Net Worth ( synonymous with equity ) - the difference between the value assets(what you own) and liabilities(what you owe).
Net worth can be a useful tool to measure your financial progress from year to year.
Three categories of Assets:
a) Liquid assets (sometimes called Current Assets) - assets that can be converted into cash quickly and without financial penalty. Cash accounts, treasury bills, money market funds, Canada Savings Bonds are all invested vehicles found in this category.
b) Semi-liquid Asset - include longer term investments that are intended to sore up value for major future needs such as education costs or retirement. It may take a while to convert it to cash and may pay fee. Some examples are: stocks, bonds, mutual funds, real estate ( other than your principal residence ), RRSPs and registered pension plans (RPPs).
c) Non-Liquid Assets - are items you acquire for your family's long term use or enjoyment. May include you home, vacation property, cars bouts, antiques, and furnishinhs.
Two types of Liabilities:
a) Short-term Debt - are all debts that must be paid within the next twelve months. Credit card balances, personal, installment and consumer loans fall into this category.
b) Long term Debt - are used for two purposes: to finance long-term investments such as real estate or the purchase of a major personal assets like you residence, vacation property or long term car loans.
Debt-equity ratio:
-Debt includes all debt ( short term or long term ) except the mortgage on you principal residence.
-DER should not exceed 50% of net worth.
Debt Equity Ratio (DER) = Liabilities - Mortgage
Net Worth
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