Net Worth

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Do you know your net worth?  Do you know what net worth is?  Do you know why it's important? 

A person's net worth is essentially their wealth.  Knowing your net worth can be helpful in understanding where you assets and liabilities lie so that you better understand your financial position.  Aside from that, "net-worth" is essentially an over rated financial term that isn't good for much else.   

Many people consider their net-worth to be a key factor in determining their ability to retire, this is a big mistake.  The problem with most net worth calculators is that they take an unrealistic approach to "assets."  For example, your car, jewelry, art work, life insurance and furniture may all be counted as assets.  However, owning a couch doesn't mean someone has more money than someone who doesn't own a couch, it just means they have a couch.  Unless all of those "non-liquid assets" are sold, I personally don't feel like they should be considered in determining someones net worth.  On that note, what good is considering life insurance as an asset?  You dont' see the money ever, and no one else will see it unless you die.  See what I mean about being "over rated?"

With that being said, if you're still curious bout your net worth, here's how you calculate it:

Take the total value of your assets (liquid cash) and divide that number by your total liabilities (debts). 

  Assets  

Debts

Easy enough, right?  I think I'm going to start doing this, just to see where I stand.  I am using a modified excel template I found online (you can see how I modified it below).

Holy smokes!  It is crazy to think that I don't have any consumer debt (my only debt is student loans), and a good credit score, and yet my worth is that much in the red! -$23,182! 

You can see, though, how much I altered this calculator.  If I had used the original one, my net worth was closer to $33,000.  Why?  I currently have a $50,000 life insurance policy and I own my car outright for another $6,000.  On paper, those things look pretty good, but I need my car to get around, and I don't ever get to see money from my life insurance policy.  Only my beneficiary's wealth will increase.  Make sense why I didn't include those non-liquid assets in my determination of net worth?

If your net worth isn't good (saaammmmeeee!), don't freak out, it really doesn't mean anything.  It's just a nice easy way to see where your money is and where your debts are!