Many times people compare what they have to that of their peers. This comparison is usually visual; we compare the house, the car, the ‘toys’, etc. But Net Worth is something that is not always visual. Net worth is determined by subtracting liabilities (debt owed) from assets (things that are actually ‘owned’). Net worth is calculated for both individuals and companies and is a true determination of how much someone, or something, is actually worth.
A consistent growth in net worth is an indicator of good financial health. If liabilities grow faster than assets, or the value of assets drop, the indications are pointed toward poor financial health and show a negative net worth. People’s, and a company’s, net worth can fluctuate based on assets decreasing or increasing in value, or acquiring more or paying off debt.
Net worth calculations are something that should be completed at least annually to help you determine if you are moving toward a positive net worth or not. It’s easy to get caught up in ‘stuff’ especially if you are having to finance purchases. Remember that those purchases also lose value over time as they become older. Automobiles, and even homes can lose value based on geographic economic conditions and aging neighborhoods. Your retirement and investment accounts can be affected due to the company’s net worth of the stock valuation, which directly affect your net worth.
Whether you’re trying to become a millionaire before you retire, or simply pay off all your debt, net worth matters because it’s a measuring tool of your progress. Measuring your net worth based on your goals is a way to track how you’re doing. Bankrate’s net worth calculator is an easy tool for you to monitor your net worth periodically, and even allows you to view a report after you’ve inputted your personal information. Discussing your net worth at your annual investment meeting can be beneficial to you in providing your advisor with the information to help keep you on track with your financial goals. Remember that net worth is always a true indication of financial health.