In personal finance, Net Worth is referred to as an individual’s financial state at a given point in time. In a very simple form, it is the value of assets minus the value of liabilities.
When we individuals include all the assets in our financial planning, we tend to include value of our house, value of car, and other capital goods items. Here I am talking about assets that we use in our daily lives (not the ones we use as investments). The way I look at it is, instead of tying my financial resources in non-performing assets, what if I used it to generate more cash flow. If I have one million dollar, and I buy a house, then my capital is lost. It is not going to generate more money. Well yes, anticipating value appreciation and expecting to cash in 20+ years down the line is the different issue. Even after 20+ years, one will need a place to live! To buy a house 20 years down the line one will perhaps need more money (time value of money and inflation!), and if one does not down size, perhaps all the capital appreciation will go into a new place. continue reading rest of the article….