This is the first post of the Not Another Boring Article About Investment series. We designed this series to cover the basics of finance and introduce you in baby steps to the world of investing. 

 

For many people, the idea of investing seems like an impossibility. Perhaps even facing your own finances head-on is scary and it can seem easier to bury your head in the sand. We are here to help! Before going further, you need to know how rich (or poor) you actually are. And since you’re probably not Jeff Bezos nor Bill Gates, you probably can’t just pick Forbes’ billionaire issue to find out. 

 

What are you worth?

 

Your Net Worth gives a measure of your current financial situation. Every financial decision you make should take into account how it would affect your net worth. So how do you calculate your net worth? A seemingly complicated concept that can be translated to a simple equation to reflect your financial situation.

 

Assets – Liabilities = Net Worth 

 

An asset is anything you own or that has value like or your bank balance, house, car, investments or pension fund. A liability is any amount of money that you owe for example credit cards, car payments, your mortgage or student loan. Start by making a list of all of your assets and their estimated value. Some of these will be easier to record than others. To determine the value of some of these more objective assets, you can make an estimate or seek an evaluation.

 

Net Worth Calculation Example

 

David is 35 years old. He owns a home worth $250,000 and owes $100,000 on the mortgage. His 3-year-old car is worth about $7,000 and is paid off. He has $2,000 in credit card balances, $30,000 in his 401(k), about $10,000 in savings and $15,000 remaining on his student loans. David’s assets and liabilities can be listed as follows:

 

Assets

Home: $250,000

Car: $7,000

401(k): $30,000

Savings: $10,000

 

Total Assets = $297,000

 

Liabilities

Mortgage: $100,000

Credit Card: $2,000

Student Loans: 15,000

 

Total Liabilities = $117,000

 

David’s Net Worth: $297,000 – $117,000 = $180,000

 

What if my Net Worth is Negative?

 

Don’t panic straight away if your net worth is negative. Not all debt is bad debt and not all negative net worths are the same. For example, if you had $100,000 worth of credit card debt that would be bad! But if that debt was from a mortgage that would be quite different. We will cover good and bad debt in more detail later.

 

You can increase your net worth by paying off your debts, saving and investing money, and reducing your spending. In our next post, we are going to look at how to create and manage a budget in order to see how much extra money you could have.

 

Want to learn more about managing your money and investing? Sign up for “Not Another Boring Course About Investment“.

 

 

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