So what is Net Worth and why does it matter?

In simple terms, Net Worth is how much money you have.

The term is important because it considers absolutely everything you own and owe.

I love examples so hop on, let's meddle into John's life!

---

John is in his late 20s, he has been working for a few years now, and has a financial picture that looks like this:

House Worth $250,000

Owes - $215,0000

$35,000 Equity

Car Worth $12,000

Owes - $18,000

- $6,000 Upside

Student Loan Owes -$50,000

Checking and Savings Accts $12,500

Credit Card Owes -$2,000

$10,500 Real Savings/Emergency Fund

401K Worth $35,000

Jewelry $7,500

Small Business Loan Owes -$5,000

Makes $75,000 per year

---

John has gained some equity through his regular payments on his house, he also has some emergency savings and has started investing for retirement. John also has some debt laying around for his mortgage, car, credit cards, and a small business loan.

The Final calculation takes into account not what he owes or owns separately, but what he would end up with if he was to sell those assets and pay his debts today.

Equity $35,000

Cash $10,500

Investments $35,000

Jewelry $7,500

Car -$6,000

Biz Loan -$5,000

Student Loan -$50,000

John's Net Worth is the addition of all the Equity and Assets he has minus his liabilities, which in this case is $27,000.

Net Worth is important because it allows you to plan for the future, and provides an outstanding picture that helps you separate needs from wants. Some of us, like John, generate decent amounts of money every month, yet have very low or negative Net Worths.

In this calculation even though we know John's income we don't use it. That is because Net Worth is meant to provide a picture of what happens if your income stops, or you pass away.

“Rich People plan for three generations Poor people plan for Saturday night”

― Gloria Steinem