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Funding your Future: How to calculate your net worth, and why it's an important number to know

Posted at 1:29 PM, Oct 14, 2020

When someone tells you they make an income of $100,000 a year, you might assume that person is "worth more" than someone making $50,000 a year. It turns out, that's not necessarily true. David Sant of Cyprus Credit Union explains the difference between income and net worth, and which one is more accurate when determining one's actual wealth.

Income is all of the taxable wages that you earn from working. This could be from your full-time job, a side hustle, freelancing, etc. Anything that you earn and pay taxes on is counted as part of your income.

Your net worth is your total assets, such as bank accounts, minus any liabilities, such as student debt, you owe. If this is a positive number, no matter how small, you are on the right track and should keep working towards lowering your liabilities to help that number grow. If that number is negative, you should look into creating a comprehensive debt elimination plan. If you need help figuring out your net worth, check out our step by step guide by clicking HERE.

While both are extremely important for your overall financial wellbeing, most experts say your net worth is a more accurate representation of financial status. If you're making a ton of money, but not investing it back into yourself, such as a 401k, real estate, stocks, etc., your net worth and overall value will be affected.

So remember that $100k-earner? If she has $80k in debts, she really is only "worth" (net worth) $20,000! Then let's say the $50k-earner only has $10k in debts; he would have more overall wealth with a net worth of $40,000!

Perhaps this inspires you to look at your own net worth and hopefully, be pleasantly surprised at how "rich" you actually are.

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