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Have you ever wondered what your net worth is? Net worth is not a figure that arises in day-to-day decision-making, but being aware of how much you are worth is essential to your long-term financial health. Here’s an overview of what goes into figuring out your net worth.
Net worth means the value of all your assets minus all your liabilities. You can find net worth calculators online that help you remember what to include in the calculation and then do the math for you, or you can sign up for a service like Personal Capital that will help you track all of your financial accounts.
Assets include all the valuable things you own. Some of these are obvious: cash, bank accounts, the full market value of your home, the current market value of your car, investments, retirement accounts (even if you can’t access them yet), and any valuable objects that could be sold. Additional asset possibilities include the value of business interests that you own, as well as the cash value of life insurance policies.
These include debts, such as a mortgage loan, student loans and credit card debts. Liabilities include your auto loan, but they don’t include routine bills that you generate simply by living, such as utilities or insurance.
This may simply be evidence that you’re a young earner just starting out in life. Many times a lucrative professional life begins with a substantially negative net worth because people make big investments in their homes and educations early in their careers. However, if you’re well into your peak earning period and still showing a negative net worth, it’s probably time to revisit your spending habits and bring that number into the positive zone. Here are some good tips on how to reduce your debt.
Your salary isn’t calculated into your net worth, but a healthy salary is a big factor in making your net worth larger with every passing year. Earning power is one of the most important tools you have for improving your financial situation.
It’s a good idea to do the math and add up your net worth at least once or twice each year. If you see a steady increase in what you are worth, year over year, that’s a reliable indicator that you’re making good financial choices in your life.