Theoretically, your net worth is the value in cash you would have if you were to sell everything you own, and paid off all your debts. From an accounting point of view, your net worth is essentially the grand total of all your assets, minus your liabilities.
Being more practical, your net worth is the number you get when you add up everything you own from the cash on your bank account to the value of your home, and then subtract from that figure of your debts which may include a mortgage, car loans, credit card balance or even taxes due.
A precious indicator
Net Worth could be a bit of a degrading term, as it incorrectly implies a person is only worth the amount of money he or she has accumulated. On the other hand, it is a precious indicator and common denominator that let you pave the road to possible optimization. In fact, you might end up having a low net worth value with a big income, if your living expenses are on a royal pace.
Because it is actually a snapshot of where you are at financially at a given time, it can be compared. The net worth value doesn’t offer information about cashflow, monthly income nor expenses. But it does provide insight regarding how well you are accomplishing your financial goals. Taking this snapshot on a regular basis let you look at the progress you’ve made.
Doing this exercise on the same day each month or each quarter is however important. In fact, by doing it at the same time, you can make sure you compare apples to apples and can actually make use of the results. You can ensure that the regular patterns of your monthly budget doesn’t interfere. For example, you have more money right after paycheck than in the middle of the month.
So the real value of a net worth calculation is the ability to gauge many different kinds of personal finance all at once, and to compare it to earlier calculations. In a standardize world, your net worth value could even be compared one-to-one to another person. However, practically that is not really possible as everyone situation is different and subject to appreciation.
The end of a painful process
If you ever had gone through this process, you might notice that getting your net worth calculation – actually your personal balance sheet established – isn’t really a piece of cake. It is maybe as fun as filling your taxes return, which by the way provide almost the same output.
But now let’s imagine that thanks to technology, this statement can be built in seconds. That open the door to a brand new range of services, and let you focus on what is important: optimization, advice, saving money or make your savings work for you.
That gives you a small insight of what eHyve is now hardly working on. We realized that aggregating data is kind of fun, analyzing expenses is diverting, budgeting is entertaining… but clearly not enough to shape the future of personal finance management!
Stay tuned and subscribe for our beta coming in a couple of weeks from now.
In the meantime, we wish you a happy net worth hehe 😀
eHyve, March 15, 2018