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What is net worth - and how can you increase yours?

You may have wondered what net worth is, and how it applies to you. We explain the significance of this figure, and what you can do to increase it.

4 August 2023 · Fiona Zerbst

What is net worth - and how can you increase yours?

Your net worth provides a snapshot of your financial position at any given time. It can indicate whether you’re on track to meet your financial goals, and help you to realign your strategies, if needed.

We consider the value of knowing your net worth, how it can be calculated, and the steps you can take to increase it. 

Tip: Find out how to build your net worth by saving and investing wisely.

What is net worth?

Your net worth is a key measurement in your financial plan.

“If you were to sell everything you own and pay off everything you owe, the amount left over would be your net worth,” explains Paul Roelofse, an independent certified financial planner at Paul Roelofse and Associates.

Assessing what you own and what you owe is vital, Roelofse notes, because it provides a snapshot of your actual worth.

To work this out, draw up a personal balance sheet on which you list your assets and liabilities, and calculate the difference between them. An example is shown below.

Personal balance sheet  
Assets (what you own) Amount
Cash R3,000
Bank account R1,600
Savings account R3,200
Home R900,000
Car R200,000
Personal effects R30,000
Total assets R1,137,800
Liabilities (what you owe) Amount
Credit card R6,000
Personal loan R5,000
Cellphone contract R1,000
Home loan R402,500
Car loan R50,000 
Clothing account R3,650
Total liabilities R468,150
Net worth R669,650

The example indicates a positive net worth of R669,650 - i.e., assets totalling R1,137,800 minus liabilities totalling R468,150. “The bigger the difference, the better off you are,” notes Roelofse.

You can also calculate your net worth on your banking app, or a budgeting app like Old Mutual’s 22seven.

Avoid negative net worth

Although you may initially take on debt to own assets, you may not think of saving more when you get a salary increase or a better job.

“Be careful of ‘lifestyle creep’, which occurs when you earn more but spend more, too,” warns Hannah Myburgh, a financial planner at Crue Invest.

“This can lead to debt and negative net worth – meaning, your liabilities may become greater than the value of your assets. You’ll need insurance to cover your debt, which is an added expense.”

How to improve your net worth

A strong balance sheet can help you plan for retirement, save for big purchases, and weather financial setbacks, says Roelofse.

He recommends taking the following steps to improve your net worth.

  • Reduce debt by paying off high-interest debt, such as credit card debt, first.
  • Increase savings so you’re cushioned against crises. Set up an automatic transfer to a savings account to make saving easier.
  • Invest in property, stocks or bonds, but diversify your investments to minimise risk.
  • Review your expenses regularly to identify where you’re overspending, and adjust your budget accordingly. This can free up money to pay off debt, save, or invest.
  • Use credit wisely. Credit can help you build a positive credit history, making it easier to get loans and credit at favourable rates. However, this only applies if you use it wisely and don’t incur excessive debt.

Improving your balance sheet is a long-term process that requires patience and discipline,” says Roelofse. “It pays to seek the advice of a financial adviser, who can help you set goals,”

Its all about planning, so you know where you want to go, and which steps to take to get there,” notes Myburgh.

Understand what you need to repay and use your budget to balance this out - because your income is usually the only source of money from which you can settle your liabilities,” she concludes.

Tip: Debt can lead to negative net worth. Find out how debt consolidation can help to improve your balance sheet.

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