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June 06 newsletter

Net Worth

What is your net worth? And does it really matter? Actually, your net worth is extremely important. For example, it determines your ability to borrow, as well as to recover from a major financial shock. If the value of your assets exceeds your liabilities, then you have a positive net worth. If the reverse occurs, you are in a negative net worth situation.

What is your net worth?

Net worth is essentially the difference between what you own and what you owe, that is, your assets, such as your house and investments, less your debt. the Shape of Money is pleased to launch a net worth calculator to help you quickly assess your net worth position. This involves no rocket science. In fact, many of you have probably developed a more useful spreadsheet model, nicely tailored to your own needs.

It's important to note what shouldn't be included in your net worth statement. It's common to include everything but the family pet (though of course the proverbial kitchen sink will be included as part of your house value). the Shape of Money suggests that depreciable assets not be included. These would generally include items such as your home contents and vehicles. Assets such as a family boat could be included, if recorded at a "true" market value.

Now that you know what your net worth is...

This newsletter is to encourage you to complete an annual review of your net worth, allowing you to measure your progress from year to year. This gives you reinforcement and feedback on how well you're doing in terms of achieving your financial goals.

You can increase your net worth by either increasing the value of your assets, or by reducing the level of your debt. If you need help on either side of the ledger, please check out our savings, investments and debt reduction topics.

Random page of the month

Debentures - maybe it's a good time to review this topic.