payments, and mortgages.
Not everyone can be a billionaire like RiRi, but you don’t have to be one to live debt-free if you take the time to make and check your personal balance sheet. It’s not as hard as it sounds.
When I made mine, my personal net worth was deep in the red, and I feared that I might never be able to recover financially. But ever since I took control over my personal balance sheet, I’ve taken steps to become financially free. And here’s how you can, too.
Businesses constantly look at their assets to see if they’re growing while also seeking ways to cut down on expenses. If you want to be financially free, you need to adopt the same mentality towards your net worth, sis.
What’s important here isn’t whether your net worth is above or below 0, though the former would obviously be more desirable, but that you’re taking the time to look at your finances and deciding for yourself what needs to be done.
And I really do mean everything. That’s why you need a personal balance sheet, which is a tool that lists down all your assets, liabilities, and future spending. You can learn how to make yours here. If you find that when you add everything up, you’re earning more than you’re paying out, then you’re doing great, boo! Keep up whatever you’re doing.
But if you’re in the red, then stay calm. The whole purpose of creating your personal balance sheet is so you can decide what you need to stop spending on, or what debts need to be paid off immediately.
For example, let’s say your student loan has a high-interest rate. The sooner you pay that off, the less money you’ll be paying over time, and the quicker you’ll be able to reach your financial goals.
In order to calculate your net worth, you must know what are your Assets and Liabilities. Assets are anything that is considered valuable. Some examples are:
Liabilities are considered obligations or debts that are owed to another party. Typical liabilities include:
When you calculate your personal net worth, you will subtract assets minus liabilities. For example, let’s say your assets total $100,000. On the other hand, your liabilities equal $30,000. If you subtract your assets from the liabilities, you will have a $70,000 net worth.
This is a great start; however, you have much more room to grow your net worth over time. The goal is to continue to reduce your liabilities and increase your overall assets.
Identifying your personal net worth is important as it allows you to understand how you are managing your personal finances.
If you are accumulating debt and not tracking it over a period of time, you are creating a negative personal worth that may be difficult to reverse the longer you ignore it.
It doesn’t matter if you are in a negative position today as long as you have a plan to track your personal balance sheet and eliminate your liabilities to increase your overall personal net worth.
Let’s be real for a moment. Just because you’re monitoring your expenses more doesn’t mean you’ll magically be debt-free.
A personal balance sheet is there to help you figure out why you’re not growing as much as you could be. But you need to apply what you learn from it if you want to live debt-free.
Taking the time to look at your finances can sound tedious, and it will be. But if you want to spare yourself from the stress of being buried in debt and living paycheck-to-paycheck, then this is the first step that you need to take.
You won’t feel the effects of taking control of your finances right away. But when you actively keep track of your assets and liabilities, you’ll learn to make better financial decisions in the long run. In the end, you’ll be thanking yourself for starting when you did.
Dollars Makes Cents by Shaquana, Financial Coach and Wealth Expert, resources helps professional millennial women of color with the tools and skills they need to eliminate their debt, amplify their savings, and build generational wealth — without having to compromise their lifestyle.
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