Let us talk about your net worth

What is your net worth and what does it have to do with your personal finance?

In theory, your net worth is the value in cash you would have left if you sold everything you currently possess (assets) and paid off all your debts (liabilities).

To get to the level of wealth that one desires, it is essential to assess ones current standings (present net worth), and how long it will take to get to the desired wealth level.

If you want to be worth N10m in 12 months’ time, then it is only logical that you determine how much you are worth today.

Determination of net worth

Companies in general access their net worth’s via annual preparation of financial statements.

For an individual, the same principle is also applicable.

Some of the items that will qualify as your assets will include; house, car, jewelry, household items, amount in your retirement account, bonds, stocks, mutual funds, cash from life insurance, entitlements , savings, cash, prepaid rent etc.

It is important to make conservative estimates when valuing assets to avoid inflating your net worth to avoid ending up with an unrealistically optimistic view of your wealth.

Some of the items that will qualify as your liabilities will include; outstanding mortgage, loans (student, car etc.), credit card debt etc.

Should my education / training cost be recognised as my asset?
What is even an asset?

An asset is any resource with economic value to you, which is either owned or controlled by you with the expectation that it will provide future benefit to you.

So from this definition above, the cost of education and training cost for an individual should be capitalised as an intangible asset provided the below conditions to recognise an intangible asset are met.

a) It is probable that the future economic benefits that are attributable to the asset will flow to you (ie your education is likely to result in improved earnings)
b) The cost of the asset can be measured reliably (Here we are talking about all costs incurred that were absolutely necessary in the attainment of that education/training).

Paying too high for education is another matter all together, which will likely result in impairment (reduction in value recognised) upon subsequent assessment.

It is important to point out at this point that the major reason Companies do not capitalise employee training costs is due to the word CONTROL.


To be continued...