Before you start investing, you need to know what your net worth is. But what is “net worth,” and how do you calculate it?
Your net worth is the sum of the value of everything you own, including your home, car, jewelry, and investments, etc., minus debts, including loans, mortgage, or credit card debts.
It’s important to have a financial focus
Being aware of your net worth gives you a valuable financial focus. Very often people tend to concentrate on the here and now. Did you manage to make ends meet this month? Is your checking account balanced with your current budget?
But this is a very short-sighted way of looking at things. It’s like concentrating on a single pawn during a game of chess without looking at the other pieces on the board. A great move in chess is not made in isolation. A move is only considered “good” if it takes into consideration the placement of the other pieces on the board.
Look at the whole board
When making investment decisions, you can’t just think about whether you cover your monthly expenses. You need to look at the whole picture:
- What are your goals? How much money do you need for a comfortable retirement?
- Are you saving money to meet your future needs and goals?
- What is your level of risk?
To answer these questions, you have to know what you already have… your net worth. So if you have not calculated this figure yet, it’s time to do so. Download our net worth calculator here.
What are the other numbers you need to know?
Want to know what other numbers are important in your life? Take a free Highbrow course on the most important numbers in the world.
Douglas Goldstein, co-author of Rich As A King: How the Wisdom of Chess Can Make You a Grandmaster of Investing, is an avid chess fan, international investment advisor and Certified Financial Planner (CFP®).
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