While the term Net worth is very familiar for people from the finance background the rest would have heard it more often than none. You might have heard of it when you read about richest people in the world. But did you know all of us have a net worth?
1. What is Net worth?
Technically, Net worth is the excess of Assets over your Liabilities. If an individual puts together his assets and reduces his liabilities from them he arrives at his Net worth. Net worth could be negative too. If you have excess liabilities over your assets then it turns out to be negative. It is totally acceptable provided you have a good source of income to close off your debt and have the potential to soon create an asset.
2. What are Assets?
Assets are that belonging which generate income for you or saves some money for you. Those include your house which saves your rental expense or gains you rental income; your gold, your vehicle, your investments etc. Assets also give you capital appreciation. Assets can be short term or long term.
All the above is based on books. For me, assets also include my education, my family, my experience, my travel, my viewers, my friends. Well they do give you the biggest security in life. I am sure you will agree to me.
3. What are liabilities?
Liabilities are your debts that you owe another individual or entity. It can be a Bank loan, a loan from your relative etc. Loans can be for various purposes like education, buying a house, vehicle loan, gold loan, personal loan etc. Remember to pay your EMI on time to avoid unnecessary charges. Let clearing off your debt be your priority in your monthly budget.
It does not mean having a loan is bad. Just that when it comes to repay it keep it as a first priority. Liabilities also include outstanding expenses payable. It includes any delay in payment of your bills as you then owe some money.
4. Is negative Net worth a bad sign?
Well, yes it is a not a good thing but people do exist with negative net worth. If you are a student having a student loan then you will have a loan more than you have your assets. Thus, it will result in a negative net worth which is not a good sign. As to repay your education loan you have enough time. Further, your qualification will also behave like your asset.
5. Format to calculate your Net worth
I have made a handy format in here so that it enables you to calculate your net worth
|SL No||Particulars||Amount (Rs.)|
|2||Building (Apartment or Bungalow)|
|7||Savings Bank account balance|
|9||Other savings schemes|
|13||Portfolio Management Scheme|
|14||Alternate investment Schemes|
|19||Unsecured Loans from relatives etc.|
|20||Outstanding expenses payable|
|NET WORTH (ASSET-LIABILITY)|