Bill has been working for four months. He feels, in a vague and unexamined way, that he is doing well. The salary arrives every month. The balance goes up more often than it goes down. He has not had to ask anyone for money.
In October he decides to calculate his net worth for the first time. He has seen the phrase in an article and wants to know where he stands.
The calculation takes less than ten minutes. Assets: cash in the bank, 2,400 euro. The smartphone he bought in July, current book value after three months of depreciation, 367 euro. Total assets: 2,767 euro. Liabilities: zero. Net worth: 2,767 euro.
A balance sheet is a statement of financial position at a specific point in time. It lists what an entity owns on one side and what it owes on the other. The difference between the two is equity, or net worth. Bill's balance sheet is simple because his life is simple. No debt, no mortgage, no car loan. Just cash and one depreciating asset.
He expected the number to be higher. It is not a bad number for four months of work starting from 1,000 euro. But seeing it written down makes it concrete in a way that the bank balance never did.
2,767 euro. That is what four months of decisions have produced.
The tip
Calculate your net worth at least once a year. Not to judge the number, but to see the composition. The ratio between cash, assets, and liabilities tells a different story than the balance on any single account.
Balance sheet, October 2024: total assets 2,767 (cash 2,400, smartphone book value 367). Total liabilities: 0. Net worth: 2,767. The ledger records the first complete picture.
Bill is 24. He has just started his first job. Every episode, we read his personal ledger through accounting eyes. / FY 2024 ledger