Your net income is based on your gross or pre-tax income and reflects your annual salary or based on hourly wages times the number of hours you worked.
Gross income consists of commissions earned and interest income from investments.
Deductions for taxes and pension and retirement accounts will be your net income for the year.
Your net worth is your personal balance sheet that provides a snapshot of your financial position at that time. Net worth is all that you own less than all that you owe.
Here are the 10 key reasons why you need to know your net worth.
Pay down your high-yielding debt, typically your credit card debt, which uses the magic of compounding interest against us if we only make the minimum interest payments. Get rid of credit balances in full on a monthly basis.
You could pay off all or some of your mortgage debt if your interest rate is over 5%. If it is significantly above that, you should be seeking to refinance your mortgage. On the other hand, if you pay a low-interest rate, don’t make any changes.
If you don’t own your home and pay high rent in, say New York City or San Francisco, you may consider buying a home while mortgage rates are still relatively low at under 4%.
Your road map to building wealth starts with knowing your net worth and making valuable changes like reduced spending, increased saving, and investing.
Having financial security means not worrying about money and living comfortably with peace of mind. Knowing your net worth is having a tool to measure your financial security at any point in time.