In order to achieve your wealth objectives and protect yourself from the challenges of an economic crisis, you must focus on your net worth. In the last edition, we discussed what net worth is and what it is not. We also used the story of an acquaintance to illustrate the dangers of low net worth.

To avoid a similar fate, you should regularly ascertain what your net worth is. How do you do this?
Make a list of all your assets. Your assets are investments, businesses and properties that generate income. Your car is not one of them, except you use it for commercial activities and it generates income. The same applies to other possessions.
Make another list of all your debts. This is the money you owe banks and other creditors. The difference is your net worth. If all your assets are N10 million and your debts are N20 million, you have a negative net worth of N10 million. You may appear rich, but you are poor. If your assets are N5 million but you have zero debt, you are rich and, in fact, richer than the person in the first example.
As indicated in the previous edition, knowledge of your net worth gives you the power to make better money decisions.
Your net worth should be able to finance your basic living expenses for at least one year, excluding loan repayment costs. This means that if, by any chance, you lose your job or source of income, you can conveniently cope and maintain your lifestyle for the next 12 months or more through disciplined spending.
Thus, the level of your net worth, whether low or high, is defined by how many months of your living expenses it can cover. High net worth means that if your regular income falls to zero due to any circumstance, the total value of your assets can fund your lifestyle for many years.
There are people whose net worth can fund their living expenses for five years, some for 10 years, some for 20 years and some for over 50 years, including those of their grandchildren.
And there are people whose net worth is so low that they could lose their assets once they lose their regular income and are unable to meet their debt repayment obligations.
Your aim is to first have a net worth that can fund your living expenses for at least two years. (To be continued)