Net Worth is a concept of which most readers of DrGOpines.com have a reasonable understanding. It’s a simple concept that reveals a snapshot in time of an individual’s financial well-being. It is figured by adding up the value of your assets, what you own, and subtracting from it the value of your liabilities, what you owe to others. The value calculated is the net value of your financial state at that moment.
WHAT THINGS WE OWN ARE ASSETS?
Cash: checking and savings accounts, emergency fund
Investments: retirement accounts, brokerage accounts, stocks, bonds
Property: primary residence*, cars, home furnishings, other real estate.
WHAT THINGS WE OWE ARE LIABILITIES:
Debts: mortgage(s)+ loans of any sort
Credit Card: miscellaneous items
Bills: utilities, luxury expenses
- Most people’s largest most valuable asset is their primary residence.
- Most people’s largest liability is the remaining balance of their home mortgage.
NET WORTH CALCULATION:
The sum of all liabilities is subtracted from the sum of all assets.
That number is the NET WORTH.
This number (the Net Worth) should always be a positive number. Because people should always have more assets than they have liabilities.
A negative net worth is a bad situation. You owe more than you have. Most often a negative net worth is due to excessive credit card debt. It is a major problem for many people because when you buy something with a credit card you tell yourself you’ll pay it off next month. But for many that doesn’t happen because you don’t have the cash to make the payment.
NET WORTH is a snapshot in time at the moment it is calculated. Loan balances change, cash gets spent, and credit card balances go up and down day-to-day and month-to-month. Thus, one’s Net Worth varies minute-to-minute.
It is an accurate calculation of your financial status at that particular moment and tells you where you stand in regard to the accumulation of wealth.
Reference: www.google.com/what-is-net-worh
