The Basic Formula of Wealth

One of my favorite subjects that I talk a lot about on this blog, is the subject of wealth. As you know, I share my net worth monthly. Although there are many beliefs and philosophies on how wealth could be accumulated, the mathematical nature of wealth is all the same: Wealth (Net Worth) = Assets – Liabilities.

Here’s a little graphic to help us visualize this concept:

Net Worth Assets Liabilities

So what are some basic facts that we could derive from this?

  1. If I want to increase my net worth, all I have to do is increase my assets and reduce my liabilities
  2. If my income is greater than expenses, then I could use the surplus to:
    • pay down my debts, thus reducing my liabilities
    • save and invest, thus increasing my assets
    • the net effect is increased wealth, or net worth
  3. If my income is less than expenses, then the deficit:
    • could force me to liquidate my assets to cover the excess expenses, thus reducing my assets
    • could force me to accumulate more debt, thus increasing my liabilities
    • the net effect is decreased wealth, or net worth

Therefore, all I need to do to increase my wealth is earn more and spend less. Simple, eh?

Now for a little fun…

I hope you can help me build a list: A-Z of wealth building. Basically, any idea to increase income, reduce expenses, save money, pay of debt, etc. I will kick it off…

  • A – Ask for a raise. If you know you deserve it, don’t be shy. Ask for it.

About the Author

By , on Jan 30, 2008
Pinyo is the owner of Moolanomy Personal Finance. He is a licensed Realtor specializing in residential homes in the Northern Virginia area. Over the past 20 years, Pinyo has enjoyed a diverse career as an investor, entrepreneur, business executive, educator, and financial literacy author.

Leave Your Comment (31 Comments)

  1. kenji says:

    we had to work hard and spend less plus education is also the choice to succeed in this work in order to survive in this world in anyways

  2. Femi says:

    C-Do not be COMPLACENT.Take action and expects a reward. No action will leave you worse off.
    S- Save today and enjoy its reward tomorrow.

  3. AJ Cartwood says:

    P is for Pinyo’s Goal, every formula needs an ‘answer’ i.e. how much are you striving for?

    I guess we could have made this G = Goal 🙂

  4. Pinyo says:

    Thank you everyone for participating. I think we got all the letters. I will compile the list and publish it later next week.

    Don’t hesitate to add more if you can think of any other good ones.

  5. Chris says:

    There are already 26 so I guess there can be no more. Maybe if we us letter combos—
    Ch — Change your habits or Save your spare change.
    Sh — Shrink your debt
    Kn — Know your limits.

    cd :O)

  6. paidtwice says:

    but if I start with a hole I can have a basement 🙂

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