(FinancialHealth.net) – Knowing how much you are “worth” is one way to measure your wealth. The college you go to won’t mean anything if you don’t pay off your debts or get a decent job. Simply put, your spending habits compared with your income is the end-all-be-all when it comes to determining how rich you are.
What is Your Net Worth?
By definition, your net worth is the amount your assets are worth minus your liabilities. While that sounds pretty simple, it gets a little more complicated when trying to decide what counts as what on your balance sheet.
The more assets you have, the better. Assets include things like the equity in your home, the cash value of life insurance policies, and checking and savings account balances.
Liabilities are negatives and represent the amounts owed to other people or entities. These include things like home mortgage, credit card debt, and student loan balances.
How Does Lifestyle Impact Your Net Worth?
Your lifestyle is determined by how you spend your money, the things you buy, and how you pay for them. You’ll notice “how much money you make” is not on that list. It’s true that if you make a lot of money you can have a nice lifestyle filled with lots of expensive things.
The reality is that you can also have those nice things if you don’t make a lot of money and buy them all on credit.
Both methods may allow you to live a comfortable life, but only one will allow you to have a higher net worth — and that’s not the lifestyle where everything you own is purchased on credit. The key to a higher net worth is living a lifestyle that’s within your means and not spending more than you make.
Using your money wisely to invest in a home, stocks and bonds, and even a retirement fund will let you build your asset list with tangible, positive things. Limiting your use of credit can reduce the total of your liabilities.
It doesn’t matter how much money you make; if you spend more than you make, your habits will ultimately have a negative effect on your net worth. Are you finding your liabilities are starting to outweigh your assets or do you want to prevent that from ever happening?
Try creating a budget and consider consulting a financial advisor to help you get back on the right track.
~Here’s to Your Financial Health!
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