The accumulation of a high net worth is an important goal. A high net worth makes it easy for people to pay their bills and eventually retire. This is something that every person needs to do over the course of their lives. Doing so also makes it easy for any person to confront an unexpected fiscal emergency such as medical problems or issues with their car. Unfortunately, at every turn, life is fraught with financial peril. Early in life, people need to make smart financial decisions. Doing so is not always easy. Many people have fiscal problems when they are young. This may include mistakes with credit cards as well a failure to understand how the credit markets work. Proper understanding can help people understand how to accumulate wealth avoid problems. More importantly, it can help anyone start on the road to having a net worth that can help them get where they want to get in life. Understanding exactly what net work is is the first step towards a brighter fiscal future.
Simply put, your net work is the amount that remains after you have subtracted any debt you owe. For example, you would start with your any debt you have. This includes the sum total of your mortgage, any student debt you still have as well as any car note. You may also have other kinds of debt such as personal loans. This counts as your overall debt. You should add up all these numbers to know your entire debt. Then, look at all of your assets. Assets includes accumulated equity in your home. Equity is the amount your house is worth after you have subtracted the mortgage owed.
An Underwater Mortgage
In some instances, the amount of the mortgage may be greater than the amount value of the problem. This is known as being upside down on your mortgage. It can be a temporary condition as a result of a minor falls in house values or it can be a much greater problem extending over many years. The same is true of other assets you might have such as your car. You might have a car loan that is greater than the value of your car. Debt can be fine in some instances. If you borrow to buy a house, this can ultimately be a good decision as it can allow you to afford a better house in a nicer neighborhood than you can have by renting. Mortgage interest, unlike rent, is tax deductible, making it an even better fiscal choice in many instances.
Understanding Your Assets
The other factor that goes into determining your net worth are your overall assets. Your overall fiscal assets are the amount you have This includes all the money you have in your bank account. It also includes a car that might have equity after any car loan is paid as well as any other vehicles you own outright such as a boat or a motorcycle. Your assets may also include your primary residence that has been paid or any rental properties you might own. It will also include any funds you have in the stock market as well as the amount of money you might have in a retirement account.
Liquid vs. Illiquid Assets
Your assets can be further divided into both liquid and illiquid assets. Liquid assets are assets that you have immediately use. For example, you can sell your car if you need immediate cash. If you own stocks and bonds these are considered liquid assets as you can typically sell them quickly. Assets that are not considered liquid are assets that cannot be sold quickly. In general, your house is not considered a liquid asset even in a favorable market as selling up and getting actual access to the funds can take upwards of two months. Another example of an asset that is not considered liquid are your retirement accounts and any funds you might have a in CD. These are assets that are hard to get access in the event of a fiscal emergency. However, they are still considered part of your overall net worth.
Your Total Net Worth
Your total net worth is the amount of money that is left over after you have calculated the value of your entire assets and then subtracted debt. When doing so, you may need to take taxes into account. For example, if you own stocks or bonds, you will need to pay taxes when you sell them. This can impact your overall net worth. Your total net worth will typically be lower when you are younger and then much greater as you age. If your net worth is not as great as you would like, there are steps you can take to help push it up. In many cases, small changes can make a big difference. Start paying close attention to every penny you spend each month. For example, you might be spending money each day on a cup of coffee on the way to work. You can make an immediate change perhaps by making your own cup of coffee at work. Other little changes can also add up. Cutting as little as ten bucks a week off your weekly grocery bills means an extra $500 in your pockets each year. Small changes will help you increase your net worth over time.