What is Net Worth?
Have you ever wondered how well you are doing financially? It’s hard to know for sure without running the numbers. The way you do this is by calculating your net worth. Net worth is basically everything you own minus all your debt.
Why Does it Matter?
Net worth is important because it can tell you if you have enough assets to cover all your debt. You may have heard the phrase “under water” before. This is when you have more debt than assets. That’s a problem because if it came down to it, you wouldn’t be able to cover all your debts.
Finding out your net worth can also help you set goals. You should try to end up with a pretty large positive net worth by the time you retire. Are you on track for that or do you need to make some changes?
How to Calculate
Net Worth equals all your assets minus all your debt. To make it easier for you to calculate, I have created a free worksheet for you to calculate your net worth. Click the link to instantly download this freebie.
What if My Net Worth is Negative?
Don’t be afraid to face the facts and figure out your net worth. Without this number, you have no idea if you are winning or losing the personal finance battle. If you find out that you have a negative net worth, don’t panic. Lots of people do, usually because of their mortgage and credit card debt. The important part is to decide to do something about it. This is a great time to set some goals and work towards them.
There is a great goal sheet in the Modern Mom’s EPIC Guide to Easy Budgeting. Sign up below for a free copy of this helpful workbook.
How Do I Improve My Net Worth?
In order to improve, you have to either increase your assets or decrease your debt (or both). I wouldn’t suggest increasing assets by getting a loan because that would not improve your net worth. Instead, try setting a budget, cutting back expenses, and then using some of your extra savings to pay down your debt. This will improve your net worth quite a bit, especially if you use the Snowball method to pay down your debt. Instructions on how to do all these things are also found in the Modern Mom’s EPIC Guide Easy Budgeting below.
Once you are out of debt, then you can improve your net worth by investing your money or saving for retirement in an IRA or 401K. Check back soon for a post all about retirement investing. Another way to improve your net worth is to start a home business that can increase in value as time goes by. I will be doing a series of posts over the next few weeks to teach you how to start a profitable home business.
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The Modern Mom’s EPIC Guide to Easy Budgeting! 28 Page Workbook with 87 ideas to reduce expenses, 14 beautiful worksheets, 7 bonus lessons, and full, easy-to-follow instructions. Includes top advice from a professional accountant and university instructor.