Net Worth

in #blog7 months ago (edited)

Net Worth


What is Net Worth?
Net worth is a snapshot of a person or firm's financial position and is calculated by taking assets minus liabilities.

An asset is anything of economic value which your or a company owns, while liabilities such as debt or future expenses require positive cash flow or assets to satisfy. A positive net worth means you own more assets than liabilities, while a negative net worth is the opposite and never a good position to be in. Hopefully every year you are able to systematically increase your net worth by adding or growing assets faster than liabilities.

2. Individuals Net Worth
Typical assets for an individual is home ownership, personal vehicles (although I think of these more as liabilities), checking and savings, and investment accounts.

Typical liabilities include mortgage debt, credit cards, personal loans and medical debt.

Based on current SEC definition once you have a net worth greater than $1 million then you are considered an accredited investor and have additional investment opportunities available such as private equity, venture financing, private start up investment.

Net Worth Example
This household has the following assets: Home worth $300,000, an investment portfolio of $75,000, and a car and misc assets worth $20,000. Liabilities include mortgage balance of $200,000 and a $5,000 car loan.

The net worth is calculated as [$300,000 + $75,000 + $20,000] - [$200,000 + $5,000] = $90,000

This net worth would easily go negative if a recession cut asset values in half. The liabilities would remain the same value while the assets declined in value.

Bottom line save as much as you can, invest in quality assets and keep liabilities to a minimum. Then you can watch your net worth grow year after year.


Disclosure: I wrote this article myself, and it expresses my own opinions. I have no business relationship with any company whose stock is mentioned in this article. The information provided should NOT be considered advice. The topics discussed are risky and have the potential to lose a substantial amount. I am not an investment professional and therefore do not offer individual financial advice. Please do your own research before investing.


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