Net Worth & Debt
You may have heard the term net worth thrown around in relation to millionaires and the wealthy.
However, it also applies to everyday Canadian consumers such as yourself.
Calculating your net worth may be worthwhile to help you evaluate your current financial health and plan for the future.
It is important to understand what net worth is, any why it’s also an important factor when dealing with debt.
It’s especially vital when you’re looking for debt relief and need to improve your financial situation.
In this case, you’ll want to know your debt to net worth ratio and what it means for you going forward.
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What is Net Worth?
Figuring out your net worth is as simple as using the following equation: your assets minus your liabilities = your net worth.
Total assets include:
- Your real estate and property, such as your equity in the present value of your home, and your vehicles;
- Your investments, such as retirement savings, tax-free savings, and other savings accounts;
- Cash and collectibles (e.g. jewellery, art, antiques, and other rare items), especially if they have been appraised.
Total liabilities (namely your consumer debt) include:
- Your outstanding mortgage(s);
- Consumer debt, such as credit cards and lines of credit;
- Student loans and personal loans;
- The amount outstanding on car loans and other bills;
- Any other outstanding debts (e.g. payday loans, overdraft on your bank account, or money you owe family members).
Consider it a snapshot of your personal wealth, and it tells you how you’re doing as it relates to your savings, paying down debt, and building up assets.
If you notice that you seem to be getting into further trouble with your finances, you might want to consider what debt relief option might be best for you.
Tracking Your Net Worth
While it’s wise to know your net worth, experts recommend tracking it annually, at the most.
It doesn’t need as much work and monitoring as your monthly budget.
You’ll gain a more fair representation of your net worth when you check it around the same time each year.
It’s fairly common for your first net worth calculation to take hours to put together because of all the information you have to collect and organize.
Positive net worth means that assets exceed liabilities, while negative net worth results when liabilities exceed assets.
Importance of Net Worth When Dealing with Debt
Not only should you take the time to calculate your net worth, but it’s also wise to understand why it’s important when dealing with debt.
There are a few key reasons that will further explain why net worth is important when dealing with debt, even if your net worth is very low.
There’s a lot to unfold and understand when it comes to net worth and debt.
A negative net worth results if total debt is more than total assets.
It Helps You Appreciate Your Spending and Saving in the Past Year
After you calculate your net worth, take that number and compare it to years past.
It’ll clearly paint a picture for you about how well you’re progressing.
It’ll help to answer questions such as if your net worth is steadily growing each year and if you’re dealing with debt if you’re at least chipping away at it consistently each year.
If you notice your debt worth slowly declining, it’s best to figure out why this is happening.
There may be many reasons, such as your house losing value or that you’re investing in going back to school full-time.
It Helps You Decide How to Reallocate Your Funds
You may have a lot of credit card debt and consumer loans that require large monthly payments and high-interest rates.
As you calculate your net worth, you may come to see you have money saved up that you could use to pay down these debts.
You’ll begin to notice that you have choices and options.
However, you may want to reserve some of your savings for emergencies and not use it all to pay off debt.
The point is that having a clear idea of what you own and what you owe can help you pay off your debt to have a stable financial future.
It Helps You Set Realistic Goals
After you calculate your net worth, you’re going to have a better handle on your assets and liabilities and how they change annually.
It’s a chance to start fresh and set new and realistic financial goals for yourself.
You might want to challenge yourself to pay down more debt or continue to decrease liabilities.
It’ll likely motivate you to focus on what’s attainable and in your reach and help you realize that it is possible to have better financial health.
Getting Professional Help with Your Debt Relief
You might be wondering if it may be best to enlist help from a professional regarding your debt.
Take the first step and write down all your debts so you know what you’re working with.
You may be unaware of what you’re dealing with until you write it all down.
If you feel meeting with a debt professional will be useful, such as a bankruptcy trustee, having all your debts mapped out will help in your initial consultation.
You’ll receive customized debt relief advice based on your circumstances.
Together, you can work out a plan for tackling your debt and getting control over it.
BankruptcyCanada’s debt repayment calculator can help determine how long it will take to get out of debt.
It can also help you determine if you can get out of debt on your own, or if you should seek debt assistance.
Get in touch with us today to answer any questions you have and discuss your options based on your unique situation.
Information on Consumer Proposals
Consumer Proposals in Canada – An Alternative to Bankruptcy
What is a Consumer Proposal?
How to Amend a Consumer Proposal
What are the Benefits of a Consumer Proposal?
What are the Steps in a Proposal?
Consumer Proposal Eligibility
What Debts Are Erased in a Consumer Proposal?
Is There Life After a Proposal?
Canadian Bankruptcies
How to File for Bankruptcy
What is Bankruptcy?
Bankruptcy FAQs
How Does Bankruptcy Work?
What is the Cost of Bankruptcy in Canada?
How to Rebuild Credit Following Bankruptcy
Personal Bankruptcy in Canada
What Debts are Erased in Bankruptcy?
