Net Worth – The Basics

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What is Net Worth?

Net Worth in its basic form is when you take the value of the stuff you have and subtract the amount you owe to others. For example, if you have a house and the market value of the house is $150,000.00 but you still owe $100,000.00 for the mortgage, then your net worth for this item is $50,000.00 (150,000-100,000).

Here is another example. You own a car that is worth $14,000.00 and it is paid for. At the same time, you have a credit card with a balance of $4300.00. Your net worth for those two things would be $9,700.00 (14,000-4300).

Read on to see how we determine our total net worth.

What do you have?

What you “have” are considered assets.

This is a little different that the question “What do you own?” The difference is that if you own something, like the clothes on your back, you are not still paying for it. We need to make a list of what we have. This includes things we own but can also include things like your house, even if you have a mortgage or your car even though you still have a car payment. When we make a list of what we have, we need to put some kind of value. I would argue that you cannot put a price on your photographs (unless you are a photographer) or your underwear since it would be extremely gross to try and sell them to someone else.

Here is a partial list to go by:

Assets

If you have them, this list can include stocks, bonds, real estate, 401k, and even life insurance.

Add all the values up. This is the total assets you have.

What do you owe?

What you “owe” are considered liabilities.

This list includes all the things that are not totally paid for yet. You may “own” a house but if you have a mortgage, the bank actually owns it until it is completely paid for. The house is an asset while the mortgage is a liability. You may have some really nice clothes but if you paid for them with a credit card and there is still a balance, then the credit card balance is a liability while the clothes are an asset.

Get it?

Here is a partial list to go by:

Assets

The list here is the same but it does not have to be.

What is your Net Worth?

Here is the final step.

Add all the values for the assets from the first list.

Add all the values for the liabilities from the second list.

Now, subtract the liabilities from the assets.

Whatever that number is will be your Net Worth.

Here is an example:

Net Worth Formual

Keep in mind that your Net Worth can also be a negative number.

That of course, is not a good thing but can be fixed with some diligence.

For information on how to dig out of debt, check out my book The Little Debt-Free Book, available on Amazon.com.

Three Things

  • Spend Less than you make
  • Save a little each payday
  • Set a goal to eliminate your debt

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