Net Worth & Money Flow

If you want to know how healthy you are, you check your vitals (BP, heart rate). If you want to know how financially healthy you are, you check your Net Worth and Cash Flow. These are the two most important numbers in personal finance.

Part 1: Net Worth (Your Financial Scorecard)

Net Worth is a snapshot of your financial position at a specific moment. It answers the question: "If I sold everything I own and paid off all my debts today, how much money would I have left?"

The Formula

Net Worth = Total Assets - Total Liabilities

• Assets: What you OWN (Cash, Investments, Property, Gold)
• Liabilities: What you OWE (Loans, Credit Card Debt)

Why Track Net Worth?

1. The Big Picture: It shows true progress. You might have a high salary but low net worth if you spend everything.
2. Motivation: Seeing the number grow is addictive (in a good way!).
3. Reality Check: It forces you to confront your debt.

Goal: Your Net Worth should increase every year.

Part 2: Money Flow (Cash Flow)

Money Flow is the movement of money in and out of your life over a period (usually a month). It answers: "Am I spending less than I earn?"

The Three States of Cash Flow

1. Positive Cash Flow (Surplus)

   • Income > Expenses
   • You are saving money every month.
   • Result: Wealth grows.

2. Neutral Cash Flow (Paycheck to Paycheck)

   • Income = Expenses
   • You survive but don't grow. One emergency can ruin you.
   • Result: Stagnation.

3. Negative Cash Flow (Deficit)

   • Income is less than Expenses
   • You are borrowing or selling assets to survive.
   • Result: Debt trap.

The Cash Flow Quadrant (Personal Version)

Imagine your money as water flowing through pipes:

• Income Pipe: Salary, Business Profit, Dividends
• Expense Drain: Rent, Food, EMI, Lifestyle
• Asset Tank: Where you store surplus water (Investments)
• Liability Leak: Holes in the pipe draining water (Interest payments)

Strategy:

1. Widen the Income Pipe (Earn more)
2. Narrow the Expense Drain (Spend less)
3. Plug the Liability Leaks (Pay off debt)
4. Fill the Asset Tank (Invest surplus)

How to Track Money Flow

You don't need complex accounting software. A simple method works best:

The 5-Minute Monthly Review

On the 1st of every month, write down:

1. Total Income Received: Salary + any other money
2. Total Saved/Invested: Money moved to savings/investments
3. Expenses: Income - Savings = Expenses (roughly)

Example:

• Income: ₹50,000
• Investments (SIP): ₹10,000
• Rent & Bills: ₹20,000
• Discretionary Spending: ₹20,000 (Where did this go? Track it!)

Net Worth vs Income: The Wealth Illusion

Lesson: Income is what you earn. Wealth (Net Worth) is what you keep.

7-Day Action Plan

Day 1: List all your assets (Bank balance, PF, Investments, Gold, Property value)
Day 2: List all your liabilities (Loans, Credit card dues, money owed to friends)
Day 3: Calculate your Net Worth (Assets - Liabilities)
Day 4: Check your last month's bank statement. Total Income vs Total Outflow.
Day 5: Identify if your cash flow is Positive, Neutral, or Negative.
Day 6: Set a target Net Worth for next year (e.g., Current + ₹2 Lakhs).
Day 7: Download a simple expense tracker app (Walnut, Money Manager) to track flow.

Quiz

---

💡 Final Thought: "It's not how much money you make, but how much money you keep, how hard it works for you, and how many generations you keep it for." — Robert Kiyosaki. Focus on growing your Net Worth, not just your salary.