Financial, Emotional, and Experiential Net Worth
Net worth is a measure that shows the total assets of a company less the outstanding obligations. It is the amount by which the assets, including current and non-current, exceed the liabilities. A stable increase in net worth is seen as a positive development by investors. It indicates that the company has good management strategies and financial health. The net worth can decrease due to growing debts and liabilities, loss of asset value, and operating losses. The term also refers to the value of assets an individual has, including home, car, and investments, minus the value of all outstanding balances.
How It Works
Consider a family that owns a home valued at $380,000, a second home with a market value of $80,000, and an investment portfolio with bonds, government securities, and other instruments, valued at $35,000. The couple has a mortgage and other outstanding balances to pay. The liabilities include a mortgage loan of $85,000 and a student loan of $25,000. This makes for $110,000 in total liabilities while the total assets amount to $495,000. The net worth of the couple would be $495,000 - $110,000 = $385,000.
To calculate net worth, divide a sheet of paper into a “debts” and “value” column. List the current market value of your car, cottage, primary residence, and other assets that you own. Then list all outstanding balances, including credit cards, home equity lines of credit, LOCs, mortgage, and other secured and unsecured debts. You can check the amortization table or your recent financial statements to find the amount owed for electronics, vehicles, and household appliances. Another option is to contact your financial institution or to read the original contracts and agreements. When it comes to credit cards, exclude those that you pay in full each month. If you only pay the minimum on some cards, you should list them. Some items have no value but debt while others have no debt but value. Examples are credit card balances, money market accounts, and savings accounts. When listing your assets, make sure that you include accurate estimates. Look at your recent financial statements if you have fairly liquid assets. Examples include retirement accounts, certificates of deposit, cash, and savings and transactional accounts. You may also include valuables such as musical instruments, collectibles, antiques, jewelry, and other items of value. List all valuable assets that are worth $500 - $1,000 or more. It is a good idea to be conservative when making estimates. This is especially important when it comes to the value of your car or house. If you inflate the market value of major assets, this will make you feel good about yourself. However, it won’t give you a good idea of your net worth.
Other Types of Net Worth
Some people argue that finances are only one side of the coin. There are things such as emotional and experiential net worth. A person with millions of dollars in real estate and investments may feel unhappy and dissatisfied with his financial situation. At the same time, a salaried employee may feel perfectly happy about his income. He may use the money in satisfying ways such as going on vacation, spending time with family and friends, or anything else. When money is spent on things that bring good memories back, it is money worth spending. This is an example of emotional net worth. Experiential net worth is a term that explains different ways in which money is used for positive experiences. Money spent on pleasurable activities, which resulted in satisfying and memorable experiences, is in the category of experiential net worth.
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