What is Your Net Worth?
Your net worth is the total of your assets (property and possessions that you own) minus the total of your liabilities (money that you owe).
Net worth is not the same as income
Your income is the amount of money you make in a year. Your net worth is the sum of all of the wealth (income, assets, property, possessions) you have accumulated in your life until now.
Why is net worth important?
Your net worth is critical information. Knowing your net worth is the first step in organizing your finances and building wealth. It is an important reference point from which you can set a budget to reach your goals.
Once you know your net worth, you are better able to protect your assets. Determining the worth of your valuables is not only necessary to figure your net worth, it also helps you get the proper insurance coverage.
Example of net worth
- Nick and Helen live in a house that is currently worth $300,000.
- They have a car with a current market value of $10,000.
- They have a savings account with $20,000.
- They have retirement accounts worth $75,000.
- Added up, their assets are worth $405,000.
- They have a mortgage on their house of $150,000.
- The balance due on their car loan is $5,000.
- Added up, their liabilities total $155,000.
- If you subtract $155,000 (liabilities) from $405,000 (assets), you find that Nick and Helen’s net worth is $250,000.
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