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Understand The Deeper Sense Of Creating Wealth And Knowing Your Net Worth

Saturday, Jan 25, 2020, 9:18 am

At its most basic, net worth is an indicator of your financial status.  It can help you see what’s coming in and what’s going out, and give you the information you need to make better choices with your money.  One of the important lessons one should understand when creating wealth is understanding net worth meaning. There are numerous lessons that you can learn from the lives of high net worth individuals.  Net worth is the difference between what you own and what you owe.  If your assets exceed your liabilities, you have a positive net worth and if your liabilities are greater than your assets, you have a negative net worth.  

Understand The Deeper Sense Of Creating Wealth And Knowing Your Net Worth

Net Worth = Assets - Liabilities
Your assets are anything of value that you own that can be converted to cash.  This would include investments, real estate, retirement funds, etc.  Intangibles such as your personal network are sometimes considered assets too.  Your liabilities, on the other hand, represent your debts, such as loans, mortgages, credit card debt, medical bills, and student loans. The difference between the total value of your assets and liabilities is your net worth.  

One of the challenges in calculating your net worth is assigning accurate values to all of your assets. It's important to make conservative estimates when placing a value on certain assets in order to avoid inflating your net worth.  

Your net worth can tell you many things. If the figure is negative, it means you owe more than you own. If the number is positive, you own more than you owe.  Negative net worth does not necessarily indicate that you are financially irresponsible, it just means that right now you have more liabilities than assets.  

Your net worth will fluctuate.  It is the overall trend that is important. Ideally, your net worth continues to grow as you age, as you pay down debt, build equity in your home, acquire more assets, and so forth.

Since each person's financial situation and goals are unique, it is difficult to establish a generic "ideal" net worth that applies to everyone. Instead, you will have to determine your ideal net worth, where you want to be in the near-term and long-term future.

Why Your Net Worth is Important 

When you see financial trends in black and white on your net worth statements, you are forced to confront the realities of where you stand financially. Reviewing your net worth statements over time can help you determine 1) where you are, and 2) how to get where you want to be. This can give you encouragement when you are heading in the right direction and provide a wake-up call if you are not on track.  Even famous celebrities have battled with their net worth.  Consider one of the wealthiest celebrities in the world, Paul McCarthy’s net worth is an estimated $1.2 billion as of 2019 and he definitely didn’t start there.  McCarthy puts in the work to get to where he is, made mistakes, and grew from them.    


Understand The Deeper Sense Of Creating Wealth And Knowing Your Net Worth

By knowing where you stand financially, you will be more mindful of your financial activities, better prepared to make sound financial decisions and more likely to achieve your short-term and long-term financial goals.


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