POSTED ON February 04, 2020
How finance folk use it
Net worth is how wealth is generally measured. It is used for people, companies and even countries. To calculate net worth, subtract total liabilities from total assets.
For people, liabilities would include loans, credit card debt and mortgages. Examples of assets are investments, real estate and even the money you have in bank accounts. When calculating, don’t forget to use the current market value instead of the amount you paid to buy it.
Your net worth is positive when the assets have a higher value than the liabilities, and negative when the opposite is true.
Is it good or bad?
Net worth is good when it is positive, because it means that you have enough money to be able to cover all your liabilities at once if you really have to. The higher your asset value is relative to your liabilities, the better your finances stand.
Negative net worth, on the other hand, is not a good sign. If you’re in this state, getting to the positive side should be a top priority. To do that, you can raise the value of your assets or acquire more of them (without significantly increasing your liabilities) or lower the amount of your liabilities by paying them off.
Although it can be difficult, doing both at the same time would be the most effective way to gain positive net worth.
What it means for you
Finding out your net worth is important in seeing the state of your finances. From there, you can determine your next steps so you can reach your financial goals.
Having a positive net worth is a good state to be in, but you can still improve it by growing the value and number of your assets. Don’t forget to keep an eye on your liabilities while doing it.