Things that helps to Calculate your Net Worth
A house needs to be built on a strong foundation so must we first learn the basics of wealth to make sure we grow strong
Today we're looking at one of the most fundamental principles of wealth net worth and how to calculate yours
Number One
Number One what is net worth your net worth is a clear indicator of your financial health
It's the value of all assets minus the total of all liabilities to put it simply it's what you own minus what you owe so the first step to learning what your net worth is is to come up with a list of all of your assets and one of all of your liabilities
Let's take a closer look at both of those
Number Two
Number Two list of assets your assets are everything that add value to your bank account what you owe can come from the cash in your wallet to the furniture in your house
When you write this list down make sure to put in every single object that belongs to you the list can include cash savings and retirement accounts
The value of your home car a boat etc insurance policies business interests and all personal belongings yes even the clothes you're wearing remember to consider the current market worth of your estate as well as all of those belongings that you could sell and not the price you paid for them
Number Three
Number Three list of liabilities be even more specific and precise here than you were in your list of assets knowing exactly where your money goes is the first step to putting your finances in order
If you need some advice on this here are some examples of what should appear in your list of liabilities
Your credit card balances estimated tax owed home mortgage loan student loan outstanding bills etc the more detailed you are here the easier it'll be to understand how you're spending your money
Number Four
Number Four the difference between net income and net worth do not confuse these two your net income is what you've earned through your job
After taxes and payroll deductions such as social security and money you contribute to your 401k this is different from your net worth which is the total value of everything you own minus all of your debts
Number Five
Number Five liquid net worth liquid net worth is the portion of your net worth that could easily be converted to cash in a day if need be stocks and bonds can be considered liquid assets this is because you could dispose of the stock or bond in your brokerage account and get paid within three days
Jewelry or property on the other hand are not considered to be liquid assets as they're harder to convert to immediately accessible money in an emergency or a situation where cash is needed quickly liquid assets will be precious
But keep in mind because liquid net worth only considers your liquid assets it will be lower than your total net worth which includes all of your assets
Number Six
Number Six why knowing your net worth is important as we said before your net worth is the picture of how healthy your finances are let's take example
It's easy for a newly graduated person to have a negative net worth you just finished school and it's most likely you don't have a decent job yet
But still knowing where you are today and where you need to put money in can help you create a budget to pay off your debt and if possible start saving money and calculating your net worth is definitely a useful exercise even if you're well into your career perhaps
You need to find out if you're saving enough money for retirement or help you decide what to invest in and how much you have available to invest
Not knowing your net worth is like trying to get healthier without knowing how much junk food you're ingesting assess your current situation first and then decide how to move based on that
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