Most people may have an idea of how much money they have saved and how much they owe but may not necessarily know what their net worth is. Your net worth is the difference between the value of what you own and what you owe. Assets are items that you own such as cash, real estate and personal property and liabilities are amounts that you owe such as mortgages, loans, credit card bills and student loans.
It is important to check your net worth occasionally to have an idea of how you are spending and saving your money. You may have a lot of stuff but how much do you owe on it?
When calculating your net worth it is important to use accurate values. When determining a value of your home take into consideration what homes comparable to yours have recently sold for. You may also want to get an appraisal completed to get a professional and accurate value. With changes in the market, the value may be higher or lower than what you paid for it.
When determining values of personal property items you need to consider depreciation. Most items will not be worth as much as you originally paid for them. If you need to sell items quickly you may only get a fraction of the original price of the items.
If you owe close to the value of the items you own it may be wise to keep an eye on how you are spending your money. Many people spend more money than they think by not considering the small expenses. It may be helpful to track your spending for a week or up to a month to see where your money is going. Keep track of every cent you spend and at the end of the week or month take a look at your spending and see if there are expenses you can cut back on or cut out completely.
A dollar or two here or there may not seem like a lot but can add up over time. The same is true for interest payments. They may not seem like a lot when added to the principal but over a number of months or years they can add a considerable amount to what you are paying.
Many people think they are doing okay if they are able to make the minimum payments but by doing that they are barely paying off the interest charges and not making progress to paying off the principal amount.
Knowing your net worth is an important part of knowing what the condition of your financial life is. To have a positive net worth, you own more than you owe.