Do You Know Your Net Worth?
Your net worth gives you the snapshot of your overall financial situation. You get an idea about how much you’ve spent and earned till this date.
What is your net worth?
Your net worth is all you own (assets) minus your financial obligations (debts/liabilities).
Assets: These include your properties, cash, investments, stocks, jewelry, cars, or any other valuable thing you own.
Financial obligations: These include student loan debt, auto loans, home loan, credit card debt, payday loan debt, tax debt, etc.
Positive and negative net worth
Positive net worth: When your assets are more than your debts/liabilities, you have positive net worth. A positive net worth reflects that you have a good financial health.
For example, the total value of your assets is $300,000 and you owe $100,000 on your debts. This means your net worth is $200,000 ($300,000 – $100,000). So, you have positive net worth.
Negative net worth: When your debts exceed your assets, then you have a negative net worth. A negative net worth indicates you have a poor financial health.
For example, the market value of your assets is $300,000 and you owe $400,000 on your debts. This means your net worth is -$100,000 ($300,000 – $400,000). You have negative net worth.
Don’t get scared since you have negative net worth. It doesn’t mean that you’re financially irresponsible. It just implies that at present you have more liabilities than assets.
What is the biggest challenge you face?
The biggest challenge is determining the correct value to all your assets. It’s essential to make conservative estimates when assigning the value on specific assets to avoid getting an unrealistic idea of your wealth. Your home is your most precious asset and it can make a big impact on your overall net worth. You can know the fair market price of your home by comparing it with other homes in the neighborhood that have been sold recently. You can also ask a qualified real estate professional get an idea about the actual figure.
Why is it essential to know your net worth?
It is important to know about your net worth due to the following reasons:
It acts as a wakeup call when you’re on the wrong financial track
It gives you the green signal when you’re doing well financially
It helps you analyze your current financial health
It may help you to realize what needs to be done to attain your financial goals
Thanks to Stacy Barbee from kissyourmoney.com for providing this guest post to our blog!