What is your net worth? To put it simply it is a number to measure your wealth. How much you are worth is not simply based on the sum of your total assets, but you also have to deduct what you owe i.e. mortgage, personal loan etc. Therefore, it is calculated by taking your total assets minus your total liabilities.
Since many of us have multiple bank accounts and loans, trying to keep track of it all and then to measure your net worth can be quite a task. Fortunately, Dr Wealth financial platform makes it easy for you to track all your individual assets and liabilities. See Creating Your Personal Balance Sheet With Dr Wealth
Why Should I Know My Net Worth?
All the resources you'll ever need as an investor
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As mentioned earlier, net worth is a measure of your wealth and it is one of the most important financial figures you should know. You should keep track of it periodically at least once every six months to see if your net worth is growing. If for some reason, your net worth is negative, you should definitely try to get it into the black and engage a financial planner if you need help.
Are You Growing Your Net Worth?
Instead of being fixated on your current net worth figure, you should focus more on the growth in your net worth instead. Everybody has different financial situations so comparing your net worth with others may not be such a good idea. Rather it is better to look inwards and try to figure out how to grow your own net worth, whether it is by increasing your income, investing more or decreasing your debt.
To Save, To Invest or To Decrease Debt?
With every dollar saved, there is then the decision whether to save the money in a bank account, invest the money for higher returns or to decrease debt. With regards to saving the money, the first thing is to check if you have enough emergency fund saved up. See How Big Should Your Emergency Fund Be? If you have enough emergency fund, the next step is to determine whether to invest or decrease debt.
When it comes to investing or decreasing, the rule of thumb is to determine whether you can get a higher return from investments or more savings from debt. In general, the shorter term loans such as personal loans and credit card debts carry such a high interest rate 7% to 24% per annum that it is easier to repay the debt than to attempt generating higher returns from investments. Longer term loans, such as housing loans, on the other hand have much lower interest rates (1% to 4% per annum) that it is possible to beat them with equity returns. In such a case, disciplined investing may be able to yield higher returns than speeding up the repayment of housing loans.
Be Debt Free By Retirement
Ideally, one should aim to be debt free by retirement, which means no liabilities. That way you would have less to stress about in terms of loan repayment. At that stage, you are also more likely to have a higher bond allocation which returns may or may not be sufficient to match the interest rates of housing loans.