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Examining Financial Health

Net worth is a concept that until recently many people thought did not apply to them. However, net worth is a term that applies to anyone’s financial picture and should be calculated to determine a true financial picture.

Net worth consists of financial assets and financial liabilities. Quite simply, financial assets include all of the real money or real value items that you own, and can be converted to real dollars, if necessary, in the future.

Real liabilities are those debts or obligations that will, at some point, be paid back by you or your estate.

Net worth is a calculation of financial assets subtracted from financial liabilities.

You can use the results from the Assets Section and the Liabilities Section from the Financial Assets Chart to calculate your Net Worth.

What does net worth mean? You should determine first whether the net worth end result is a negative or a positive. If it is either, you should also determine what the amount of the difference is.

For many people, a net worth calculation may be under 50% of their annual income. For others, it may be two or three times greater than their annual income. Again, your situation may not be exactly as you want it now, and this calculation does nothing except judge your financial picture as of the day or hour of its calculation.

Savings Examination

Not part of the net worth calculation, but a helpful exercise is to calculate your savings and your savings plan for the past three to five years. This can give you some confidence or it can help you in the creation of your objectives.

Complicated comparisons to other financial calculations are sometimes made, but you need only be concerned with whether or not you are saving, how much are you saving and can you save more, if you decided to.

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