Reviews On How Net-Worth Is Calculated (Updated)

Many people don’t know how net worth is calculated. When they hear that someone has $50 billion in net worth, they think it means literally $50 billion in the bank. That’s actually wrong.

Reviews On How Net-Worth Is Calculated (Updated)

Net worth is the monetary value of a person’s assets (that is value of the person’s shares in companies + value of any other kind of assets like properties or otherwise) + cash in the bank.

A person can have $50 billion in net worth on paper, but literally nothing in the bank. However, I’m almost sure that nobody (including Jeff Bezos and Bill Gates) keeps more than $1.5 million in the bank.

Keeping their money in the bank means that the money isn’t generating more money. They rather invest it into another company. If they kept billions in the bank, they wouldn’t be the richest men.

Net worth is the monetary value of a person's assets (that is value of the person's shares in companies + value of any other kind of assets like properties or otherwise) + cash in the bank.

This does not mean that they cannot get the money though. Whenever they want cash, they can still sell shares or other assets (physical properties) to raise the money. That’s called LIQUIDATION.

It’s just a bit harder to get your cash that way. It’s like saying you have a shop with millions of naira worth of goods (making you a millionaire in naira), but you can only get hold of the cash by selling those goods.

Another way they could get cash is to borrow money and use their shares or assets as collateral. These guys can also be in serious debt, and can be starving when they have billions on paper.

For example, Elon Musk, CEO of Tesla, SpaceX, and founder of PayPal, and the world’s second richest man, has a net worth of about $129.8 billion.

He also has a personal debt of about $500 million. If his companies go bankrupt, he’ll be bankrupt too (because the shares there are his biggest assets). He’d be in debt.

This is why it’s common to hear of millionaires whose companies failed and they became INDEBTED and HOMELESS all of a sudden.

The lenders would seize their property. So, to survive, they must maintain their businesses or do everything to make sure the businesses where they have shares survive, and they must be thinking of paying up their debts as soon as possible or their lives become worse than yours.

And remember, the reason why they would collect personal loans is because they don’t have that amount of cash in the bank. They don’t have it.

What they have is assets that they’re saving for the future; shares that give them a stake in some companies that have prospect or property that are valuable or will increase value in the future.

That’s the billions that are been calculated. It’s just the same as many people who will not sell their lands to buy a car, but will collect a loan to buy the car.