Welcome to understanding your true financial picture! Beyond emergency funds, there's a powerful number that shows your overall financial health: net worth.
Net worth reveals whether you're building wealth or sliding backward financially.
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Have you ever wondered what you're actually worth financially?
Net worth is surprisingly simple: it's everything you own minus everything you owe. That's it!
Think of it as your financial report card. Assets (what you own) minus liabilities (what you owe) equals your net worth.
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Does this make sense?
Assets are anything you own that has monetary value. This includes your savings account, your car, your home, investments, and even valuable possessions.
If you could sell it for money, it's an asset.
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What's the most valuable thing you currently own?
Liabilities are debts - money you owe to others. Credit card balances, student loans, car loans, mortgages, and personal loans are all liabilities.
These reduce your net worth because you'll need to pay them back.
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Which debt type eats up most of your monthly budget?
Here's a simple example: Sarah owns a $15,000 car and has $5,000 in savings ($20,000 in assets). She owes $3,000 on credit cards ($3,000 in liabilities).
Her net worth: $20,000 - $3,000 = $17,000.
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Would you focus on boosting assets or cutting liabilities first?
Your net worth can be positive or negative. Positive means you own more than you owe - you're building wealth. Negative means you owe more than you own.
Many young people start with negative net worth due to student loans, but it improves over time.
