I see list of wealth of celebrities by calculating their net worth. What’s net worth exactly?
Net worth effectively implies the amount of money you would be left with in case you decide to sell all your assets and pay off all your debts. Net worth acts as a financial yardstick to check the financial health of an individual. Just like an ECG tracks and monitors the progress of your heart, a net worth tracks and monitors your financial health. The simple formula is Net worth = assets – liabilities.
An individual’s financial health is computed by means of his personal net worth. In simple terms, personal net worth is the net asset value of an individual. Personal net worth is calculated as follows:
[Total Assets] less [Total Liabilities]
One must assess his / her net personal worth on a regular basis. This is because corrective measures can be taken in time if the net personal worth starts declining. It is much easier to set things right at early stages than finding yourself in a deep financial crisis. Your net personal worth will also give you an idea about how financial institutions perceive you as a borrower.
Note that knowledge of current personal net worth is essential to make financial decisions. It is important to re-evaluate personal net worth while making any important financial decision as the value of assets and liabilities will change. Also, net worth should not be considered in isolation. It is a good idea to consider factors like current and future income levels, future liabilities and investments made.
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