HOW DOES THIS TERM APPLY TO YOU
If you are a recent University graduate with a student loan of $25,000, you own a car with an outstanding balance of $20,000 and you have recently purchased a condo for $200,000 then your liabilities would total $245,000.
You also have a savings account with a balance of $10,000, a chequing account balance of $5,000, the market value of your car is $15,000 and the market value of your condo is $275,000 then your assets would total $305,000
If you take your assets $305,000 and subtract your liabilities $245,000 then your Net Worth would total $60,000 which puts you in a healthy financial state.
However, if you are in the same scenario as a recent graduate with a student loan of $25,000, own a car with an outstanding balance of $20,000 and recently purchased a condo for $200,000 your liabilities would still total $245,000. But, if your assets only included a chequing account balance of $1000, savings account balance of $0, the market value of your car was $10,000 and the market value of your condo was $190,000 then assets would total $201,000.
If you take your assets $201,000 and subtract your liabilities $245,000 this would give you a Net Worth of negative (-) $44,000 and you would need to decrease debt, for example, pay off student loan to restore a positive Net Worth.
