What you need to know about your net worth

Do you really know about your net worth? If not, this article is good for you to learn more about net worth.

Definition of net worth is your total assets minus your total liabilities. You will have a positive net worth if you own more than what you owe. If you get the positive net it means your finance in healthy phase.

Isn’t it easy? But many of us can’t calculate it. So, let’s read about ‘knowing your net worth’

Knowing Your Net Worth

However, having a high net worth does not guarantee that you will never face financial difficulties. You can have a high net worth and still be in for a rough time. So how is it possible that you face into problem even your financial is in positive. Assets are not liquid and there could be potential problems looming ahead. Read this example

Say you have a house as your asset (where you live in) but you do not have cash in your wallet or bank account and you have already defaulted on your credit card payments. The most pressing thing now is you need money for your daily expenses. Out of a job with no possible way to make money, you sell your house to support your expense. The house cannot sell immediately because the house being an illiquid asset is not easily sold and finding a buyer may take several months. It is also where you and your family live. You can’t sell your home unless you have somewhere else to go.

It is easy to conclude that being financially healthy means having a balanced portfolio of assets so that you will not be short of cash at any time. That way you can ensure that financial freedom will be in your grasp.

| 5 Components of Financial Freedom |

When you owe more than you own, you have a negative net worth. In this situation you are unable to pay your debts when they are due because you do not have enough money or assets that can be easily converted into cash. You are actually in financial trouble and may be made a bankrupt.

There are several ways you can increase your net worth. These include :

  •  Increasing your savings – How to increase your savings? It ain’t easy as to write.  Yourfinancial has many article about saving. You can follow this 10 simple Lifestyle Changes That Will Save Your Money.  Try this and you can save at least 10% more than before.
  •   Reducing your spending – Reducing spending also hard but it could be done.  Some of you probably spending because it could make you happy but as Kevin O Leary advice in his popular book ‘ Cold Hard Truth on Men, Women and Money ‘ describe feelings and money are a toxic combination which could effect our life. So, you need to know and the best way is write your spending everyday on your budget planner.
  • Reducing your debts – How to reducing debt? It is not a low term solution. You need to find a solution that could help to eliminate debt. I’ve wrote a simple tips to eliminate debt but if it is not enough, you need to consolidate with expertise or debtor. 

  • Selling some of your non-income generating assets/ belongings.- Most of us have some of assets/ belongings that could generate income and some of them not use. It is not just to generate money, you also can save some space for your living. For example, you have a guitar and you don’t use it for long time ago. Just sell it and you could concentrate on your life. You don’t need to waste your time playing guitar again.

Source :Money Sense – Getting Smart With Your Money by AKPK

How about that? It is very important for you to know your net worth. Without knowing about net worth, it is impossible you can manage your finance. I hope this article could help us to find a solution about our net worth. Make sure it always in positive and avoid being surplus.

Do you have any suggestion or recommendation about net worth? Let’s share with us.

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