Why you should know your net worth
Your net worth relates to the value of the things you own, minus the value of the things you owe. Understanding your net worth is useful as it gives an overall picture of your financial health, based upon more than your everyday salary and expenses. In this guide, we’ll take a closer look at understanding your net worth and why it is important to know the figure.
What is net worth?
A person’s net worth is the amount of equity they have. To calculate your net worth, add up the value of your assets, for example, your house, car and other things of value. Once you have that figure, take away the amount that you owe. This could include the amount still outstanding on your mortgage, loan amounts and any other liabilities. The resulting figure is your overall net worth.
The importance of knowing your net worth
Understanding your net worth allows you to calculate where you are financially at any point in life. According to Investopedia, this allows you to make financial decisions with a clear picture of your overall monetary health. This makes you more prepared when it comes to making decisions that could affect your finances, as well as taking steps to achieve long-term financial goals.
Longer-term financial goals, such as saving for retirement, can be planned out based on your net worth. For example, if you are saving money for retirement but won’t have enough to live on by retirement age, you will need to adjust your spending, save more or earn extra income.
Knowing your net worth is also an important consideration for legal matters such as making a will or transferring the equity of your home. A transfer of equity solicitor will be able to advise you on the legal aspects of transfer of equity and provide you with sound advice. More information can be found at https://www.parachutelaw.co.uk/transfer-of-equity-solicitor.
Knowing your net worth shows you where you are financially and allows you to make plans to meet your future financial goals. Whether it is saving for retirement, increasing your net worth over a set period or preventing your net worth from decreasing, calculating it is the first step to getting on track. Understanding net worth is the best way to get a grip on your finances and help you feel more in control of your financial health.
