Saturday Brain Storming Thought (264) 01/03/2025

NET WORTH

Net Worth is the value of assets an individual or corporation owns minus the liabilities they owe

Key Takeaways of Net Worth

1) Net Worth is a quantitative concept that measures the value of an entity and can apply to individuals, corporations, sectors and even countries

2) Net Worth provides a snapshot of an entity’s current financial position

3) Net Worth is also known in business as book value or shareholder’s equity

4) People with substantial net worth are called high-net-worth individuals (HNWI)

Calculation of Assets

1) Take into account all your cash deposited in bank accounts, physical cash and cash equivalents like money market instruments

2) Consider all your investments in the form of stocks, bonds and mutual funds

3) Estimate the value of any real estate you own at its current market price

4) Valuable personal belongings like art, jewellery and vehicles also need to be considered while calculating assets

5) Also, take into account the balance of your provident funds, insurance policies

6) Personal belongings in the form of clothing and furniture are excluded since they cannot be sold during liquidation or bankruptcy

This comprehensive listing will provide the total value that you own

Calculating your liabilities

1) Include all your loans like home loans, car or education loans and personal loans if any

2) List the remaining balance on your home or car loan

3) Credit cards debts need to be taken into consideration for the calculation of liabilities

4) Include the monetary value of any obligations you have like medical bills or personal debts

The summation of all the above will give you a picture of your liabilities

Positive Net Worth

Your assets exceed your liabilities

Negative Net Worth

Your liabilities exceed your assets

Zero Net Worth

Assets equal to liabilities

Importance of Net Worth

1) It is an indication of your financial growth, stability and security

2) It helps you to plan for the future and gives you a realistic picture about how to go about planning a major purchase

3) It affects your creditworthiness and your ability to secure loans and financing

4) For businesses, Net Worth impacts their borrowing capacity, investment potential and the confidence of stakeholders

Tangible Assets

House
Car
Personal belongings etc

Intangible Assets

Stocks
Bonds
Retirement accounts etc

Net Worth Certificate

A net worth certificate is a financial document offering a comprehensive overview of an individual’s or companies financial status

Certificate outlines all assets and liabilities

The net worth certificate is certified by a Chartered Accountant (CA)

Documents required for Net Worth Certificate

1) Personal Documents

a) Proof of identity

b) Proof of address

c) Contact information ie Email ID and Phone number

2) Financial Documents

a) Income statement

b) Balance sheet

c) Bank statement

d) Property documents

e) Investment records

f) Loan documentation

g) Income Tax returns

Statement of Assets, Liabilities and Net Worth (SALN)

1) Statement of Assets

2) Statement of liabilities

3) Net Worth

4) Disclosure of financial connections or business interests

5) Identification of relatives within the fourth degree of consanguinity or affinity which also include bilas, balae and inso

To increase Net Worth

1) Increase assets

2) Decrease liabilities

3) Evaluate how you manage your money

4) Be sure to save first and often before spending

5) With each purchase ask yourself – How will this financial decision affect my future net worth

Earned Income

Any money earned from working

Unearned Income

Any money received from sources other than employment like investments

Pay yourself first

Save a portion of your income every pay period before you spend any money

Your present self impacts your future self

Save today to have financial security in the future

Emergency Savings

An account used to save money for unexpected expenses

Needs to be very liquid

Time value of money

Money today is worth more than the same amount received in the future

Time Value of Money affected by

1) Interest rate

2) Amount

3) Time

COMPILED BY:-

Er. Avinash Kulkarni
9822011051

Chartered Engineer, Govt Regd Valuer, IBBI Regd Valuer