Dr. Mercy Otieno, Ph.D. Economics and Finance
@ International Foundation for World Freedom
A person’s net worth is the value of their total assets less what they owe. If your assets exceed your liabilities (positive value) it implies a positive net worth, however, when the value is negative it means you owe more than you own hence a negative net worth.
Net worth is calculated as,
Net worth = Total Assets – Total Liabilities
Where,
the total assets, what you own such as your house, other real estate investments, savings and checking accounts, motor vehicles, and all other investments
and the total liabilities are what you owe such as mortgage payments, car loans, personal loans, student loans, credit card debts, and bank overdrafts.
Calculating and knowing your net worth helps an individual to plan, manage their debts and determine their financial standing and set their financial goals. It is advisable to redo your net worth annually or any time you make a major financial move such as selling your car or taking up a new loan or mortgage.
To improve your net worth and obtain good financial health in the long run and short run, you can explore the options below:
Pay off your credit card debts- Credit cards come with high-interest rates, thus paying them off will improve your net worth.
Cut your recurrent expenses- always ensure you live below your means.
Investments- Always put your savings in places it will grow, do not have large sums in checking accounts that do not earn interest.
Buy a car that will serve you for many years- Some costs come with owning a car such as depreciation costs, insurance premiums, services costs, and operation costs (Gas). Hence you should a car that will serve you for a long time.
Have an emergency fund- this will prevent you from charging large amounts on your credit card or taking on high-interest debts in cases of emergency.
Increase your income- Having a higher income can help improve your net worth. This can be done by picking extra jobs, getting a side hustle, or learning a new skill that can lead to a promotion in your current job or a new company.
Refinance your loans- If you took up a loan or a mortgage and got a higher interest rate, you can negotiate a lower rate with an improved credit score. This will lower the interest charged on your loan.