Lesson 3 of 3 · 8 min
Net worth is the report card
Salary is a flow and net worth is a level. One subtraction, ten minutes and a pen, and you have the answer a rising salary can never give you alone.
Salary is a flow. It arrives, some of it leaves the same week, and the figure on your offer letter says nothing whatever about what you actually have.
Net worth is a level: everything you own, minus everything you owe, on one particular day. Unlike salary, it can fall — and that is exactly what makes it worth measuring. It is the only figure that notices when a larger income is being spent as fast as it lands.
Your turn
Kabir has ₹40,000 in the bank, gold worth ₹50,000 and a scooter worth ₹30,000. He still owes ₹80,000 on money borrowed for his course and ₹15,000 on a card. What is his net worth, in rupees?
My salary went up twice and I have the same money
KabirTara
Kabirasking
My salary has gone up twice since I started. I do not have any more money than I did on day one. Where is it going, and why can I not see it going?
Taraexplaining
Because you are watching the wrong number. Salary is what flows past you in a month. What you have is a different sum entirely, taken on one day: everything you own, minus everything you owe.
Kabirasking
So where does the extra go when the salary goes up?
Taraexplaining
Into the month, usually. A better flat, a better phone, a longer journey to work paid for in cabs. All of it reasonable, none of it announced, and none of it lands in that second number.
Kabirasking
That is a fairly bleak way to put it.
Taraexplaining
It is only bleak while nobody tells you. That second number takes ten minutes and a pen, and it is the one that answers the question you actually asked me.
| The question | Salary answers it? | Net worth answers it? |
|---|---|---|
| How much came in this month? | Yes — that is its entire job | No, and it does not need to |
| Am I better off than a year ago? | Only if nothing else moved | Yes, directly, in one number |
| Could I cover three months with no income? | No | Yes — it counts what is actually there |
| Did I spend more than I earned this year? | No | Yes — the level falls |
Myth
“My salary goes up every year, so I am obviously getting wealthier.”
Mostly false
A pay rise changes the flow, not the level. If the extra goes into a better flat, a bigger monthly repayment and a shorter gap between phones, the level sits exactly where it was — and it can fall while the income climbs, if what you owe grows faster than what you own. That combination is ordinary rather than unusual, which is the whole argument for measuring the level at all. It is the only figure that notices.
Put these in order
Put the net worth sum into the order you would actually do it.
- Write the date beside the answer, because it is only true for that day
- Subtract the second total from the first
- Add those up — that total is your liabilities
- List every amount you still owe, in full, rather than the monthly payment
- Add those up — that total is your assets
- List everything you own and what it would fetch today, not what it cost
Check yourself
1 / 3
Kabir asks
What is net worth?
Done reading?
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