Why Understanding Your Current Financial Position Matters

Many investors could tell you the balance of their investment account by heart, but how many could provide you with an even more important number: the value of their net worth?

The math behind such a calculation seems simplistic at first: take the total of the amount you own in assets and subtract the amount you owe in debt, at a particular point in time.

That said, reality is much more convoluted than such a calculation would suggest. Estimating the value of illiquid assets such as real estate, for example, could prove cumbersome to even the most experienced investor.

For investors who have done their homework and have a relatively good idea of what their assets are worth at a given point in time, coming up with such a number can be a very important yardstick in proving to lenders that investing in such an individual could turn out to be a very profitable long term exercise, given the dearth of borrowers that would borrow now and pay never.

Growing the equity one has in his or her home, in addition to growing one's credit score with lenders, is of utmost importance to most investors who are just starting out and looking for debt in one form or another.

By keeping balances low and paying off the debts one has in full every month, one will be able to improve one's financial position in the short term, growing one's personal net worth and increasing the viability of being a creditworthy person, when the time comes.

Invest wisely, my friends.