net worth

Balance sheets, which list all the assets and liabilities of a company, are useful tools for a company to understand how much it actually deserves and for outsiders to determine whether it is a worthy investment. You can create your own personal balance sheet referred to by financial planners as a statement of the financial position of all your assets and liabilities. You can click on the above link to learn the steps to create it. This will give you a better idea of ​​your overall financial picture than a budget or spending spreadsheet because it lists all the big picture things that are your own and not the day-to-day money you are spending.

It may take you longer than some other tasks, but it is worth the effort. When applied to your own life, a financial balance sheet can tell if you are on the right track to meet your own goals, such as getting out of debt, by showing how much you can And what is your own, what debts do you have to repay and how much are you worth in total.

How To Do This?

  • Collect Your Financial Documents

If you are keeping an eye on your spending, then you will know where your money is going. Otherwise, you will need to collect your monthly debit and credit card statements, as well as bank and investment account balances, to list all your assets and liabilities.

Your assets are items that you own that can be valued, including any cash savings, certificates of deposit (CDs), retirement and other investment accounts, the value of your home, other real estate, cars, jewelry, or inheritance.

Liabilities you owe to another person or financial institution, including credit card debt, student loan debt, car loan, mortgage, personal loan, and medical debt.

  • List Assets And Liabilities

Once you have collected all your documents, you can now use a paper and pen (or search for an online template) to list all your assets and liabilities in two columns. Include the value of each item so that you can add totals at the end.

Remember all values ​​must be from the same day so that this sheet reflects the same, single point for your finances.

  • Assess Your Balance Sheet

Once you have everything listed, add each column and subtract your total liabilities from your total assets. Thus, this will give you your net worth.

Now take a closer look at each column. And think about what can you change to help you reach your financial goals? You may find that you are investing more than you thought and you want to transfer some of that money into your retirement investment account.

Finally, you have to schedule a reminder to update your balance sheet regularly, such as once a year or every quarter. In this way, you always have up-to-date information, which you need to track to accomplish your goals.

What Does Net Worth Mean?

Net assets are similar to the equity of a home. When someone sells their home, the check they walk in after pledging is equity.

Now imagine that you want to sell or disassemble everything you have and pay off all the debts you have. What is your remaining value?

Net worth = Assets – Liabilities

Why Is Net Worth Important?

In short, Net worth is your ticket to financial freedom and independence. This creates cash flow to cover your expenses if you do not have a job or any income from your business.

However, a small-scale example would be an emergency fund.

Imagine that two different families spend $ 8,000 each month. Family 1 has $ 8,000 in a savings account. Family 2 has an emergency fund of $ 96,000. Neither do they have any other assets or debts (keep it simple)

Family 1 can live without income for only one month before withdrawing his savings. Family 2 can cover their expenses for 12 months.

An emergency fund means living the same lifestyle without any income. Financial freedom is when you have a high enough value to live your life without relying on any income.

This is why net worth is primarily what it means for financial freedom. It also matters what the growth of your assets versus your debt is.

When the asset increases, there is net worth. When debt is low, net worth also increases. Yes, you can build your wealth by paying down debt.

By Anurag Rathod

Anurag Rathod is an Editor of Appclonescript.com, who is passionate for app-based startup solutions and on-demand business ideas. He believes in spreading tech trends. He is an avid reader and loves thinking out of the box to promote new technologies.