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What's a "Net Worth"?

What’s a “Net Worth”?

 

                One’s net worth can be defined as a financial report card that allows you to evaluate your current financial health and can help you figure out what you need to do in order to reach your financial goals.”

                There are two main reasons why it’s important to understand your net worth. First, knowing your net worth number gives you a clear picture of your current financial situation. This is important to have so that you can make choices that benefit you financially or turn things around if your net worth number isn’t as high as you’d like it to be.

                Second, knowing your net worth helps you to monitor progress of the financial goals you’ve set. Tracking your net worth helps you to see your big picture financial progress on a regular basis and is a motivator for continuing to do what needs to be done to reach the financial goals you’ve set in place.

                By having a “big picture” view of your finances easily accessible at all times, you can more readily know when you need to make changes to your money management system that will help you reach your financial goals faster.

                So, what exactly constitutes one’s “net worth”? Net worth is the bottom dollar of a person’s financial situation.  How to calculate your net worth:

  • Make a list of all of your assets. Add in the value of your house if you’re a homeowner, the value of any cars you own, all retirement, savings and investment account balances and any other larger value items such as boats, recreational vehicles, etc.
  • Make a list of all your liabilities. Next, you’ll list all liabilities including your home mortgage, any car or other personal loans, revolving and other debt.
  • Subtract your liabilities from your assets. The answer you get is your net worth.

               

                Gathering up the dollar amounts on every single one of your assets and liabilities each month might seem like a daunting task, but can be well worth your time in planning where your money is and where you want to go with it in the future.

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