I’ve had to keep a log of my net worth before and after I graduated from law school. I’d been a little skeptical of it but I’ve definitely been pleasantly surprised with the data. First, I’ve learned that, in the world of finance, wealth is generally measured by several different things. I’ve been able to accurately determine my net worth using three different categories: Social Security, pension, and other assets.
Although, Ive learned that there are more categories than the three I mentioned. One is the “capital” category. In this category, you take a dollar amount and divide it by 100. For example, if I’ve made $1 million in capital, I have $100 million. Another category is the “assets” category. This category is basically the same as the capital category.
In this category, you take the sum of all your assets and divide it by your net worth minus all liabilities. For example, if Ive made 2 million in assets, I have 2 million in assets. If Ive only made 1 million in assets, I have 1 million in assets. If Ive made 1 million in assets and Ive made 0 in capital, I have 0 in capital.
There are more complicated calculations you can do to make the calculations for this category, but that’s the gist.
The net worth is a number that you can use to calculate the total amount of money you are worth. If you have 0 capital, you are worth zero. You don’t need to subtract any liabilities because you have zero assets right now.
So lets say you have a million in capital and 1 million in assets. If you have a million in assets, because you have 1 million in assets, you have 1 million in assets. Because you have a million in assets, you are worth $1 million.
So, in a sense, you have a million in assets and a million in capital. A million in assets and a million in capital equates to a million in net worth.
What kind of assets are you talking about? What’s the difference between an asset of 3/4 (one dollar or 10% interest) and a million in capital? The difference is that a person with a million in capital can buy a million in capital while a person with a million in capital can buy a million in capital. Because money is valued at $10.00 (or, say, $20.00), a person with $10.
For a man to have a million in capital, he has to have 10 million in assets. That means he has to own a million dollar house, a million dollar car, and a million dollars worth of inventory. He also has to own real estate, shares, bonds, and currency. If he just owns the stock market, he would still have to add up his holdings.
But the more wealthy you are, the more you can spend. So if someone has a million in capital, they can only spend a million dollars a year. They can’t go shopping or buy cars or real estate. So that person has to have a million dollars in wealth to spend every year.
