Do You Know Your Net Worth?

Financially, your net worth is your real, overall financial position. It’s the bottom-line sum when you add up what you own and subtract it from what you owe.
 
Let’s take a look at some numbers so you can see net worth in action. Take the following example of Hannah, who is 33 years old.
 
ASSETS
Residence: $400K
Emergency fund: $2K
Retirement savings 401(k): $20K
= $422K
 
LIABILITIES
Mortgage: $300K
Credit card debt: $15K
Student loan: $50K
= $385K
 
TOTAL NET WORTH
$422K – $385K = $37K
 
Hannah’s net worth is positive. It is small relative to the investment she made in her home and education. But she will pay off her mortgage over time (which will decrease her debt), her college degree should produce better career income, her 401(k) will grow decade over decade, and she will continue to gain equity in her home.
 
She also has a few things to watch out for. In the short term, her emergency fund is on the low side. She needs to get it to at least $5,000 ASAP. That’s her safeguard against debt and curveballs, especially as a property owner.
 
Even though Hannah has a relatively low net worth, she has a good chance of increasing it, as long as she makes clear, conscious choices in her day-to-day living and her long-term planning.
 
The size of your net worth right now — or even whether it’s positive — isn’t necessarily as relevant as the direction you’re moving in. You just need to keep moving in a positive direction.

Post a Comment