When you hear the word wealth, what is the first thing that comes to mind? Mansions? Designer clothing? Luxury cars? Dining out at exclusive restaurants? Growing up, I probably would have had the same answers. After all, I grew up in a house that cost just $8,000. Yes. An eight followed by three zeroes. Also, my parents filed for bankruptcy twice. However, throughout my financial career, my definition of wealth isn’t about material items. It’s all about net wealth. Why? Because look can be deceiving.
Due – Due
Here’s an example from a couple who were potential clients of mine.
They made $500,000 a year. Not too bad, right? The thing is, they had the house, cars, boats, jet skis, and whatever else you think rich people buy.
Guess how much they had in their checking and savings accounts? $17,000. Yikes. They might be giving off the impression that they’re wealthy. But their net worth tells a different story.
What is Net Worth and Why is It Important
“When you start thinking about the net worth, you might envision some internet billionaire or media tycoon — a bigwig with big bucks,” writes Megan DeMatto for CNBC. “But anyone can calculate their net worth, and it’s a good number for everyone to know.”
In other words, net worth is an indicator of wealth. To figure out your assets, live savings, investments, and property, you add them all up. Then you would deduct your liabilities, such as credit card debt and mortgages.
“Net worth is different than income since we don’t necessarily keep every dollar we make,” explains DeMatto. “Instead, we buy, borrow and make investments with money, and the total value of our properties and cash goes up and down with time.”
The calculation of your net worth, then, provides an overall measure of your financial health. “Think of it like a snapshot that shows you where you are on your financial journey,” she adds.
“Keeping track of your net worth over time is a good indicator of your financial status,” asserts DeMatto. “People work hard to bring home their salaries, but what happens after your paycheck hits your bank account is not always predictable.”
Taking a look at your net worth, you can see where your money has been spent in the past versus what you hope to do with it. And, net worth can be used to see your progress when making decisions such as buying a home or a car, taking out a loan for school, or setting up a savings goal.
Ways to 10x Your Net …….