What is Net Worth?
You’ve probably heard that term before. But what is it?
Your net worth is your assets (what you own) minus your liabilities (what you owe).
Why is net worth such a big deal? Net worth is one of the most important indicators of a person’s financial health. It gives a snapshot of your financial health at a given period of time and can operate as a financial health report card. The only downside to net worth calculations is that they don’t reward generosity.
Let me provide an example so you better understand how to calculate your net worth.
First, let’s consider a person’s assets (what they own):
· House: $300,000
· Car: $10,000
· Cash: $15,000
· Retirement savings: $20,000
So, their total assets equal $345,000.
Next, let’s consider the person’s liabilities (what they owe):
· Mortgage: $260,000
· Car: $15,000 (Yikes)
· Student loans: $30,000
· Credit cards: $5,000
So, their total liabilities equal $310,000.
Therefore, their net worth (assets – liabilities) equals $35,000.
Can someone have a negative net worth? They can. It means they owe more than they own. It also means that they are in a very financially fragile position.
How do you increase your net worth? You can increase your net worth by saving money, investing for the future, and paying off debt.
I recommend calculating your net worth, at least, once a month. Regularly calculating your net worth helps you make better short-term and long-term financial decisions. Do you want to increase your net worth? Don’t buy that television you can’t afford, and, instead, put some money toward your mortgage principle. That type of decision will better your net worth.
Of course, let me be clear—net worth is not the end-all. God doesn’t give us financial resources so that we can have a solid net worth. He gave so we can give. But your net worth can help you consider the wise money management principles found in Proverbs—avoid debt and save wisely.
So, give it a try. Calculate your net worth today, and consider what money moves you need to make to get financially healthy so that you can live more generously.