What is your net worth & why you should care
Knowing what your net worth is will not only help you gauge where you’re at financially but it can help you direct growth and set financial goals for the future.
We’re going to discuss how to work out your net worth and why it’s important.
When we hear bet worth we typically think of billionaires like Bill Gates and wealthy celebrities. Each of us have a net worth and this figure is essentially a snapshot of our wealth.
Your net worth or the worth of your company can help to determine your financial health as well as whether you can qualify for finance.
Keeping track of changes in your net worth will also aid you in sticking to your goals. Yes, knowing what you are worth can help you and the bank determine whether or not you qualify for a loan.
What loan amount do you qualify for? Do you need collateral? If so, what is the collateral requirement and can you satisfy this? All these questions will determine whether you will get loan approval and how much you will be able to borrow. Knowing your facts might even secure you a better interest rate.
Working out your net worth
Working out net worth is simple and straight forward and required you to simply add up everything that you own and subtract everything that you owe. Another way to put it is your net worth is all of your assets minus all of your liabilities.
What are assets?
Assets can be classified into a range of categories but are essentially anything that you own that has a monetary value such as property, investments, cash or tangible items such as antiques, furniture and vehicles.
Bear in mind that leased vehicles do not count and that you should note the annual depreciation on vehicles to ensure the projections will be accurate too.
What are liabilities?
Liabilities are debts or obligations that you have which will result in an outflow of cash. Liabilities are generally loans and other debts as well as bills and tax liabilities among others.
Net worth = assets - liabilities
It is important to also consider annual asset and liability growth as this will enable you to work out what your net worth will look like in the future and even work out desired net worth growth scenarios to ensure you achieve your financial goals.
Let us look at it from a business perspective
If you are looking for a loan from a company, they might ask you, what can you use as collateral or they may need to see your bank statements so that they can see if you have any existing capital or savings.
The information a lender collects from you is used to determine whether you are a high or low risk borrower. This affects fees, interest rates, loan amounts and more. It is important that you provide accurate information in order to enjoy quick and easy loan approval.
If you are looking for a business loan, the same questions will apply to your business. Business loans serve various purposes and can be used for business expansion, acquiring assets and covering running costs, to name just a few. Depending on the financials of your business and the longevity of your business, you should be able to secure a business loan in no time.
How do you work out your net worth?
Working out your net worth
Working out net worth is simple and straight forward and required you to simply add up everything that you own and subtract everything that you owe. Another way to put it is your net worth is all of your assets minus all of your liabilities.
WHAT ARE ASSETS?
Assets can be classified into a range of categories but are essentially anything that you own that has a monetary value such as property, investments, cash or tangible items such as antiques, furniture and vehicles. Bear in mind that leased vehicles do not count and that you should note the annual depreciation on vehicles to ensure the projections will be accurate too.
WHAT ARE LIABILITIES?
Liabilities are debts or obligations that you have which will result in an outflow of cash. Liabilities are generally loans and other debts as well as bills and tax liabilities among others.
Net worth = assets – liabilities
It is important to also consider annual asset and liability growth as this will enable you to work out what your net worth will look like in the future and even work out desired net worth growth scenarios to ensure you achieve your financial goals.
How much debt do you have?
What you need to do is figure out how much debt you have and subtract this from your available equity. The more capital and savings or assets you have, the higher the loan amount you can apply for.
The loan application process will have a section that helps you make sense of the concept. You just need to ensure you have all your financials on hand to submit the necessary information and documentation.
Your debt to net worth ratio will show you how much you are worth and this will then help the bank determine how much they can give you or loan you for your business. The higher a net worth you have, the less debt you have, the higher your credit score and the better your loan accessibility will be.
Knowing how much you are worth can help you in the long run
When you know how much you are worth this can help you when you apply for a loan or it can help you to accomplish other business or personal goals.
If you know your net worth is high and you know that your credit score and rating is positive, then you should know that loan approval is very easy to attain. Simply ensure that you apply for the right loan with accurate information.
If your net worth is on the lower end and you have a negative credit score and/or report, applying for a loan might be a bit harder. However, it is not impossible. By using an online loan comparison site, you have instant access to reputable lenders that are able to cater for your individual financial needs.
The other bonus of knowing your net worth is that you will also know whether you’re financial status is declining. This can assist you with other financial choices and also help you to determine the best course of action, for you.
Your net worth is important!
We have learned that knowing your own net worth is a good thing. Knowing how much you are worth is worth knowing because it can help you make better financial choices in the present and direct your actions to ensure you meet your future goals.
At some or other stage, we all need financing. By having a good grip on your finances and knowing all the important information there is to know, you can use your net worth and financial history to your advantage.