How much cash would you have if you sold everything you own and paid off all your debts?
Do you really know? And why is this important?
First, let me preface this article with a disclaimer. I am not a financial advisor or an accountant. I am just someone doing a little homework on financial knowledge, or the lack thereof, and sharing the newfound information with you. How many of us really take the time to review where we are financially? We save. We invest. We pinch pennies but we also spend, spend, spend!
So, what is net worth? It is the amount by which assets exceed liabilities. In simple terms, net worth is the difference between what you own and what you owe.
Knowing our net worth is valuable insight for us personally because it is a way to identify where we may be spending too much of our money. Yes, we may have the means to buy an item, but do we really have a need or purpose for it? Yes, No, Maybe. To reduce unnecessary spending and debt, ask yourselves if the majority of your purchases really represent your needs.
Think about it -- Is your debt short-term or long-term? You want it now, so what do you do? -- use your credit card or take out a loan. What’s the interest rate, and how long will it really take you to pay it off? Most consumers just look at the low monthly payment and do not really calculate the cost of those cute shoes that started out costing you thirty-five dollars. By the time you finish paying for them – sixty-eight dollars later – it really wasn’t a good deal at all.
Regardless of your financial situation, just knowing your net worth will help you evaluate your current financial health, and plan for your financial future.
1. Know what you owe! Are you able to eliminate or reduce this debt?
2. Know what you own! Don’t leave any assets out: equity in your home, investments, collectibles, cash, vehicles.
3. Spend less money. See where you can trim the expenses you have. Re-evaluate annual agreements and insurance premiums. A dollar here and there adds up.
5. Diversify your income – Have multiple streams and commit to using them to save more and decrease debt.