BUS 2204: Personal Finance
Learning Journal Unit 2
University of the People
2nd July, 2020
How is net worth calculated?
According to an article published on Economic Times (n.d.), Net worth is defined as
the difference between the assets and the liabilities of a company or an individual. From the
above definition of Net worth on Economic Times, we can derive the following formulae for
calculating Net worth:
Net worth= Assets – Liabilities (Debts)
Now, let's take for example, the value of all assets that I own minus all the liabilities
that I have to pay to creditors, and the resulting amount will be my net worth. In order for a
person to determine his or her net worth, the individual will have to calculate the total assets
and then subtract (less) his or her debts, the remaining amount will be his or her net worth.
Individuals who have negative net worth amounts usually find it difficult to get loans or even
end up paying higher interest rates as time changes. Most companies with net worth that are
negative will have to fund their operations through external funding sources or shut down
operations.
What is the meaning of the statement that your net worth is the equity you have in your
own life?
According to Siegal, R. & Yacht, C. (2009,), a person's net worth is his or her true
equity or financial ownership in his or her own life.
Looking at the above statement, let's take for example, an individual who has debts to
pay (loans or mortgage) and the person has a saving account than he or she either have
negative or positive equity on his or her balance sheet.
Also, let's consider a student who goes for a loan to finance his or her education, the
student will have a net worth that is negative, but after graduation, the individual gets
employed and earn higher salaries so such a person will be able to settle (pay-off) the loan. In
this scenario, the education is the students' equity on his or her balance sheet.
Learning Journal Unit 2
University of the People
2nd July, 2020
How is net worth calculated?
According to an article published on Economic Times (n.d.), Net worth is defined as
the difference between the assets and the liabilities of a company or an individual. From the
above definition of Net worth on Economic Times, we can derive the following formulae for
calculating Net worth:
Net worth= Assets – Liabilities (Debts)
Now, let's take for example, the value of all assets that I own minus all the liabilities
that I have to pay to creditors, and the resulting amount will be my net worth. In order for a
person to determine his or her net worth, the individual will have to calculate the total assets
and then subtract (less) his or her debts, the remaining amount will be his or her net worth.
Individuals who have negative net worth amounts usually find it difficult to get loans or even
end up paying higher interest rates as time changes. Most companies with net worth that are
negative will have to fund their operations through external funding sources or shut down
operations.
What is the meaning of the statement that your net worth is the equity you have in your
own life?
According to Siegal, R. & Yacht, C. (2009,), a person's net worth is his or her true
equity or financial ownership in his or her own life.
Looking at the above statement, let's take for example, an individual who has debts to
pay (loans or mortgage) and the person has a saving account than he or she either have
negative or positive equity on his or her balance sheet.
Also, let's consider a student who goes for a loan to finance his or her education, the
student will have a net worth that is negative, but after graduation, the individual gets
employed and earn higher salaries so such a person will be able to settle (pay-off) the loan. In
this scenario, the education is the students' equity on his or her balance sheet.
