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Can I Improve Net Worth by Decreasing Liabilities? – Part 1

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It may sound complicated but the resounding answer my friends is yes! But how do you go about the process? Well first let’s look at the detail. Public companies are required to produce reports based on their financial positions.

The fact is, you’ve already heard of this! Income statements, balance sheets, cash flow statements are all in effect the very same thing! They all paint a picture of how a firm is performing financially. Now you may not be a Bill Gates or indeed have a business at all, but the point we are making is, individuals can do exactly the same thing themselves, to outline their position fiscally! It’s called working out your net worth.

Now if you’re not a mathematician or a business expert don’t worry. Once you understand where this formula comes from everything will fall into place!

ADD UP ALL YOUR ASSETS AND THEN SUBTRACT YOUR LIABILITIES – THIS WILL GIVE YOU YOUR NET WORTH!

The natural reaction to all of this is, how can I improve my net worth? In truth it’s not really a complicated process and anyone can do it quite quickly. But in order to simplify this lets tell you about the key words here and what they mean in real terms. Once you have this basic grounding then everything else becomes much easier when dealing with your net worth!

  • An asset
    This is anything you possess carrying a cash value. It could even be loose change in your pocket or purse. Cars, boats, bikes, bank accounts, absolutely anything with a cash value. Assets are important to you on a day to day basis and the more you have the better your financial standing. Companies look at assets in exactly the same way so the theory works for everyone.
  • Market value
    Basically this is another term for the cash value of all your assets – this liquidation value is about real hard money in real time. Imagine what you might get if you sold all of your assets tomorrow? You are working on their overall market value!
  • Net Worth
    When we talk about net worth we talk about how much the item would be worth today if you sold it. Individuals sometimes make the mistake of putting extra value on things because they have sentimental feelings attached to them. An asset is only worth what people are willing to pay for it at any specific time. It’s important to include your wage and other income yielded from any investments you may have.
  • Liabilities
    These are straightforward to explain and basically amount to the money you owe others. Things like student loans, car payments, credit card debt, Gas and electric bills and of course your mortgage are all liabilities. It’s really a technical term for the debt any individual carries with them, but it’s vital in calculating net worth as you’ll find out in part two.

ANY ASSETS YOU HAVE ARE KNOWN AS ‘CASH INFLOWS’ – ANY LIABILITIES YOU HAVE ARE KNOWN AS ‘CASH OUTFLOWS’

So in part two we’ll look at increasing your net worth and what’s involved – we can go into the whole process in slightly more detail. We can then sum everything up for you and give more advice on the topic so you fully understand how things work!

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