What IS a “Net Worth”?
Pretty simple really: Your “Net Worth” is the difference between what you own (assets) and what you owe (loans and unpaid bills).
It can be positive or negative. Positive and increasing is most people’s goal.
When you have a large “Net Worth” you can invest in income producing assets and have your money work for you instead of you working for money.
Figuring out your “Net Worth”
Make a list or spreadsheet of all the assets you own including a realistic estimate of what you could sell them for.
Just because you paid $42,000 for a new car doesn’t mean it’s a 42,000 asset. Cars depreciate a lot in the first few years – some are worth less than you owe after a year or two of making car payments!
Then make a list of all your outstanding loans and bills.
If that new car is financed for 5 years, you may still owe $20,000 after owning it for a couple years.
If the depreciated car and the car loan where your only assets and liabilities, the difference between what you could sell it for and what you owe on it would be your “Net Worth”.
Increasing your “Net Worth”
It’s also simple to increase your “Net Worth”. Increase your assets and/or decrease your liabilities.
If you start paying down the car loan faster than the car depreciates, your “Net Worth” will increase.