Net Worth

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Definition

Net Worth is the value of all your assets minus all liabilities. 

Assets include bank account balances, the market value of stocks and bonds, the market value of a house, and the market value of a car, etc. Liabilities include credit card balances, mortgages, car loans, student loans, bank loans, etc.

People with a Net Worth of under million dollars can use the services of a financial advisor to help them map out a plan to increase and grow their Net Worth over time. People with a Net Worth over a million dollars are known as High Net Worth individuals and are in need of a Wealth Manager to help them sustain their Net Worth.

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LAYMEN TERMS

Net Worth is the total of what you own financially (assets) minus what financial debts you owe (liabilities). It defines personal financial health. Basically, if you sold all of your assets and paid off your debts the amount left over is your Net Worth. 

 If your net worth is above zero (positive) then you are in a healthy financial position, however, if your net worth is below zero (negative)  then there is a cause for concern. One way to increase negative net worth is by decreasing debts or increasing assets. 

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.

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