Does Net Worth Matter?

          Personal net worth compares the ‘current’ value of all your assets, to the total of all your debts. The difference is your true financial worth at a point in time, hopefully you have more assets than debt. This amount is very important to Retirees, as it represents the total resources that can be used (sold) to finance their retirement. For example, a large house can be sold to purchase a smaller home in retirement. Jewelry and antiques can be converted to cash for living expenses. At retirement, it is not only the size of your 401(k) or IRA account that matters, any and all assets can be used to create cash flow.
Net worth looks at your assets, like your home, car or boat…, they could easily total more than a million dollars. Consider the current ‘resale’ value of these assets, rather than their purchase price, as some things go up in value but some will go down over time. The next step is to identify the amount owed on these items. Living in a million-dollar home doesn’t necessarily make you a millionaire. If the mortgage is $900,000, the actual value a person owns is only $100,000, while the bank owns the rest. Similarly, driving a $100,000 leased car only looks great, it does not constitute any value at all. All assets minus all debt reveals your personal financial foundation.