WHAT IS NETWORTH?
Define Net Worth?
Net Worth is defined as the number of your assets that exceeds your liabilities. It is what you have in cash after paying all your debts.
What is Net Worth in more detail?
Some of us doesn’t even know what a net worth is but our net worth is the most useful calculation a person should do when it comes to personal finances. It is just very simple, you can calculate your net worth by adding up all of your assets and subtract the liabilities. Assets are things you own and liabilities are things you owe.
If your net worth result is positive then you should be happy because your assets exceed your liabilities, you have more things you own than what you owe. But if your net worth result is negative then your liabilities exceed your assets, you have more things you owe that what you own. Negative net worth is possible for those who have huge debts like for students who have just graduated from college, most or some of them have huge student loans.
Net worth is a useful tool in determining your progress of your financial journey. Every financial move you make determine if your net worth is going well or not. If you make poor decisions financially then it can affect your net worth.
For example, if I spend too much of what I earn then it can lower my net worth. Like if i buy an expensive bag even if I have already a bag to use then it’s possible it can lower my savings or cash I have on hand.
On the other hand, if I practice frugality like instead of buying that expensive bag I will spend that money on food that is a top need for me to live or if I choose to eat at home instead of eating out then I can save the money and add it to my net worth.
At the end of each month, practice calculating your net worth and see if the result goes down or up. Practice this for a month, then the next month do it again and compare the results. This is where you can totally realize the real value of your net worth.