Net Worth: What It Is and Why It Matters

Net Worth: What It Is and Why It Matters

While many are more likely to use income as a measure of financial status, it is really a persons’ net worth that paints a more complete picture of their finances. Here is a guide to learn about net worth, what it is, why it matters, and how to calculate yours.

What is Your Net Worth?

Simply put, your net worth is the sum of all your assets minus your liabilities. A very simple example would be an individual with $10,000 in their savings account who owes $2,000 on their credit card. In this case, you would take the $10,000 (asset) minus $2,000 (liability) for a net worth of $8,000. 

Why Does Net Worth Matter?

Most likely, if only given their income and the major items they own you’d probably think they were doing very well. This perception of an individual’s financial status based on material possessions and income is why knowing your net worth is so importation.

What Does Your Net Worth Number Mean?

Your number can be positive or negative. If your net worth is positive it means that you have more assets (good financial things) than liabilities (bad financial things). On the other hand, if it’s negative then you have more things you owe to others than things you own.

Moral of the Story

The average person likely uses income as the primary indicator of financial health, but what they should really be using is net worth. Net worth paints a more accurate picture of your overall financial situation by providing a snapshot of what you own versus what you owe.

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