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When you calculate your net worth, you make a list of your assets and your liabilities; you subtract your liabilities (what you owe) from your assets (what you own) to arrive at your net worth figure. Understanding a few key terms can make it easier for you to make accurate calculations:

Asset
Anything of value that you own that can be converted into cash. Examples include cash, real estate and personal property.

Cash Equivalent Assets
High credit quality investment securities that are short-term and highly liquid. Examples include bank accounts and Treasury Bills.

Financial Statement
Reports that show where your money came from, where it went, and where it is now. Different types of financial statements include balance sheets, income statements and cash flow statements.

Illiquid Asset
An asset that cannot be converted into cash quickly without a substantial loss in value. Examples include houses and antiques and other collectibles.

Investments
Assets or other items acquired in the hope or expectation of future financial returns or benefits. Examples include stocks, bonds and real estate.

Liquid Asset
An asset that can be converted into cash quickly with little to no effect on the price received. Examples include stocks, money market instruments and government bonds.

Net Worth
The amount by which an individual's (or business's) assets exceed its liabilities. Sometimes referred to as wealth.

Personal Property
Everything you own that is not real property. A key characteristic of personal property is that it is movable, as opposed to a house and land which are not movable. Examples include boats, cars, collectibles, furniture and jewelry.

Real Property
Land and any structure that is permanently attached to the land. Examples include houses, barns and detached garages.

Secured Liabilities
A debt that is guaranteed by an asset or lien pledged as collateral. A home mortgage is a secured liability because the house serves as collateral for the loan.

Unsecured Liabilities
A debt that is not guaranteed with collateral. Examples include credit card debt, medical bills and utility bills.

Next: The Complete Guide To Calculating Your Net Worth: Why Net Worth Is Important »


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