Why net worth is well worth calculating
Do you know what your net worth is, and do you know why you should care? Most people never choose to find out what their net worth is until it's too late - which is to say after they get hit with financial difficulty and subsequently find themselves forced to deal with things at the worst possible moment. If you are like most people, you probably don't really care about gaining clarity about your net worth. In fact, not too many people seem to have the time or the interest to know what their net worth is - how to calculate it and the benefit that comes with that knowledge.
The most important key to wealth creation is taking stock of where you are now and having a big picture of your current financial situation. So, if you don't know what your net worth is, now is the time to find out. Why? Because net worth is a very important indicator of your financial situation at the present point in time, and it is something you should be aware of when you're thinking about creating the life you desire.
Since everyone's situation is different, you will need to ascertain how much money you must have each year to fund your lifestyle. Having the big picture of your net worth allows you to gain insight into your financial health. It opens up awareness in every area of your life. Through looking at your current net worth, you can identify the serious red flags in your assets and liabilities.
Knowing your net worth and reviewing it continuously over time allows you to know the financial effect of your earning, spending, investing, and borrowing activities, such as increasing your asset and investment portfolio or paying down your credit card debt. If you have the awareness to know what is happening and where you are going, you will be able to generate something different. When you choose to regularly review your net worth you’ll get the awareness you need to create sustainable wealth in any financial environment!
Net worth is calculated by subtracting your liabilities from your assets. In simple terms, net worth is the difference between what you own and what you owe. Depending on your finances, the resulting figure can be positive or negative. A negative net worth — when you have more liabilities than assets, can be the wake-up call you need to make some serious financial adjustments. This provides a wake-up call that you are not on track. A negative net worth can clearly highlight where you may be over-leveraged, that you have more liabilities than assets you can sell to pay them off.
A positive net worth, on the other hand, — when you have more assets than liabilities — can be a confirmation that you’re doing well, and can help you plot out how much longer you need to reach your next financial target. This can give you encouragement that you are heading in the right direction.
When you see the big picture of your financial situation, you will have a greater awareness of where you stand financially. It can tell you a lot about your current financial health and help you to plan for your financial future, with awareness. Net worth is probably the single most important measure of personal finance, which is why knowing your net worth is so important. It is a snapshot of where you are in life. If you don’t know where you are financially, it’s going to be tough to figure out what you need to be and do different to achieve your target.
Being on intimate terms with your net worth statement, you can create more possibilities in your life with ease. Reviewing your net worth regularly over time can help you determine where you are, and what else is possible. So, why does it matter? It’s one way to tell if you’re really getting ahead. Knowing your net worth helps you keep your eye on your money, make financial plans and track your progress. The most important thing with net worth is not how high it is, but rather which direction it’s headed
When you choose to review your net worth regularly and then create a graph(i.e. every six months), you can clearly see the progress of your financial reality. By knowing where you stand financially, you will be more conscious of your financial activities, better prepared to make smart financial choices and more likely to create new and different possibilities for your short-term and long-term financial targets.