Measuring Financial Health
& Net Worth
Bad Debt vs Good Debt
Assets, Liabilities & Net Worth
Investments and Insurance
Good Debt vs Bad Debt
There is an argument to be made that no debt is good debt. But, sometimes the only way people can afford to purchase important items is by borrowing money and taking on debt.
Good Debt is often represented by the saying “it takes money to make money”. If the debt you take on helps you generate income and build your net worth, then that can be considered positive.
Generally, the more educated you are, the more opportunities you'll find in life. Sometimes you'll see people who are less educated and have a difficult time finding work because they aren't qualified enough. Other examples would be owning a home or investing in a business.
It’s generally considered to be Bad Debt if you borrow money to buy an asset that is not going to generate income, or increase in value. This is often the case in real estate.
Vehicles. While it might be difficult to live without a vehicle, taking a loan to buy one isn't the best idea from a financial point of view. As soon as you take it off the lot the vehicle is worth less. If you're going to borrow money to purchase a car, try to find a loan with low or no interest. You'll likely be putting money in an asset that will depreciate in value. Buying clothes and other consumables are things that you should always pay cash for as well.
More Articles
The Top 10 Leading Causes Of Overspending.
10 Ways A Good Financial Planner Can Help.
Understanding A Baffling Tax System.
Net Income Formula Balance Sheet.
Assets Liabilities & Net Worth
Net worth is basically, the difference between the value of your assets and the amount you owe. Assets are the things you own and liabilities are things you owe.
Most assets are determined on a balance sheet where resources/assets go on top and liabilities below, each are listed in categories in columns. The good thing about making your own is that you can determine the scale you need. For instance, I show them in order of liquidity.
Liquidity refers to how easy it is to withdraw an asset, or security, and how it can be converted into cash without affecting the market price.
A good order to list your assets are Checking Accounts, Savings Accounts, Investment accounts, Retirement Accounts (401k, IRA, Roth, etc), Personal Assets (Auto, Furniture, House, Boats etc) and Business Assets (Inventory, Royalties, Property Investments, etc).
For listing liabilities, I suggest the same way: first short-term debts like Credit Cards then, Student Loans, then business and home loans. The thought is to refresh this about once per year and set objectives to grow your assets while reducing liabilities.
Investments & Insurance Questions
Investments
Do you understand the Investments you are in?
Do you know which tax bracket you are in?
Are emergency funds in low risk investments?
Are your investments diversified?
Are your retirement accounts invested for growth?
Is your long term money in tax sheltered acct's?
Are your long term investment accounts set up to keep you ahead of inflation?
Insurance
Have you recently shopped for insurance policies?
Are your insurance companies reliable?
Do you understand each policy you have?
Do you have long term disability coverage?
Are your personal assets protected?
Do you have life insurance coverage?
Have you kept your policies updated?
To receive assistance with Investments contact McLaughlin Investments
For further Insurance questions read this article about PolicyGenius
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