– T. Harv Eker, Secrets of the Milionaire Mind
This quote says it all. Net worth is a big deal to rich people and not so important to people who are broke. Here’s why.
The definition of net worth
Your net worth is the value of all your assets minus all your liabilities. Your net worth is an assessment of your overall financial health. Your income actually doesn't contribute to your net worth. Your net worth includes savings, investments, and debts.
Think about it this way: if you make $30,000 per year but you have an investment portfolio worth $3.5 million, you’re going to be more concerned about your total net worth because the $30,000 salary you make is …show more content…
This includes your house, car, savings, stocks, bonds, other investments, retirement accounts, property, etc. All of your savings accounts should be listed separately and added up together for a total.
Make a list of all your liabilities. This includes all your debts. Add up your mortgage, car loan, student loans, personal loans, medical debt, and any other debts you have. List them all out separately and add up the total.
Subtract your liabilities from your assets. Subtract your liabilities from your assets. The total you get is your net worth.
It’s also important to put the date on your net worth calculation because you should calculate your net worth periodically. By doing so, you’ll track your net worth over time. Even better would be for you to commit to sitting down quarterly and tracking your net worth. This will help you see the bigger picture and know whether you’re heading in the right financial direction. Tracking your net worth will also help you recognize the progress you’re making over time.
Tricky examples of calculating net …show more content…
For example, let’s assume you own a house that is valued at $250,000 and you have a mortgage on that house that is $150,000. In this example, you should add the full $250,000 to your assets calculation and the $150,000 to your liabilities calculation (each should be it’s own line item).
The same approach works for a car. If you own a car valued at $20,000 and you have a car loan for $10,000, then add the value of the car to your assets and the car loan to your liabilities. This way, you’ll have the details of all that you own and owe.
Student loan debt is one area where you will add this debt to your liabilities and won’t add anything to your assets. It is true that your education and career are assets and will help you earn more in the future, but that isn’t something you can put a monetary value on. For that reason, you should only include student loan debt in the liabilities part of your net worth calculation.
A final