Finance Concept: Net Worth

The accounting definition of net worth is the value of assets less the value of liabilities. Let’s talk plain speak, though.

Assets: the value of things you own

The money you have in cash – your checking account, your savings account
Money you have invested – stocks, bonds, retirement accounts
The value of things that you own – your house, your car, your business.

Liabilities: the money you owe

Home loan
Car loan
Credit card debt
Loans from friends and/or family

So how do you figure your net worth? Add up the value of everything you own and subtract the total of the money you owe.

With the prevalence of credit card debt and the fact that most people borrow money to buy their car and/or house, not many people have a positive net worth. We’ll talk later about the different kinds of debt, but the simple version is that you want to work toward having a positive net worth.

This is where your budget comes into play. If you’re wanting to minimize the money you owe, you’ll first want to make sure that you’re not spending more money than you make. You may need to cut expenses to be able to live within your paycheck. If you can swing it to have money left over, be sure to put it toward your outstanding debts. It may be in baby steps, but each penny you can put toward paying off your debts moves your net worth either toward positive or more positive.

As I mentioned before, if you start early and avoid getting into debt in the first place, then you’re way ahead of most everyone else.

Have you taken a look at your financial situation yet?

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