Finance guys understand the meaning of Net Worth. This is one of the easiest terms to understand.
What is my Net Worth? If I start with the total value of my Assets– so if I add up the value of all my assets I get the value of Total Assets. From this figure, if I deduct the total amount that I have to pay to my creditors (my Liabilities), the resulting figure is my Net Worth. It is also called as capital in accounting terminology.
Accountants maintain books of accounts on Historical Cost basis. This means that the value of the asset is shown at the Cost price in the Balance Sheet. It may be worthwhile to prepare a statement of Net Worth as per Market Value and preserve the document for future reference.
Ultimately personal finance is about increasing your Net Worth. All your financial actions ultimately result in improvement of Net Worth. Hence it is important to undertake this exercise at yearly intervals and study the 5year/10year trend from time to time.
Download this exercise by clicking here and track your own net worth.
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