Lesson 3a: Net Worth
Do you know your net worth? Many people do not, most likely due to a feeling of shame or a fear of disappointment. This is especially true if they have credit card debt or if their 401(k) fund had a disappointing year.
Calculating your net worth is a relatively easy process. The calculation is only meant to be used as a starting point to show you how much you need to save for retirement or your child's education, for instance. However, calculating your net worth can bring up a lot of guilt, anger, and shame. It brings up feelings based on the meaning that we put behind our net worth. We tend to link our self-worth to our net worth. Thus, if we have a low or negative net worth, we may feel low self-worth and shame, a feeling of being "less than." If this happens to you, it is important to deal with the guilt and shame, and increase your self-worth by not relating it to your net worth. This is discussed in the self-worth section.
Calculating your net worth consists of listing your assets and your liabilities (debts); the difference between the two is your net worth.
Your assets are things like your house, savings (bank, bonds, or equities), retirement accounts (401(k), annuities, IRAs, etc.), equity in your business, cash value for your life insurance policy, automobiles, jewelry, art, home furnishings, loan that you gave to someone else, etc.
Your debts (liabilities) are items that you owe to someone else like mortgage, student loan, credit card debt, etc.
The difference between your assets and your debts is your net worth. If it is negative, you have some work to do in getting out of debt. If positive, you can use this as a starting point for calculating what you need to save for retirement, etc.
A sample net worth statement:
|Financial Topic : Good Debt vs. Bad Debt|
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