5 Reasons Why Knowing Your Net Worth Is Important by Shekinah Ade-Gold for Budget Leaf
Your Net Worth
Your net worth is not simply the amount of money that you earn per month; rather, it takes into consideration the assets that you own overall, minus the cost of your liabilities. For example: if you are working in a job that basically covers all your monthly bills, have a savings account with $200,000.00 and owe student loans worth $150,000.00, then your net worth would be $50,000.00. This is because your pay would be spent exclusively on bills and needs, and what you owe in terms of student loans would be ¾ of what you actually own in savings. Here are five reasons why it’s important to keep your net worth in mind.
Debt Will Reduce Your Net Worth
Owing any amount of money will set you back in terms of what you own financially. In cases of emergencies, it is understandable if this cannot be done; however, the longer the debt is allowed to remain (and possibly, grow), the more likely it is that it will cut into the value of anything that you own. Remember, your assets also include things like the house you own, and money you have in emergency savings. Debt has an impact on all of these assets.
Liabilities Can Slow You Down
Forgetting to take your net worth into consideration can slow down your progress. If you want to start a business, you will need capital. The more liabilities you have - that is, the more you owe – you will find that you have even less money than you thought, and this will become an obstacle when you do need all your available resources to push your business.
It Will Impact Your Spending Habits
If you are aware that you owe your banking institution $10,000.00, then your spending habits will be simple and on a needs-only basis. This is because you will be determined to reduce and completely remove this debt in order to have your finances available for other things that you will want. Therefore, instead of spending $15,000.00 on a new electronic device you don’t actually need, you can take care of the debt owed and be able to make the purchase of that device another time – while being more financially able to do so.
It Will Be Easier To Prepare For Emergencies
There are times when accidents may occur; these or other unseen reasons may come to light at any time, and we will need to have the assets available to deal with these things. If you owe a large amount, then majority of what you own will go to your debt instead of being used for emergency situations. It is better to prepare for the future from now, than to leave your well- being up to chance.
Old Age Will Be Easier To Plan For
A large part of why people save is so that they can prepare for the last stages of their life. Growing old without any form of assets saved, such as a pension, can be a burden on you and your family where medical expenses and other costs are concerned. Having more assets than liabilities gives you the freedom to save as much as possible for this period of your life, and after you have passed, there would be a large accumulation of assets left for your family to receive. After the costs associated with hospital/funerary expenses, they can use this inheritance to clear any outstanding debt that you or your family would have been dealing with. The rest can then go towards planning for their own respective futures.