The importance of knowing your net worth

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If you are serious about success, it is essential for you to have a sound understanding of the world of finance, based on good research and trusted advice. Such an understanding is never more important than when considering your own net worth. Whether you are a small business owner or the proprietor of a large-scale organization, you have a very personal interest in your company. You are not only tied to your company psychologically and emotionally, but because the financial workings of your business are linked to your own financial success, you also have a very practical, monetary interest in the success of your company.

It is therefore critical to understand your own finances at least as well as the finances of your business. Knowing your net worth is one of the most important first steps in achieving this understanding.

What is net worth?

Your net worth is the value of your assets once your liabilities have been taken into consideration. In other words, it is the difference between what you own and what you owe. If the value of your assets outweighs the value of your liabilities, you have a positive net worth. Conversely, if the value of your liabilities outweighs the value of your assets, you have a negative net worth.

In a clear and simple way, this calculation provides a headline illustration of your current financial circumstances. It is critical knowledge for anyone with personal financial interests in a business venture.

This insight becomes even more helpful when tracked over any given period, as it can show the direction in which your personal financial circumstances are moving as well as patterns that correlate with your business activity.

Such a clear (or in some cases fairly stark) insight will force you to face up to your current financial situation. It will allow you to understand what sort of tolerance you should apply to taking risks, and it will highlight any issues you may urgently need to address.

Know your net worth

Working out your own net worth may seem fairly straightforward. However, if done properly, it can turn into a complex but extremely worthwhile process.

When calculating your net worth, it is necessary to take into consideration all of your assets and liabilities. Be as accurate and detailed as possible in order to yield a helpful and truly representative result. Because of fluctuations within various markets, it is often helpful to be conservative when assessing the value of your assets. This will help you avoid an overly optimistic picture that, in turn, could lead to unnecessary risk-taking.

Financial specialists with years of expertise, such as those at Fisher Investments, can be invaluable allies in helping you find out your net worth. They are a primary source of trusted advice and guidance.

Improve your net worth

Once you have an accurate and trusted picture of your own net worth, there are various things you can do to improve it. Improving your net worth often comes down to simple and sound financial management. That said, you may not always apply the best tactics in managing your finances, and it can take a prompt from a net worth indicator to encourage and influence positive behaviors.

Consider the following:

  • Address your debt. While it can be daunting to see the overall value of all your liabilities, this knowledge will enable you to understand what debt you need to address urgently and what can be carefully managed over a longer period.
  • Review your spending. Your net worth will also reflect your spending habits. Spending habits can be reviewed and adjusted where necessary in order to improve your net worth.
  • Save, save, save. The fundamental formula for calculating net worth is liabilities against assets, so it is only logical that the higher the value your assets, particularly your savings and investments, the better your net worth will be.

Knowledge is power

Insight and understanding into every part of your business is a crucial ingredient of success. However, it is important to make sure that such knowledge does not stop with the business itself, and that a similar level of attention is put into understanding your own financial circumstances. At the most fundamental level of this understanding is your own net worth. Only by knowing your net worth can you be confident that you are in the best place possible to make decisions and mitigate against risks in the most effective way. With such knowledge, you can empower yourself to drive a healthy profit and secure the future of your business interests.

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