Understanding your net worth
Knowing your net worth is important for your long-term financial planning, as well as your immediate family planning. As an indicator of your current financial situation, it can help you answer questions, such as can I afford to do something; am I in too much debt, and where can I make changes?
Net worth is the difference between what you own and what you owe:
Assets - Liabilities = Net Worth
| ASSETS | LIABILITIES |
|---|---|
|
(Can be converted into cash or sold to get cash) Bank accounts (savings) Investments Retirement savings Property Vehicles (paid off) Jewellery Art Stocks and bonds |
(Outstanding debt or costing you money) Credit card debt Any type of loan: Personal loan Student loan Home loan Vehicle loan Money owed |
Why do you need to know your net worth?
Having a big income can be misleading because although you draw a big salary, if you’re spending it all or if you’re overextending your credit, then your net worth becomes negative, putting you in a bad situation that’s taking you backwards financially. However, if your total assets outnumber your liabilities, a positive net worth can help boost your momentum.
It’s important to know as it influences your financial goals and the timeline for reaching them and helps you plan for the future and make informed financial decisions.
How to improve your net worth
There is no ideal net worth, and the ‘right amount’ is based on you, your lifestyle and goals. As it’s a snapshot of your current financial health, it gives you a good starting point if you want to change your situation. Going from where you are to where you want to be can include the following:
- Spending consciously and reducing the amount of debt you’re taking on to get the things you want (and not necessarily need)
- Paying down debt because it’s not just the amount you owe; it’s the interest you get charged on top of that, so what you owe becomes more the longer you leave it
- If you can, putting more into your savings and investments, taking on a more aggressive approach to putting money away or putting it into appreciating vehicles
Track your net worth
Download the award-winning My360 app to keep track of all your assets, liabilities and what your overall wealth is doing. It doesn’t matter which asset it is or which financial institution or insurer you’re with, having an up-to-date view of it will give you a greater idea of your total net worth and keep you motivated to reach your financial goals.
*Network costs apply only to downloading the app