We always search for certain celebrities or athletes’ net worth, but do you know what a net worth actually is? It’s not just how much cash they have, but a calculation of their total assets and liabilities that they own. You can even calculate your own net worth.
To calculate your net worth, you will need to know your assets and liabilities. Assets are what you own. Liabilities are what you owe, also known as debt. Once you get that total, you subtract your Liabilities from your assets. You should have a positive number. If you have a negative number, that means you owe more than you own. A positive number indicates that what you own is worth more than what you owe.
If you have a negative net worth, consider trying to get rid of your liabilities. This means paying off credit card or student loan debt and trying to pay off any larger loans like a mortgage or car payment. Also, consider increasing the assets that you own. For example, if you pay off your car or house, these will become assets instead of liabilities. Likewise, if you are investing, those accounts are assets.
Having a positive net worth is important to know how you are doing financially. Even if you own a home and a car, your financial health may not be the best if you have a negative net worth. On the other hand, if your goal is to be a millionaire, you need to have more assets than liabilities. So start saving and building up your assets.
Knowing your net worth can help you plan for the future and focus on saving. This should motivate you to spend less and be mindful of any debt that you accrue. Knowing your net worth can help you make short-term and long term financial plans.