WHAT IS NET WORTH? AND WHY IS IT IMPORTANT?

One of the key topics I talk about is net worth, yet so many people don’t understand it. 

What is net worth?

Net worth is the total amount of wealth you own after subtracting your assets (what you own) by your debts (what you owe).

Most households in America today view their wealth in terms of income (what’s coming in). 

But this fails to take in account the total amount of their debts, which is a major part in discovering a person’s net worth.

You see, debt is not invisible or abstract. 

Debt is cash you’ve already agreed to spend, and it will need to be paid out at some point. 

Sooner or later, the debtors will come calling, and the amounts of cash will need to be paid, which is why it is so important to keep building up your assets and decreasing your debt. 

A surgeon making $125,000 a year might seem wealthy, but if the sum of their debts exceeds $125,000, then they’re actually living in poverty (a net worth balance of $0). 

If you want to be truly wealthy, then start viewing your possessions in terms of net worth. 

Consider the assets you have on hand (cash in your bank account, savings, Roth IRA, the value of your home, car, or intellectual properties) and then subtract this number with the total amount of your debts (your credit card balances, students loans, mortgage payments).

The resulting number is how much wealth you actually own.

If you want to know more about how to calculate your net worth, check out my Prosperous Home Master Course.