Let me be honest for a second, 8 years ago I had no idea what Net Worth meant, so if you do not know. It is totally okay!
I remember the moment we went into our Financial Advisors office and he said, "Spencer and Amber, I am going to calculate your Net Worth before we begin. It will help me understand your overall financial health!" I can only imagine the look on my face, straight confusion. I likely was thinking, you did not ask me to bring a document for that. I only remember you asking me for bank statements and tax returns. Net Worth statement was not on the list.
He proceeded to ask us for our Assets and for our Liabilities, which again, so confused. It was as if he was speaking a different language. I now can see how other can be confused when I start talking and I use these terms. He proceeded to tell us that our Net Worth was POSITIVE, he said this is a huge deal. You are 23 and 28 and your Net Worth is POSITIVE. Looking back now I see why this was a big deal...
Let me explain...
Net Worth is the total of all your assets/resources that can be converted into cash value: Savings Accounts, Checking Accounts, Cash, Retirement, Cash Value Life Insurance, Wedding Rings, Automobiles, ATV's, Boats, Antiques, Home Equity, etc. added together and then subtracted from your liabilities/debts. The things that you owe money on: Mortgage, Auto Loans, Student Loans, Credit Card Debts, Personal Loans with Mom and Dad etc. When the Assets (Cash equivalent values) - the Liabilities (Debts, what you owe money on) are subtracted from one another you will arrive at a positive or negative number. This value is called your Net Worth.
What does this mean and why do we care what it is? For me it is a measuring tool. It is a value in our family that we would leave a financial legacy. That we would steward our money wisely with the goal of growing our wealth. Our Net Worth is a fast way to measure growth. I often describe it to be like going to the doctor and getting a physical done. Your Net Worth is like a physical assessment of your overall financial health. If everything was called due on all your debts could you afford to pay them all in full. The answer for us at 23 and 28 was a positive yes. Our goal is always that our answer would be YES!
Now at 30 and 35 our Net Worth has increased by 876% of the amount our Advisor calculated for us 8 years ago. Knowing we would be financially secure on our own dollar if all our debts were due is a refreshing and relieving feeling. If your number is negative. Do not be discouraged see it as an opportunity to begin refocusing where you spend your money and start building towards a positive net worth today!