Assets – liabilities = net wealth
This is your personal balance sheet. We’ll explore it a bit more in later chapters.
List and total all your assets – your bank accounts, your house (market value), your car, your jewellery – and deduct all your debt – overdraft, mortgage, balance owing on your car, credit cards, loans, store accounts. The result is how much you are worth. Financially, not as a human being.
This might be a negative number, in which case you have more debt than assets. This is a problem. You are actually insolvent. This isn’t necessarily the end of the world. You may be able to juggle your cashflow indefinitely, robbing Peter to pay Paul. You might even be able to pull yourself out of the situation, by settling your debts over time. If not, you may be forced to declare bankruptcy.
“How did you go bankrupt?” a character asks in Ernest Hemingway’s “The Sun Also Rises.”
“Two ways,” Mike replies. “Gradually and then suddenly.”
Don’t be like Mike.
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