Knowing your net worth is a key step in understanding your financial position. We’ve put together this guide to demonstrate how not knowing what you’re worth can have a detrimental impact on the future of your finances
The term ‘net worth’ is one that often gets used in reference to celebrities and billionaires, but even if (like most of us) you’re not part of the financial elite, knowing your net worth is a key step in understanding your financial position.
Net worth is the total value of all of your assets (both financial and non-financial), minus the cost of outstanding liabilities such as loans. It’s the value of everything you own, with your debt deducted.
Everyone has a net worth, and it’s not limited to individuals as companies and institutions have them too. It’s also not related to your annual salary or even how much you make in a decade, but rather how much money is physically held in your accounts, stocks, shares, property and anything else you own at any one time. Examples of subtractable liabilities include credit card balances, student loans and mortgages.
Not knowing the value of your assets can put you at a serious disadvantage for financial planning and meeting goals compared to those who are educated about their net worth. Some of the dangers of being unaware include:
Many of us switch on autopilot when it comes to financial decisions, and we’ve all occasionally avoided looking at our bank account in order not to regret that big purchase we just made.
Knowing your net worth allows you to see a snapshot of your current financial situation, meaning you can spend more mindfully and be better prepared to make those large financial choices. This can work both ways- you may be going through life being too lenient with your spending, but, you may also be keeping your purse tightly zipped when it’s not actually that necessary to do so.
Oftentimes, your net worth amounts to much more than you would expect, as it factors in your whole estate. So, you may discover that you have a bit extra than you thought to treat yourself and your loved ones with.
While calculating your net worth once would give you insight into your current finances, doing so periodically can provide you with an indispensable report of your financial health over time. This gives you peace of mind by ensuring that you are heading in a positive direction with your wealth. If that is not the case, you can more easily assess what needs to be done and where you need to focus your efforts in order to get back onto right path.
Following on from this, not knowing your net-worth makes it more difficult to set and work towards financial goals. Without tracking your net worth and recognising trends in financial growth, it is impossible to know which area to focus on and what goals to work towards.
For example, it may be a priority of yours to pay off debt, or cut down on spending in a certain area, but without knowing your net worth it's difficult to truly assess the impact that meeting these goals would have on your overall financial health. How do you know whether you’re aiming for the correct targets?
Recording your net worth on an annual or biannual basis also means that you can more accurately predict how much financial growth is realistic in that span of time. This allows you to set more attainable time-focused goals for yourself, and feel added pride when you reach them.
One thing you may discover by calculating your net worth is that it’s actually in negative numbers. Don’t fret! This is not always a bad thing.
Understandably, in cases where you have taken on extra debt and liabilities it is more likely that you will have a negative net-worth. This may be a blow to your confidence at first, but you should consider this new knowledge of your finances as a blessing in disguise, a wake-up call which tells you what you need to work on and improve to move your net worth into the green.
Similarly, you may come out with a negative net worth for positive reasons. This may be the result of an expensive degree/course, or long-term investment which will ultimately increase your wealth over time. This is particularly the case if you’re at the beginning of your career. This is nothing to worry about, and having an added understanding of your worth lets you appreciate your assets accumulating until you reach retirement.
We know that net worth is calculated by adding up the value of your assets including:
And subtracting outstanding debts such as:
But, how can you keep all of this information in one place while also having a clear breakdown of each section that makes up your net worth?
With our free net-worth calculator, you can upload your assets and liabilities along with their related documents into our app, and we’ll do all the hard work for you. Auderli automatically calculates your net worth based on the financials you input, and provides you with a visual analysis of everything that is included in it.
Should you then decide to seek advice from a financial advisor in order to help grow your net worth, you can securely share your Auderli portfolio with them in a read-only format so that everybody has the best possible understanding of your financial situation and you can receive more tailored advice. Then, when you receive new financial documents, you can upload and store them in our cloud system for easy access at any time.
Now that you have a better understanding of just how valuable knowing your net worth is, you’ll be on the road to perfect financial wellbeing in no time.
With Auderli, you can find out your worth in minutes, it’s a no brainer and it gives you a helping hand in understanding your finances.
To learn more about how Auderli works and what it can do for you, head over to our help centre, or sign up for FREE.
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